Up to 8 out of 10 pension schemes’ employers must now reflect the cost of equalising GMP benefits in company accounts
On 26th October the High Court judgment on the Lloyds case confirmed the need to improve benefits to make allowances for the inequality between males and females in Guaranteed Minimum Pensions (GMPs) known as GMP Equalisation.
It has taken 28 years for a decision that GMP inequalities between men and women must be removed and this will mean higher benefits for some members and therefore higher costs to employers.
The impact of this ruling is significant for trustees and employers. Up to 60% of companies in the FTSE 350 have defined benefit (DB) pension scheme liabilities, and for most, these are set to increase following the recent judgment. Information is limited but other than for the smallest schemes up to 8 out of every 10 schemes is expected to have GMPs. Estimates suggest that across all UK Pension schemes with GMPs the costs could be in the region of £10 billion.
Whilst the trustees of pensions schemes have time on their side to agree a method that satisfies the judgment, sponsoring employers are on the hook now as the cost of equalising GMP benefits will need to be reflected in companies’ year end accounts. For most this will be in December and need to be accounted for in profit and loss (P&L). Many UK employers have only a matter of weeks to decide how to account for GMP equalisation costs and many are still not ready.
XPS Pensions Group, (XPS) the largest pure pensions consultancy in the UK, is calling for sponsoring employers to be proactive and take this opportunity to take control and remove GMP complexity to prevent unnecessary costs in the long term.
Wayne Segers, Principal, XPS Pensions Group said: “It is unwelcome news for employers that they are now forced to quickly calculate the cost of GMP equalisation. In order to prevent overestimating in their accounts, employers do need to look at all options available to estimate the cost. We are helping our clients do this and are seeing a number of cases where the expected cost is lower than originally thought. Our view is if employers embrace this change it is an opportunity for them to ultimately remove their GMPs once and for all and simplify benefits, reducing future administration burden and cost.”
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