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GMP Equalisation Hero

Is Now The Right Time To Prioritise GMP Equalisation?

Monday, 22 February 2021

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

We all know that defined benefit (DB) pension schemes are past masters at getting the job done, on time, without (much) grumbling.

Stewart Winter Stewart Winter Operations Director, Data Solutions, EQ

Those jobs are often very hard and require a lot of heavy lifting. But there’s one task that has been consistently left on the back burner and that has been the management of GMPs, or guaranteed minimum pensions.

Waiting is not an option anymore

It is now two years since the landmark High Court ruling that confirmed that trustees need to act on GMPs, but no-one ever wants to be the early adopter.

No doubt, there’s a degree of fear involved. But there’s the very real concern that in trailblazing a new area, you’ll pay the R&D costs of innovating new processes. These are then rolled out to every other scheme, but you’ll never see a penny of that development cost back.

But if the time is right for your scheme to engage fully with GMP, what should put you off?

A pragmatic approach

By now, a number of schemes have started, or will have gone through the process of equalisation. Some have also been through the conversion process because their strategy dictates this is the most logical direction.

Most of these will have buy-in or buyout firmly in their sights and determined that running dual records indefinitely isn’t for them. Not only is it a bit of an administrative pain, but it limits what you can do when you’re close to going to market – and that is unacceptable.

If you've fixed your strategy, then moving ahead is the next sensible step. So what's stopping you?

Fight fear with logic

This isn’t a reference to a new flexible risk reduction product, but a lack of confidence from one or more of the key stakeholders.

If the trustees or employer are still a little concerned, identify their fears and see if you cannot demonstrate that not acting could be more damaging – and therefore costly – than being well prepared.

If you have got to the point where benefits are tranched and you know what you intend to do post-conversion, you’ve almost reached a point of no return.

You know you can do this

Although schemes operate huge horizons when considering liabilities, risk and investment, there is a danger of crippling myopia whenever GMP is mentioned. We understand that it is difficult. But getting past the initial stage allows a glimpse of previously unknown vistas.

This can give you insights into other parts of the benefit structure, such as a defined contribution (DC) scheme with a DB underpin, and assess what might be done now, rather than at the point of retirement.

It may widen your options and perhaps even save money if it allows you to simplify the scheme.

Putting off difficult decisions doesn't stop them having to be made. All it may achieve is to limit the choices.