DEFINED BENEFIT CONTRACTING-OUT ABOLITION

Transcription

1 HEALTH WEALTH CAREER DEFINED BENEFIT CONTRACTING-OUT ABOLITION WHAT DOES IT MEAN FOR YOU AND YOUR SCHEME JUNE 2015 Steve Mathews - Principal Chris Saul - Discontinuance Expert Gary Neal - Discontinuance Expert

2 TODAY S SPEAKERS Steve Mathews Principal Chris Saul Discontinuance Expert Gary Neal Discontinuance Expert CESSATION EXPERTS Angela Moran Austin Conway MERCER

3 AGENDA Abolition of Contracting-Out - the background Planning for abolition Prior to April 2016 Timeline of events Reconciliation stages Cessation/SRS Scheme Reconciliation Service Real Time Information HMRC statistics Post abolition next steps April 2016 December 2018 Beyond 2018 Summary and questions MERCER

4 ABOLITION OF CONTRACTING-OUT THE BACKGROUND State Pension Reform Single tier pension for future pensioners Effective from 6 April Live Defined Benefit schemes will cease to Contract-Out Limited opportunity to work with HMRC in reconciling Contracted-Out liabilities Reconciliation involves reconciling all Contracted-out liabilities, not just Guaranteed Minimum Pensions (GMPs) includes Post 97 Members HMRC will cease to track Contracted-out benefits after 2016 From December 2018 HMRC will issue membership statements to individual members MERCER

5 PLANNING FOR ABOLITION PRE APRIL 2016 HMRC Timeline of Events Scheme Reconciliation Service offering Real Time Information Reporting the SCON HMRC statistics TRUSTEES CONSIDERATIONS Is a reconciliation required? Has your scheme already ceased to Contract-Out? Reconciliation options Which reconciliation route is available? MERCER

6 PLANNING FOR ABOLITION PRE APRIL 2016 HMRC HMRC TIMELINE OF EVENTS MERCER

7 PLANNING FOR ABOLITION PRE APRIL 2016 Example of differences between Shared Workspace (SWS) & Scheme Reconciliation Service (SRS) Differences Shared Workspace Scheme Reconciliation Service Stage 1 - Analysis HMRC Administrator Stage 2- Member Queries Individual Bulk Stage 3 - Rectification No difference No difference Sign-off Section 50 Upon request only MERCER

8 PLANNING FOR ABOLITION PRE APRIL 2016 HMRC Scheme Reconciliation Service (SRS) Registering interest with HMRC must be done before April 2016 Available to schemes that have not ceased Contracting-Out Non active data only deferred, pensioner and surviving spouse population Available to schemes which have ceased to Contract-Out historically, but no reconciliation to date or reconciled in the distant past Scheme responsible for analysis of data process must be in place Real-Time Information reporting the SCON Since April 2014, mandatory requirement for employer payroll to provide Scheme Contracting-out Number for employees on monthly returns MERCER

9 POLL QUESTION Question Have you already registered your scheme with HMRC to request contracting-out membership data? Answers A. Yes B. No C. No plans MERCER

10 PLANNING FOR ABOLITION PRE APRIL 2016 HMRC STATISTICS Active membership HMRC records show there are 6.3 million scheme members with open periods of Contracted-Out employment 1.5 million with a GMP entitlement. Non-Active membership HMRC advised 3,000 schemes have registered for SRS out of 5,622 schemes 2,417 schemes have received data, covering 12.3 million members 369 schemes have raised queries covering 348,872 members MERCER

11 PLANNING FOR ABOLITION PRE APRIL 2016 TRUSTEES CONSIDERATIONS Contracting-Out reconciliation Why do it? What are your plans for the longer term management of the scheme? Scheme Management Ongoing Scheme administration Member calculations / Scheme valuations TPR data requirements Risk Management Scheme governance Correct amount being paid to the correct beneficiaries Data issues Liability Management De-risking strategies Trivial commutations Bulk annuities MERCER

12 POLL QUESTION Question Does your scheme have any plans to undertake some form of de-risking exercise which will be reliant on accurate data?, i.e. Pension Increase Exchange, Trivial Commutation or Buy-In? Answers A. Yes B. No C. Nothing immediate MERCER

13 PLANNING FOR ABOLITION PRE APRIL 2016 TRUSTEES CONSIDERATIONS WHICH RECONCILIATION ROUTE IS AVAILABLE? SRS Cessation Live scheme Yes No Closed scheme no previous reconciliation activity Yes Yes Closed scheme reconciliation undertaken previously Yes No CEASED SCHEMES Must have cancelled scheme s Contracting-out certificate Can use the HMRC s online Scheme Reconciliation Service on Shared Workspace LIVE SCHEMES Can register for the Scheme Reconciliation Service, which does not offer the same level of support MERCER

