HMRC has provided an update on issues relating to the ending of contracting-out in its latest countdown bulletin for pension scheme administrators (PSAs), following the introduction of the new state pension on 6 April 2016, including preliminary details of how it will provide details of active members
HMRC says it intends to automatically close all open periods of contracted out employment held on its records. The scan will run over the Christmas period (December 2016) and details of all the members identified by the scan, will be shared to enable PSAs to reconcile active members.
HMRC expects to issue the active member output to schemes between January 2017 and March 2017, in a similar format to that of the Scheme Reconciliation Service (SRS).
PSAs will need to complete a form to request the closure scan output, although HMRC has not yet provided any details on the specifics of what information will be required.
Where HMRC has successfully closed the open scheme membership, full details will be provided to the scheme, as active member type 6. Where HMRC are unable to close the scheme membership but have the scheme contracted out number (SCON) recorded, details of the members name and National Insurance number will be output to the scheme, as active member incomplete record, Type 7. The aim is to provide both types of output at the same time to allow PSAs to undertake a membership reconciliation.
From November 2016 HMRC will introduce a process to reconcile scheme financial information. The department will undertake a scan to identify outstanding debt and unused money held under the scheme, and says it intends to share this information with PSAs. A form will be issued to cover this.
The bulletin highlights ongoing problems when using the guaranteed minimum pension (GMP) checker. HMRC says there has been an increase in error messages and queries from the GMP checker where the membership is entirely post 1997. A calculation should only be requested for members where the contracted out period has all/some pre 97 membership. Where the membership is entirely post 97 then the checker should not be used.
HMRC also reports some confusion regarding the way the contribution/earnings are displayed when a transfer is recorded on HMRC’s records. For clarification the earnings are displayed on the checker in the order that they are posted on HMRC’s records, however the calculation produced by the checker will have used the correct earnings.
For bulk requests currently only one End of Year Return (EYR) per tax year is being displayed, but HMRC says this is being addressed.
In response to number of queries asking why the GMP amount returned by GMP checker, differs to that amount provided on the SRS output, HMRC explains that unlike SRS where the GMP is taken direct from the members account, a new calculation is performed when a request is made on the GMP checker.
HMRC has also received a number of queries where schemes are either advising or querying the revaluation rate when it is not present on the scheme reconciliation output. It points out that where the contracted out period is entirely Post 97 then the revaluation will not be shown on the output. The bulletin contains advice on the use of query templates and highlights a number of common errors.
PSAs need to be aware that customer relationship managers will be contacting them by phone to glean information about business readiness at scheme/SCON level in the run-up to fully reconciling their scheme.
In addition, the bulletin draws attention to the need for PSAs to take action once a scheme has reconciled their membership to provide HMRC with Methods of Preservation (MOPs) for all members.
The bulletin notes: ‘As December 2018 is rapidly approaching and scheme cessation have other resourcing commitments, your co-operation in helping us to close these schemes would be much appreciated.’
HMRC had previously advised it was not necessary to notify MOPs for events that occur after 5 April 2016. However, due to the impact on the bulk statement to individuals (if issued following user research currently being addressed) the Pension Protection Fund (PPF) have agreed that they will continue to contact scheme cessation with details of members with a compensation payment until October 2018. HMRC will therefore continue to record PPF MOPs until December 2018.
