GMP, Guaranteed Minimum Pension, the great invention to irritate pension administrators and make our lives more complicated than they have to be. Now you could be forgiven for expecting that following a couple of rounds of “simplification” and the cessation of GMP accrual from 1997 that GMP would be a problem of the past, with the number of non-retired members with a GMP element to their benefits gradually dwindling year by year.
Alas, just as we thought everyone had forgotten about Angela Eagle’s announcement last January, out come the DWP with proposed legislation and methodology for the equalisation of GMP. We could debate as to whether there is a legal requirement under European Law to equalise GMP at all, with some arguments against including GMP merely being a benefit underpin or that it is a quasi state benefit and therefore exempt.
My own opinion would be that there should be no Read more »
Brian Spence, Independent Trustee for Dalriada Trustees, talks to PMI TV about GMP equalisation.
As the PPF and FAS bring this issue to the fore Brian explains what it really means and why he thinks, unlike many in the industry, it is not as complicated as some believe. The complexity often lies in the reluctance until now to begin the process and the need to rectify historical pension scheme data.
Brian’s message is for trustees to take appropriate advice from actuaries and lawyers, discover the issues and take the first steps to making all things equal. Brian warns however, the often unpredictable state of historical pension data might hinder the process presenting a perfect opportunity for a cleanup operation to run alongside.
Actuaries and pensions lawyers up and down the UK are earning good fees providing opinions on the vexed subject of equalisation after Angela Eagle’s welcome announcement. GMP Equalisation continues to be consigned to the “too difficult” tray with prevarication along the lines
…this is an impossible task
…the government’s view is not binding
…trustees should wait for government guidance on how to equalise
For example, and not wishing to single them out, the otherwise esteemed actuaries Lane Clark & Peacock say “The industry has been asking for this for 20 years and not yet received a response.” Well actually no that is not true – we have not been asking, we know what equal means and have done since primary school.
On the other hand as Richard Bryant points out in his excellent Blog Prudential are not completing documentation for annuities on wind-up where there are post 1990 GMPs. Prudential seem to get it – gender equality has been a requirement since 1990 and however much the industry may complain it will have to be addressed.
As my colleague David Davison has written recently on GMP Equalisation – this is not a complicated issue and in my earlier article I set out the practical steps for trustees needed to bring about the equalisation of GMPs.
Equal means equal and any modern pensions payroll system should be able to accommodate this. If trustees have accurate historic data and good administration software it is a relatively simple spreadsheet calculation. If not then there may be approximations required to ensure inequalities are eliminated and these approximations may add to the liabilities which is part of the price to be paid for poor data.
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.
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