Begin at the beginning
The sensible place is to begin by working out what data you have. Historic data may be patchy, but recent transfers should have full data sets.
- Find out the data your actuaries require, then see if it is available.
- Then see if you can pre-empt any queries by identifying those who won’t be affected.
- Then build a process that will accept and field queries from members who believe they may have a claim.
Doing the sums
To calculate the top up, the original transfer value calculation method and assumptions must be used. Interest must be added at a rate of 1% a year above base rate.
Some calculations may have been lost in the mists of time, with no records remaining.
Assumptions used even a decade ago will differ from those made today, giving very different uplifts.
More data will of course allow for a more precise calculation. Otherwise, a more approximate approach will be necessary. This could require using top ups by estimating typical GMP amounts based on a scheme’s design, the member’s age and date of transfer.
What happens next?
When it is not possible to make the top up to the original scheme the transfer was made to – or the costs of tracking member or scheme are not justified – the ruling allows for alternative compensation methods.
Trustees might consider offering the member a choice of receiving the money directly or the pension scheme it should be paid into.
This process may seem like a minor distraction for ongoing schemes, trying to deal with the rest of GMP whilst juggling day-to-day management of a scheme. Those facing major changes such as buyout, need to think of acting sooner to avoid any delays.
Don’t get distracted from the primary objective
Costs could be significant, though are unlikely to be of the same magnitude of GMP liabilities for current scheme members. You can assess the potential impact by reviewing the annual amount of transfer payments. It is quite possible that the cost of calculating the top up will exceed the actual sum. Ultimately, the detail won’t be known until you get into the nitty gritty of each calculation. Compared to the overall GMP equalisation project, it is a mere bump in the road. Don’t let this latest ruling cause unnecessary worry or deflect you from the task you may already have in hand.