24th April 2019 Anna Rogers comments in Pensions Expert on the Government’s guidance on GMP conversion
The Department for Work and Pensions (DWP) has set out a ten-stage process for UK pension schemes to convert guaranteed minimum pensions (GMPs).
The guidance walks trustees through the tricky process of how to meet the requirement to equalise the differences as between male and female members brought about by contracting out of the additional State pension.
Equalisation has been required under EU law since a ruling by the European Court of Justice in 1990. However, schemes had to wait for subsequent rulings to establish that this extended to the effects of GMPs, culminating in a review of the preferred methods for equalisation by a court case involving Lloyds Bank last year.
Anna Rogers commented: “There are still some obstacles in legislation that will affect different schemes differently. Members’ benefits have to be protected – the replacement benefits have to be certified to be actuarially equivalent, and pensions in payment can’t go down.”
“There is a legal trap for schemes where the employer has changed over the years, because the employer’s consent is required, and it may not be obvious what that means in practice.”
She continued: “The calculations are complex, and the first conversions may be a headache, but we expect that, over time, the conversion may become a standard part of the journey to buy-out.”
“We expect some schemes will be looking for ambitious restructuring that would see the current pension go up significantly, by front-loading the future pension increases. That has implications for members who might face tax charges as a result, so care will be needed. In practice, many trustees will prefer minimum interference to imposing radical changes without member consent. “
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