On the go: The complexity and cost of equalising guaranteed minimum pensions is a major concern for many employers, who have yet to decide on how they should respond to the legal requirement to act, according to Association of Consulting Actuaries research.
The need to equalise GMPs follows last year’s landmark ruling in the High Court, which ruled that Lloyds Bank Group must amend its three defined benefit schemes to equalise GMPs for men and women. Since then, thousands of DB funds have faced the conundrum of how to change their scheme rules in order to equalise GMPs.
To add to the pressure on employers, pensions and financial inclusion minister Guy Opperman last week called on schemes to take action without delay.
The ACA surveyed 308 employers of all sizes over the summer on this issue. It found that the biggest challenge facing employers were administrative complexity and time, followed by cost, increase in liabilities, and tax and communications, with members and missing/poor data taking a surprising sixth place on the list.
Sixty-four per cent of employers running DB schemes say it will take more than two years to fully equalise pensions for the effect of unequal GMPs in their schemes. Of these, 43 per cent say they are “likely to opt for GMP conversion” (method D2), with 31 per cent leaning towards the year-on-year calculations and dual records (method C), and the remainder undecided.
Commenting on the survey, ACA chair Jenny Condron said: “Findings in this our second report on our 2019 pension trends survey have underscored employers’ concerns about the expected complexity and additional costs associated with GMP equalisation.
“It’s perhaps surprising that employers see ‘missing and poor data’ as one of the less-significant challenges in addressing GMP equalisation – that’s not a view many of our members would have.”
Guidance has been issued on equalisation by a working group. But Ms Condron said that many employers “are rightly still awaiting the outcome of next year’s court case to address residual uncertainties and for HMRC guidance on the potential tax implications involved”.
Ms Condron said the D2 method favoured by respondents will make ongoing administration easier with the option to simplify benefits, and added that the number of people favouring C2 was surprising.
“It is to be hoped that this doesn’t reflect a default decision based simply upon the High Court judgment, which favoured method C2,” she said.
