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Dealing With The Latest GMP Equalisation High Court Ruling

18 December 2020

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

Last month, the High Court issued its latest ruling on what trustees are expected to do with guaranteed minimum pensions (GMP) liabilities. It states that former members of pension schemes who transferred their benefits must be compensated if their original transfer payment included inequalities from GMPs accrued after 17 May 1990.

Stewart Winter Stewart Winter Operations Director, Data Solutions, EQ

Last month’s ruling by Justice Morgan will cause some difficulties as schemes approach the final stages of equalisation. But those who approach it in a proportionate and practical way should not find the task overly difficult.

Who does the latest ruling impact?

Trustees should be ready for how they will deal with the matter. There has been some inaccuracies reported in the press, that the new ruling puts the responsibility of making a claim purely at the members feet. This is a misconception of the ruling and we advise schemes to be careful and should seek clarification from your legal representation.

Identifying any required uplifts over the past 30 years could prove to be a Herculean task. Once that is done, the trustees need to track down the member – if those records exist – and the scheme the fund was transferred to. That scheme could now be defunct or may not accept a top up to the member’s pension.

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.

  1. Find out the data your actuaries require, then see if it is available.
  2. Then see if you can pre-empt any queries by identifying those who won’t be affected.
  3. 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.

Top Tip!

Having a communication programme in place – even if only a page on the scheme’s website – is a practical way to address initial enquiries for GMP equalisation.

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.

 

If you’re not sure where you are, or are concerned you’ve come to the party late, speak to us today about where you are in the process.

Talk to us today