GMP reconciliation: No Deal is not an option

by Colin Wheeler   •  

For many in the UK, 2016 will be remembered as the year we voted to leave the EU, and end a relationship dating back to the 1970s.

For many in the pensions industry, we may choose instead to remember 2016 for something completely different; the year when contracting out ceased after almost 50 years.

Two completely separate events, but the period since 2016 is not without similarities. While the Government has become exasperated with the dither and delay over Brexit, and we still do not have clarity over whether we leave with a deal or no deal, pension scheme administrators have spent that time attempting to reconcile liabilities with NISPI (a section of the National Insurance Contributions Office) and, after many promises of “they’re coming soon”, final data cuts from NISPI have now started to arrive.

When the process of reconciliation began back in 2016, and in many cases earlier than this, none of us really thought that it would still be bubbling away in 2020. Even now, we are not left with what one could consider to be a fully reconciled position. We never pretended it would be easy, but what we have faced has tested the most patient of us, and some will have been beaten into submission!

Promises were made

The industry has been promised these final data cuts for the best part of a year now. After all the hard work invested in the preceding years, we might be entitled to think it would be a routine process to agree them and move on. What we are in fact seeing is quite different, with data being provided which is at odds with what we had previously agreed, and which NISPI are advising should be handled with care. It may yet prove easier to strike that trade deal than to fully complete a reconciliation.

Across the industry there is a sense of disappointment at how this has all played out. Administrators are now in a position where they are having to verify GMPs provided in the final data cut using HMRC’s own online checker. This is already throwing up more inconsistencies than one would have expected. Even schemes which thought they had fully reconciled already are finding that the final data received does not reflect what they had previously been advised. 

Have we wasted our time?

Most scheme administrators would have been working on the basis that, moving forward, they would have a GMP recorded which was fully reconciled and could be relied upon in calculations. The reality seems to be that in many cases the process of settling a member’s benefits will include running the online GMP checker to make sure the correct GMP is going into payment. Had we known this all along, I’m sure we would have taken a different approach to the reconciliation process.

Where the final data from NISPI contains members that you do not believe are in your scheme, there is no way of challenging this, so trustees may be faced with again having to decide if their records are more accurate than those of NISPI. Do they really want to engage administrators, and potentially lawyers, in further work and advice on what to accept, not to mention the further costs? A pragmatic approach may be to follow the guidance issued by PASA when having to make decisions on these “stalemate” cases.

Many schemes already have plans in place, or at least under discussion, to initially rectify, and to then equalise GMPs. Both of these processes are underpinned by schemes having confidence that they are holding the correct GMP data, which makes the final data cuts of even more significance. And taking things one step further, eventual buy out of benefits with an insurer is the end game for all schemes, when insurers will look for evidence that GMPs were fully reconciled back to NISPI records.

So, while it remains a real possibility that the UK’s negotiations with their EU counterparts may result in No Deal as soon as the end of 2020, it would appear that the process of reconciling and agreeing GMPs will roll on for some time longer. Where member’s benefits are concerned, we do not have the pensions equivalent of No Deal as an option.

Further reading

Not on the high street

by Angela Burns   •  

Dashboard Identity – how high is the bar?

by Colin Wheeler   •  

Back to the future

by Cyril Gaffney   •  

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