Pension Trustees Must Not Underestimate The Task Of Reconciling Contracted-Out Benefits

Irwin Mitchell’s Pensions Head Highlights Key Issues At Roundtable

23.06.2015

David Shirt, Press Officer | 0161 838 3094

Defined pension scheme trustees could be underestimating the scale of what is involved in reconciling contracted-out benefits following the introduction of the new State Pension in 2016 - says a leading pensions expert at law firm Irwin Mitchell.

Speaking at a roundtable discussion hosted by Equiniti, Irwin Mitchell’s national head of pensions said that the matter of under and overpayments is a big area that needs to be considered ahead of the end of contracting out.

The event, which took place last month, focussed on the cessation of contracting-out and the fact that schemes now have just a year to register with HMRC’s Scheme Reconciliation Service.

At present, for schemes which have not yet ceased to contract-out, HMRC issues statements informing pension schemes of the guaranteed minimum pension liabilities that should be put into payment as and when they fall due. Under the current system, administrators are able to query and resolve any discrepancies that are identified between HMRC’s records and those held by the scheme.

With effect from April 2018, HMRC will significantly scale back the service that it offers and, as a result, will neither track where guaranteed minimum pension liabilities are held, nor issue statements when benefits fall due. It has therefore set a 2018 deadline for schemes to resolve contracted-out records.

Martin Jenkins, partner and national head of pensions at Irwin Mitchell, said that the matter of under and over payments is a big area and the job that trustees face is almost certainly larger than many of them realise.

He commented: “We are seeing a lot of court cases based upon legacy issues not being dealt with properly and the past is coming back to haunt the schemes. For instance, the use of 5% as a proxy for RPI may now have resulted in large overpayments, which has led to a cottage industry of complaints.”

He added though that: “Faced with the issue of errors in data, most trustees have said they want to engage and take the opportunity to check.”

Although Jenkins acknowledged that part of the problem is that trustees have full agendas and little time, he went on to say that if they are not doing a reconciliation exercise, they should consider what else they are doing.

Martin said: “If they are not doing it, they may be considered to be somewhat ‘compliance-lite’. That would be an open goal if representing members.”

To view the full write-up of the event, please click here