Defined benefit contracting-out will end with the introduction of the new single-tier state pension from 6 April 2016.

A GMP is the minimum benefit a UK occupational pension scheme must provide for a member (or a surviving spouse or civil partner following the death of a member) in relation to periods of service during which that member was in employment but was contracted out of the State Earnings-Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997.

Protections for scheme existing contracted-out rights of members will be maintained, but HMRC’s scheme support services will be scaled down and eventually withdrawn.

Geraldine Brassett, chair of the PASA GMP working party, warns that ‘simply accepting HMRC data as correct is not necessarily an easy option as a rectification exercise is still likely to be required.

 She added: ‘The time left for administrators to act before the cessation is beginning to run short and there is increasing pressure on them to analyse what needs to be done, and to plan and deliver this work. We felt it was vital for us to lead the way in terms of helping these organisations to meet their deadlines and provide them with genuinely useful support and guidance.’

HMRC plans to start sending out individual member statements in December 2018 to members of previously contracted-out schemes.

These statements will, as a minimum, confirm HMRC’s position on where members’ contracted-out benefits are held. If the information provided is inconsistent with scheme data, schemes risk receiving a significant level of time-consuming member queries at a stage when HMRC’s services in this area have been significantly reduced, the guidance warns.

This may result in potential reputational risk and complaints having to be managed through a pension scheme’s internal dispute resolution procedure and, ultimately, via the Pensions Ombudsman.

Helen Powell of law firm Allen & Overy, said: ‘It’s vital, given the scale and complexity of the task of reconciling and rectifying contracted-out benefits, that schemes are supported in taking a pragmatic, cost-effective approach, which is also consistent with their trustee duties.

‘There are boundaries to pragmatism – for example, a failure to engage appropriately now could store up future problems in relation to GMP equalisation or de-risking activity.

‘Schemes should aim to do their data reconciliation exercise once and do it right, and this guidance will help trustees as they seek to develop an appropriate scheme-specific strategy.’

Phase 1 of the PASA GMP guidance, which contains a checklist of 10 essential measures which need to be considered, is available here

Phase 2 will be published during February 2016.

Further information on PASA is available at www.pasa-uk.com

HMRC guidance on changes to the state pension is available here

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