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What Is GMP Equalisation?

Tuesday, 21 July 2020

By Stewart Winter, Operations Director, Data Solutions, Equiniti

The complex matter of guaranteed minimum pensions (GMPs) may appear to have assumed a great deal of importance in no time at all. But just like overnight successes in the entertainment business, it’s taken years to get to where we are now.

stewart-winter Stewart Winter Operations Director, Data Solutions, Equiniti

The spectre of GMP equalisation has been hanging over every contracted out occupational scheme for more than 30 years. However, the Lloyds case in the High Court in 2018 has thrown the situation into sharp relief.

Doing nothing – or considering one’s options – is no longer considered to be the same as taking a long term view. It also doesn’t mean you have to wrap the project up inside a couple of weeks – even if you could.

It’s only just begun…

The process of equalisation remains a long game. There is no complete roadmap available, yet. And even if you have begun that journey, your destination is likely to be a long way off. But what exactly is it?

It is simply the equalisation of the amount of guaranteed minimum pension (GMP) between the sexes.

This all dates back to the introduction of the State Earnings Related Pension Scheme (SERPS) in April 1978. An occupational scheme was able to ‘contract out’ – ie not participate in the scheme – if it guaranteed a minimum defined benefit to each member.

Even though this requirement to provide a GMP was removed in April 1997, schemes are required to provide them for rights accrued to that date. So far, so simple. Right?

Well, that’s where the simplicity ends.

The devil is in the detail

The legislation requires GMPs for men and women to be accrued and drawn on an unequal basis. Until, that is, the ruling from the Court of Justice of the European Union on 17 May 1990 that found that occupational pensions were deferred pay and men and women must be treated equally.

That is easier said than done. Despite the High Court ruling, getting to the end of this process presents some challenges.

The ruling determined which calculation methods the High Court considered most appropriate, but schemes must still determine how they will approach the GMP equalisation project.

You’re not alone

Help will be required from trusted advisers, including scheme actuaries and lawyers. Guidance and insights are offered by The Pensions Administration Standards Association (PASA).

Meanwhile the government continues its contribution to this process through the efforts of its working groups at both the Department for Work & Pensions (DWP) and HMRC.

Schemes must now prepare to engage actively with the equalisation process. That means going beyond remaining compliant, to proactively preparing for the future.

This series of blogs is designed to assist scheme professionals, trustees – and their advisers – along their journey to equalisation.