We had an enthusiastic internal meeting today about how to deal with Angela Eagle’s welcome clarification about equal treatment (pensions consultants actually get a buzz out of dealing with complex problems like this).
Many of Spence & Partners’ team felt that trustees should do nothing in relation to GMP equalisation (or strictly the elimination of inequalities between males and female pension scheme members’ benefits resulting from unequal Guaranteed Minimum Pensions) until the promised legislation. Others felt the government announcement was a clear call to action.
Most of the schemes where we provide administration services or actuarial services have not dealt with GMP equalisation.
However where we have been advising schemes winding-up we have generally equalised GMPs albeit using a rough and ready formulation.
We all however agreed on a number of crucial actions to take:
- Stop quoting transfer values until we have sought guidance from scheme trustees as to what they would like us to do. We are recommending that trustee revisit the issue urgently with their legal advisers.
- Heavily caveat any unequalised transfer values issued and where a member requests an unequalised transfer value the fact that a revised transfer value might be available later should be made clear.
- We also envisage trustees will continue to quote unequalised benefits on retirement, leaving service etc. with a view to making amendments when administration procedures have been revised (what’s another few months of doing it wrong when you can make it a round 20 years!).
- For any actuarial calculations that are being performed (e.g. certification of technical provisions) we are seeking clarification from the trustees as to whether GMP equalisation should be allowed for.
- Bulk transfers being calculated are going to have to be looked at carefully.
- For schemes where we are nearing the end of wind-up having made broad brush allowance for GMP equalisation we are suggesting that trustees take legal advice as to whether any further adjustments are required (we really do hope not!).
- Equalisation of GMPs simply involves making a comparison between a male say and a notional female comparator but this does not work well with outdated actuarial software that makes calculations by applying an annuity at retirement rather than projecting cash flows to age 110. Some firms may need to review their software.
- Not all pension payroll software and in particular payroll delegated to a non specialist will be able to project a pensioner and comparator on a month by month basis. Again where there has been an underinvestment in software this will need revisited.
- For schemes preparing for entry to the Pension Protection Fund or Financial Assistance Scheme there are specific rules to follow.
- Actions 1 to 9 are the easy ones. Dealing with back payments is where the work will be. For many pension scheme members who will have received a slightly smaller pension than they should have for up to almost 20 years the information required to calculated the back payments may not even exist and even if it does the calculations will be cumbersome and messy.
An old colleague of mine Ian Williamson had sorted this all out 10 years ago but the ruling of the Pensions Ombudsman in his favour was not upheld in Court. Pity!
Brian Spence is a founder of actuaries Spence & Partners Limited and a director of independent trustee Dalriada Trustees Limited. You can follow him at @briandspence or @PensionsEndgame on Twitter or link to him on LinkedIn.