On the go: Although welcoming the new guidance from the Pensions Administration Standards Association on guaranteed minimum pensions equalisation tax issues, industry voices are calling for more collaboration from HM Revenue & Customs as several problems remain unsolved.
The document, published on Monday, highlights tax issues that schemes may encounter in adjusting benefits to correct for the inequalities of GMPs and identifies possible approaches for dealing with those issues.
PASA’s work is built on top of guidance issued by HMRC, the last one published in July, primarily focusing on the dual-record method, “but brings forth the practical implications of HMRC’s newsletters on this over the past few years”, noted David Brooks, technical director at Broadstone.
“It also includes helpful template communications with members when addressing these complex issues, another major piece of the GMP equalisation challenge,” he added.
While other industry experts also welcome the new guidance, they have also pointed out the limitations of the document.
Claire Carey, partner and head of know-how at Sackers, said: “Crucially, like HMRC’s guidance before it, PASA’s guidance stops short of providing a much-needed steer on the tax implications of GMP conversion.
“It also notes that ‘no further guidance is expected from HMRC at this time’. However, there is hope on the horizon, with separate PASA GMP conversion guidance expected to be published by the end of April.”
Carey explained that conversion has long been on the Department for Work and Pensions’ radar as a “possible option for helping to crack the GMP equalisation conundrum”.
“Provided specific procedural steps are taken and certain conditions met, this legislative facility enables GMPs to be converted into ordinary defined benefit benefits,” she said.
However, the likely uplift to the value of members’ pensions could trigger an annual or lifetime allowance tax charge.
The working group stated in the document that the guidance was shared with HMRC prior to publication, but the taxman did not comment on it.
Matt Davis, head of GMP equalisation at Hymans Robertson, argued that “further engagement from HMRC would be helpful, as this could avoid significant costs to pension schemes and reduce problems for some scheme members”.
He added: “Particular areas where the industry would benefit from further guidance from HMRC are in relation to GMP conversion and the November 2020 court ruling on past transfer values.”
In a judgment handed down in November, the High Court ruled that trustees committed a breach of duty if they did not equalise a member’s GMP benefits at the time of the cash equivalent transfer value.
Schemes that had contracting-out benefits will need to revisit their past transfers since the 1990s, with the court ruling that there is no time limit for this exercise.
