Veratta's Dennis Mincher calls on Scheme advisors to take action regarding the impending contracting-out deadline.
HMRC first started publicising the cessation of the contracting-out deadline through their Countdown Bulletins back in March 2014. Since then a further four updates have been published, detailing the contracting-out status being removed from Defined Benefit (DB) schemes with effect from 6 April 2016.
This means all schemes have until April 2016 to engage with HMRC regarding reconciliations, and a deadline of December 2018 has been imposed for the resolution of all queries – effectively all scheme GMP reconciliations need to be completed before this date, which is no mean feat!
In recognition of this, HMRC have installed a dedicated Scheme Reconciliation Service. This is to assist pension scheme administrators and trustees to reconcile their records for non-active members against HMRC records in advance of the impending April 2016 deadline.
In Countdown Bulletin issue number three we were given some interesting statistics regarding the service, including the 'positive' take up with 1,889 requests received, of which 1,175 schemes had records supplied.
The problem is that as of October 2014 when this issue was published, only 40% of the estimated 4,500 contracted-out DB schemes within the UK had requested to use the Scheme Reconciliation Service. Furthermore, of those that had, a third of the requests were still awaiting records from HMRC.
What is also worrying is that for the schemes which have received records, HMRC have stated 'they do not appear to be looking at the data', as the volume of queries they have received is much lower than anticipated.
From experience the reconciliation (and corresponding rectification) process can take in excess of two years; therefore it really is time to act for trustees and pension administrators alike.
The reconciliation is a minefield which could throw up costly problems for trustees, so the sooner it is addressed the better. It seems that DB schemes are generally aware of the approaching deadline and the task in hand but many are without an actual plan of action.
It certainly doesn't help that there are a number of different deadlines concerned with the matter and, without expert guidance, it isn't clear-cut what needs to be done and when. Scheme advisors urgently need to put this matter on their agendas!
Adding to the seemingly lax approach shown thus far, a further spanner has been thrown in the works, and this time scheme administrators or trustees can't be blamed.
Due to IT upgrades on HMRC systems, there are significant delays in responding to expressions of interest received from schemes. This detail suggests that the problem isn't just with scheme advisors alone and clearly HMRC needs to do more to hasten the uptake of participants for their reconciliation service.
Time will tell, but judging by progress (or lack thereof) within the past year, a lot more needs to be done by everyone involved to ensure the target dates set are adhered to. Given that GMP reconciliations will result in improvements in scheme record keeping, perhaps a push from The Pensions Regulator may help things move along!
Written by Dennis Mincher, Business Analyst, Veratta.
