EQP GMP

Can You Convert GMPs Into Other Scheme Benefits?

15 January 2021

By Stewart Winter, Operations Director, Data Solutions, EQ (Equiniti)

The GMP (guaranteed minimum pension) process is a long and involved one. Rectification and reconciliation have an obvious purpose – to determine what GMPs are due to your members before reaching the next stage of equalisation. But can you convert these benefits into other scheme benefits for your members?

Stewart Winter Stewart Winter Operations Director, Data Solutions, EQ

You know the answer already

The simple answer is, of course, yes. Calculation method D2 (there are two versions and for more on calculation methods, read this blog first) is designed specifically to achieve the conversion of the entire GMP into other benefits.

The High Court judgement issued on 26 October 2018, confirmed occupational pension schemes must equalise for the effect of GMPs that have provided different benefits for men and women.

The judgment made clear that trustees must equalise for benefits earned between 17 May 1990 and 5 April 1997, when GMP accrual ceased. In addition, if there is more than one satisfactory method of equalisation, any underpayments must be made good, with simple interest added at 1% over the base rate.

What is GMP conversion?

There are a number of safeguards in place that cover the conversion. For instance:

  • The benefits must be ‘actuarially equivalent’ or more valuable than those lost.
  • The benefits may not be converted to defined and pensioners may not have their benefits reduced.
  • The scheme must also provide benefits for survivors and must consult any members affected.
  • The employer must also consent to the conversion being made.

Why bother converting GMPs?

It does sound like a lot of bother, but if you have to equalise the benefits anyway, you may as well do the conversion at the same time. But the project could be seen as an opportunity to make some more substantial changes to the benefit structure.

Use it to the scheme’s advantage

The conversion legislation allows trustees to make other changes to their scheme which they consider “necessary or desirable as a consequence of, or to facilitate, the GMP conversion”.

Trustees and employers could join together to remodel the scheme and potentially simplify the benefit structure. This may save some money, but more importantly, could simplify the scheme’s administration, making member communications simple and therefore more effective.

If you have an eye on a bulk buy-in or buyout any time in the future, there is a chance conversion and simplification will prove highly beneficial to the scheme when going to market.

Talk to us today about your GMP equalisation, reach out to the team below.