By Richard Gibson MA FIA, Partner and Head of Longevity Risk Transactions and John Cormell FIA, Associate from Barnett Waddingham
GMP equalisation is a legal requirement, so why have most ongoing schemes not yet carried it out?
The main reason is uncertainty over the methodology to use and the concern that if they do it now, they may have to revisit the exercise if a different method is ultimately prescribed.
The uncertainty could be removed later this year by the Lloyds court judgement. In July 2018 Lloyds bank together with the Affinity trade union and the trustees of three Lloyds pension schemes went before the High Court seeking clarification on GMP equalisation. A ruling is expected by the end of 2018.
The court case is expected to decide whether or not GMP equalisation applies to the Lloyds schemes and what calculation method should apply. Following the ruling, industry practice may change immediately or may wait on the outcome of any appeals or further guidance from the DWP.
Brexit isn’t expected to change the legal position so this is not a reason to delay.
There may also be an opportunity to simplify your scheme through GMP conversion – more on this to follow.
How can I get my scheme ready?
GMPs should be fully reconciled with HMRC and rectified
The Lloyds court ruling in is likely to affect actions by schemes in wind-up. For ongoing schemes it is likely to raise strategic questions over whether ongoing schemes should:
reserve for GMP equalisation in their funding basis
carry out a GMP equalisation exercise to adjust the benefits being administered
Schemes that do decide to proceed with a GMP equalisation exercise will need to consider:
what method of GMP equalisation will be best for their scheme?
will they also carry out GMP conversion?
the impact of the exercise on administration, members’ reactions, affordability of buyout, ongoing costs
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