Guaranteed Minimum Pension equalisation: on your marks, get set...

Go! It’s time for pension schemes to get out of the blocks in their preparation for Guaranteed Minimum Pensions (GMP) equalisation.

The decision in the Lloyds Bank case in October 2018 appeared to offer a solution to the GMP equalisation problem pension schemes had been debating for almost 30 years.  Of course, things were not that simple and many questions remain still.

It is understandable that many pension scheme trustees have been waiting for the position to become clearer before acting, and certainly there is much in the pipeline that will bring greater certainty: HMRC guidance is still awaited on important tax questions; legislation is expected to amend the statutory steps for the conversion of GMPs; the cross-industry GMP Equalisation Working Group is to issue detailed guidance and good practice guides; and a second hearing in the Lloyds pension case to address the issue of past transfers has just been earmarked for spring of 2020.

It may seem tempting to wait for greater certainty before acting, but there are good reasons for schemes to make a start on the preparatory work for equalisation projects now, including the risk of a shortage in adviser capacity if schemes all wait until the same time to get started. And even if trustees would prefer to wait, the usual scheme activity of retirements, deaths, transfer requests etc. requires trustees to make decisions on the calculation of benefits now; waiting for equalisation to be completed is not an option.

There is much trustees can be doing now to put themselves in a position to implement equalisation speedily once they have the answers they need to take strategic decisions. The cross industry GMP Equalisation Working Group issued a “Call to Action” in July, urging schemes to start work now despite the uncertainty. It has identified three initial areas on which trustees should focus:

• Understanding and progressing GMP reconciliation and rectification – deciding whether to press on and progress GMP rectifications now, or wait to incorporate this work within the GMP equalisation project so that members’ benefits are only adjusted once.
• Data – reviewing the quality of data needed for GMP equalisation so that data is in the best possible shape in preparation for equalisation.
• Managing impacted transactions – transactions which need to be completed now (such as transfers, retirements and deaths) but may need to be revisited as part of a GMP equalisation project.

The Call to Action includes a more detailed “tick box” list covering 13 areas trustees should be considering now as the first step on the journey to equalisation. The strong direction from the industry and the Working Group is that it is time to begin this work.

There are certainly a number of unknowns, but as trustees return to work refreshed after the summer break, now seems a good time to focus on what is known, and what can be done right now. Trustees have a duty to pay the correct benefits to members, and to correct any under or over payments within a reasonable timeframe. If trustees are to fulfil that duty, it’s time to make a start.

Please get in touch with your usual Burness Paull contact if you’d like to discuss the position of your scheme with us.