Pensions Consultancy

GMP Equalisation

The Guaranteed Minimum Pension (GMP) has provided complexity to those involved in pensions for years. While the 2018 Lloyds judgement on GMP equalisation confirmed that, how you do this still remains a decision for individual schemes. We have helped over 100 schemes to work through GMP exercises.

Getting started with GMP equalisation

“Clearly, projects to equalise benefits for the effects of GMP will be specific to each scheme but we can help schemes to effectively manage the process and provide the best service for sponsors, trustees and members.” – Geraldine Brassett, Key Account Director at Capita and Co-Chair of the PASA GMP Equalisation Working Group

GETTING READY - WHAT CAN YOU DO NOW?

So what can schemes do now? Actually there is quite a lot, but trustees should focus on these things:

PLAN

Trying to absorb an equalisation programme into the day-to-day running of your pension scheme is going to be a challenge. It is important to ensure you have the right team in place to not only advise on but also to deliver GMP equalisation.  Select a project manager to assist you in drawing up a strategic plan for your GMP requirements.

GET YOUR DATA READY

If you haven’t already reviewed your data, understanding the data items you need for GMP equalisation, and potentially, conversion is an important aspect of your due diligence before you start your equalisation activity. If you need to improve the quality of these data items, this is something you can work on right now.

COMPLETE RECONCILIATION AND RECTIFICATION

As part of a Trustee’s strategic planning reconciliation and rectification exercises should be considered as part of the overall requirements to equalise GMPs. Regardless of the method of equalisation the base data used needs to be correct to ensure that this exercise is completed appropriately.

MAKE DECISIONS AROUND MEMBER PAYMENTS

Specifically...   

Transfer Values: Will they be quoted on an equalised basis and, if not, what’s your interim approach?·        

Trivial commutations and small lump-sum payments: Will you withdraw or amend the member option?·        

Death benefits: Determine how to calculate survivor benefits. Will the Trustees allow for a trivial commutation lump sum?·    

Protected Pension Age: How will you deal with members looking to retire?·        

Scheme-specific lump-sum protection: How will you deal with members looking to retire?

SUPPORT WHERE YOU NEED IT MOST

We believe that Trustees should be able to tailor projects to fit the unique requirements of their schemes. Our modular approach to GMP means our specialists are there to support you when and where you need them most. For schemes administered in-house, we can even deploy our specialist staff on an interim basis – supplementing your existing teams and ensuring a continued focus on day-to-day administration.

STRATEGIC GMP PLANNING

Based on our knowledge of your scheme we’ll take you through a personalised checklist to make sure you’re ready to ramp up your equalisation. We’ll provide a joined up approach from our consulting and administration experts and our legal partners to give you:

  • Guidance notes
  • Scoping and population definition
  • A detailed project plan
  • Specialist insight

DATA ANALYTICS AND CLEANSING

We’ll analyse the scheme benefits and validate your data. We can assist in a wide range of data assessments and correction exercises from tracing members to fixing both systemic and individual data issues.

END TO END PROJECT MANAGEMENT

Our overarching workflow management ensures proper scheduling of change and we can combine reconciliation and equalisation exercises to give more coherent messages to members.

CALCULATION AND APPLICATION OF RE-DRESS

We have the ability to cater for all forms of GMP equalisation.  By generating estimated figures and back payments we can allow our clients to refine their strategic decisions earlier in the process, simplifying the decision making process. 

  • Automation
  • Payments management
  • Treasury and reconciliation services

COMMUNICATIONS

Getting the member communications right for GMP equalisation is critical. The scale of our communications expertise means we have the agility to respond complex communications requirements and ensure a joined up experience for the membership, including: 

  • Communications strategy and design
  • Production and mailing services
  • Mailings and response management
  • Digital delivery online, emails and SMS

NEW OPERATIONAL FRAMEWORK

As part of an equalisation strategy, Trustees need to consider the impact of GMP equalisation on the ongoing administration.  Specifically we’ll help you understand and address the impact on:

  • Calculations
  • Letters
  • Processes
  • Pension Increases
  • Benefit Statements
  • Governance
  • Resourcing

What are the proposed methods for equalising?

The High Court considered different methods - A, B, C1, C2, D1 and D2

The judge agreed the use of method C2 in the Lloyds judgement but also identified method D2 as viable. Method C2 would create complexity for scheme administrators, with multiple benefit records having to be maintained concurrently (i.e. the actual benefits to be paid after any adjustments plus one for both a male and female comparator). Method D2 is a one-off exercise where all GMP benefits would be converted into non-GMP benefits, although this would require employer consent. Both have different impacts on how you approach an equalisation change programme and the ongoing administration of your scheme. 

Method A

Equalise each unequal aspect separately. 

Method B

Provides the better of male or female comparator pensions each year.

Method C1

Provides the better of male or female comparator pensions each year, subject to accumulated offsetting (without interest).

Method C2

Provides the better of male or female comparator pensions each year, subject to accumulated offsetting (with interest).

Method D1

Compares the actuarial value of the member's unequalised benefits with those of an opposite sex comparator. If the value is lower, then the member's benefits could be uplifted.

Method D2

As per D1, but the higher actuarial value is converted to equivalent non-GMP benefits.

More on GMP EQUALISATION

Call for Action by industry group

A group of representatives from across the industry has issued a Call for Action by trustees and employers. The group is recognised by the Pensions Regulator and is made up of professionals from the administration, legal, advisory, actuarial, data and trustee sectors. The Call sets out important points and questions that need to be considered and lists actions to take now in preparation for your equalisation projects. It can be found here

Five-minute read on the background to GMP

GMPs have been part of the pensions landscape since 1978 and, despite various attempts over the last decade to address equalisation issues, it is only now that we seem close to solving the final piece of the puzzle. 

Read our five-minute history here

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