14 PLANNING FOR ABOLITION PRE APRIL 2016 TRUSTEES CONSIDERATIONS RECONCILIATION OPTIONS Trustee Decision Benefits Risks Do nothing - Accepting unknown liabilities Member reconciliation Membership discrepancies reconciled Accepting HMRC GMP values as correct Full reconciliation Agreed membership and GMP amounts Risks reduced by record adjustment MERCER

15 POLL QUESTION Question Have you received contracted-out data from HMRC? Answers A. Yes B. No C. Not planning to register MERCER

16 PLANNING FOR ABOLITION PRE APRIL 2016 EXAMPLE HMRC DATA FROM SRS MERCER

17 PLANNING FOR ABOLITION PRE APRIL 2016 The process for SRS HMRC provides scheme membership data Client / Administrator merges data, analyses data and produces results Action is required to investigate and resolve discrepancies Member records are updated to reflect benefit amendments Contracting-Out Reconciliation How to do it You must: Be registered to use Shared Workspace Have a Government Gateway ID Have a process in place to reconcile benefits MERCER

18 PLANNING FOR ABOLITION PRE APRIL 2016 RESULTS Example case study Number of Members: Scheme Records 1876 HMRC Records 1760 A. B. Category Members where the record held by HMRC agrees with the scheme record No further action is required Members where the record held by HMRC disagrees with the scheme record Total Number of Members These cases require investigation C. Members with a scheme record but no corresponding HMRC record These cases require investigation 514 D. Members with an HMRC record but no corresponding scheme record These cases require investigation 398 Total number of members for this exercise 2,474 MERCER

19 PLANNING FOR ABOLITION PRE APRIL 2016 CATEGORY D QUERIES CATEGORY D CASES Difference Number of Members NINO Mismatches 21 Full Commutation 41 Transfer Out 186 Death 16 Refund 56 No Pension Benefits 3 Others 75 Total number of members in this category 398 MERCER

20 POST ABOLITION NEXT STEPS APRIL DECEMBER 2018 Continue with SRS HMRC Actions Closure Scan Closing all open NI accounts Removes requirement to provide notices of termination Schemes will be provided with data for active members HMRC will Cease tracking of individual contracted-out rights after April 2016 continue to process transfers which occurred prior to April 2016 GMP Self-Serve facility You have until December 2018 to raise queries MERCER

21 WHAT NEXT AND BEYOND? Starting in December 2018 when all reconciliation activity should be completed, HMRC will issue member statements to 15.8 million individuals Trustee and member responsibilities Clear and accurate contracted-out records Member communication increase in level of disputes? MERCER

22 POLL QUESTION Question If you have not yet registered for SRS, why? Answers A. Costs B. Alternative Priorities C. Decided to wait until closer to April 2016 D. Other MERCER

23 SUMMARY Abolition date 6 April 2016 Must Register for SRS before April 2016 Different reconciliation options for Ceased / Live schemes Benefits must be reconciled by November 2018 Individual Member Statements will be issued starting December 2018 Pensions Industry has concerns regarding HMRC s ability to respond to all queries before December 2018 NISPI Countdown Bulletins MERCER

24 QUESTIONS If you would like more information on how mercer can help please contact your usually mercer consultant, or one of our experts below: Chris Saul +44 (0) Gary Neal (0) gary.neal@mercer.com MERCER

25 References to Mercer shall be construed to include Mercer LLC and/or its associated companies. This presentation is confidential and may not be disclosed in whole or in part to any third party without Mercer s prior written consent, unless required by law or order of a court or regulatory body. This presentation is correct as of 18 June It will not be updated unless requested. In providing this presentation, we have considered the broad structure of the state pension system, making a range of simplifications and assumptions. We have not taken into account the tax treatment of benefits, the full complexity of the UK social security system, or the broader legal landscape etc. It is intended as a broad overview of the 2016 state pension reforms and should be used for the basis of individual, scheme, or employer advice. This presentation is for information purposes. It may be read as informal training and recorded in your training log. The slides do not constitute advice specific to you, your scheme or your employer, and you are responsible for obtaining such advice. Mercer does not accept any liability or responsibility for any action taken as a result of solely reading or watching this presentation. For more information about other training available or advice any issue raised in this article, please contact your usual Mercer consultant. Mercer retains all copyright and other intellectual property rights in the presentation. MERCER 2015 Mercer 2015 LLC. All rights reserved. 25