How to help prevent future pension problems

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How to make sense of GMP clawback

How to help prevent future pension problems

The process of guaranteed minimum pension (GMP) reconciliation is expected to be completed by the end of 2018.

This means there may be many more clients and unadvised pensioners who are yet to receive a letter from HM Revenue & Customs and/or their scheme provider with a request for repayment.

Because contracting out ended in 2016, the process of GMP reconciliation is still ongoing, with schemes and the tax office having to agree on the right GMP figure. 

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Sir Steve Webb, director of policy for Royal London, says although the process is supposed to finish this year, "I very much doubt that it will".

Therefore, he urges schemes to be understanding when it comes to requesting clawback.

But all schemes need to make sure their houses are in order, not just for DB but also for all pension entitlements, as Kay Ingram, director of public policy for LEBC, points out. 

What the GMP debacle has taught the industry is that poor administration and erroneous calculations can affect all types of pension pots - and nobody wants to see a repeat of this 20 or 30 years down the line.

She says: "From a policy perspective, there is a need for schemes to keep better records of pay and service, and to keep the member informed of their entitlement before retirement age. 

"The Pensions Regulator (TPR) is putting pressure on schemes to improve, as far too many still rely on paper records."

Being proactive

Instead of waiting for clients to be hit with a letter towards the end of the year - when heating bills and Christmas expenses start to rack up - Mr Webb also advocates that advisers be proactive with clients who might have been contracted out.

He adds: "Advisers may also wish to check with occupational schemes whether the GMP reconciliation process is complete yet for their scheme, as this should mean that there are no nasty surprises coming down the track."

John Lawson, head of policy, retirement solutions, for Aviva, warns there could be future issues over transfer values, so he advises people to check whether the scheme has completed its GMP reconciliation process as required by HM Revenue & Customs. 

"Similarly", he adds, "for any client whose benefits come into payment before December 2018, it would be worth checking with the scheme whether the expected benefits are correct, having been reconciled against HMRC records." 

Beware of similar problems

But while the GMP process of reconciliation is drawing to a close, other experts have warned there could be more poison in the pensions pot as similar errors involving poor administration are being uncovered over transfers and defined benefit contributions.

Earlier this month, FTAdviser reported errors were found in half of the data employers sent to providers on the auto-enrolment contributions of their staff, leading some to call on the pensions regulator to step in.