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.