Pensions in focus briefing: A new method for equalising gmps the dwp consults

Written on 15 Dec 2016

The Department of Work and Pensions has launched a consultation on various legislative amendments and a proposed new method for equalising Guaranteed Minimum Pensions (GMPs).

What’s the issue?

There are several differences between the GMP payable to a man and the GMP payable to a woman. These all flow from the fact that the age at which women are entitled to take their GMP is 60, whilst for men it is 65, which is due to the fact that historically the state pension age has been 60 for women and 65 for men.

Some time ago the DWP confirmed that, in its opinion, GMPs earned between 17 May 1990 and 5 April 1997 should be reviewed by schemes with a view to removing these differences between the sexes. The relevance of 17 May 1990 comes from the well-known case of Barber v Guardian Royal Exchange Assurance Group, and 5 April 1997 was the last day of the period during which a final salary scheme could contract-out by providing a GMP.

Draft legislation removing any need to identify an opposite sex comparator, and a draft methodology for equalising GMPs, was put forward in 2012.  Following consultation, the Government decided not to adopt the draft methodology. The pensions industry had said that the suggested methodology would “be administratively expensive … and … result in both men and women receiving equalised pensions that would be higher than either a man or a woman would otherwise have received”.

A new methodology?

A working group was therefore set up to consider whether GMP conversion could be used to provide a way forward that would be acceptable both to the pensions industry and to the Government. GMP conversion is a process by which a member’s GMP is ‘converted’ into a standard scheme benefit.

This working group has now suggested a new methodology. This would “involve a one-off calculation and actuarial comparison of the benefits a man and woman would have, with the greater of the two converted into an ordinary scheme benefit”.

The new consultation seeks views on this methodology. It also seeks views on a number of changes to the GMP conversion legislation that would help to support this approach. The current thinking is that, although only the May 1990 to April 1997 GMP would need to be equalised, it would be easiest to convert the whole of a member’s GMP (including any pre-May 1990 GMP) into a standard scheme benefit.

What happens next?

The consultation is open until 15 January 2017. It is clear from the consultation document that the decision to leave the EU is not expected to have any immediate impact on these proposals.

For now, trustees should note this development. It seems likely that more detailed guidance will be provided once primary legislation has been enacted.