In our last update we provided a summary of the GMP equalisation ruling in the Lloyds Banking Group court case that has required all pension schemes to equalise guaranteed minimum pensions.
Our update was very much ‘wait and see’ as a number of points had still to be clarified.
There are still a number of outstanding issues but there has also been positive movement in some areas.
The formation of the GMP Equalisation Working Group
The first guidance from the GMP Equalisation Working Group has been issued.
Contrary to previous updates, the working party guidance has more of a ‘get things moving’ feel to it. The path for equalising GMP’s seems a bit clearer although there are still a number of outstanding issues to be clarified.
The guidance sets out a summary of the requirements of GMP equalisation and includes some helpful worked examples on each permissible method for equalising GMP’s.
There were some interesting comments in the guidance surrounding previously raised issues:
- De minimis cases – the guidance states that it expects most Trustees would not apply a de minimis amount, as the work required to determine the amount is comparable to the work required to calculate and pay the uplift;
- No further liability cases – the guidance suggests Trustees should write to members to determine if contact can be made, prior to agreeing that no calculations should be carried out;
- Lack of opportunity cases – where members have lost out on an opportunity as a result of having unequalised benefits (for example retiring early) it will not be possible to compensate for this.
The GMP Equalisation Working Group will produce further guidance on:
- the availability of data to carry out the exercise;
- impacted transactions;
- tax issues (alongside HMRC guidance);
- reconciliation and rectification of GMP’s.
Issues still to be clarified
The following issues have still to be clarified:
- There will be a further instalment of the Lloyds court case to determine if transferred out benefits have to be considered in equalisation projects;
- HMRC are producing guidance on how uplifts should be treated for tax purposes.
Actions for Trustees
The guidance expects that most schemes won’t implement a solution until the tax implications are fully understood. However, Trustees should be speaking to their advisers about:
- An appropriate methodology given their schemes circumstances;
- Availability of data and GMP reconciliation (bearing in mind that further guidance will be released);
- Understanding the Trust Deed and Rules and any forfeiture rules.