01 Dec ARC Pensions Law response to DWP GMP equalisation consultation
On 28th November 2016 the Department for Work and Pensions (DWP) issued a consultation on indexation and equalisation of GMP in public service pension schemes.
Some of these issues are causing concern to certain schemes, such as the bar on bulk transfers to schemes newly established for the purpose. But the issue that affects the industry quite widely is the requirement to equalise between men and women the effect of guaranteed minimum pensions that accrued between 1990 and 1997. Guaranteed minimum pensions (GMPs) are a legacy of contracting out of the State Earnings-related Pension Scheme (SERPS).
The European Court of Justice ruled in 1990 that pensions were pay and therefore had to be equal. But it has been far from clear how the statutory GMPs, which reflected SERPS, could be equalised when they were fundamentally based on the idea that women retired earlier than men, and so had to accrue pension at a faster rate to reach an equal outcome.
Senior Partner, Anna Rogers commented: “The DWP appears now to recognise that a relatively simple value approach can be used. One that would compare the overall pension for a man and for a woman, with the pension being increased to whichever is higher in value.
This opens the door for GMP conversion by promoting an industry-wide approach which is simpler and less costly than other alternatives. The hope that no action was required has been fading for years. But no-one wanted to act too soon and find they had overdone it.
The DWP’s approach is correct. The Court of Appeal case Degnan v Redcar clearly demonstrates that financial benefits can be looked at as a package without having to pick them apart and equalise every calculation element separately.
The Court disapproved of this kind of gold-plating, saying that their approach “had the desirable result that it will facilitate what was intended by the Equal Pay Act, namely equalisation” rather than the upward movement of one gender’s pay to a level higher than that of any comparator.
The consultation notes the fact that the UK will still enforce EU law as long as we are in the EU. However, what the consultation doesn’t say is that leaving the EU isn’t going to make any difference, unless the UK’s equal pay law is changed retrospectively for benefits earned in the 1990s, which would pose some obstacles in terms of human rights law, even if there was a political desire to do it.”