Schemes urged to start work on progressing GMP equalisation

It has also called for schemes to start reviewing the quality of the data needed for equalisation and managing impacted transactions. 

Last year, the High Court ruled that Lloyds Banking Group must amend its three defined benefit schemes in order to equalise GMPs for men and women. 

As a result of the ruling, thousands of DB funds will now have to change their scheme rules to equalise GMPs.

The cross-industry group – chaired by the Pensions Administration Standards Association – published its ‘Call to Action’ paper on Tuesday.

It highlighted that GMP rectification, data and impacted transactions are the three key areas for which there are “good reasons to act now”. 

Impacted transactions are those that need to be completed now but, if the pension fund still has not equalised for the effects of GMP, may need to be revisited as part of the equalisation process. 

The call to action outlines a number of important points for sponsors, consultants, trustees and managers. 

These include the need for stakeholders to work together to make sure the project is successful. 

It notes that while some aspects of the project will be scheme-specific, there are some areas common to all pension plans, and therefore where industry good practice guidance would be of value. 

The call to action also states that while this could be a very complicated process, the total financial impact for members may be quite modest, so industry guidance should look to identify good practice with regard to the planning, management and efficiency of the project.

Furthermore, it notes that advanced planning is crucial given that lots of schemes will be looking to complete GMP equalisation within a similar timeframe and there is a likelihood of resource constraints within the industry.

The call to action will be followed up with a guidance paper on the relationship between GMP rectification and equalisation.

Later this year, the first version of full guidance documents for data, impacted transactions, methodology, and tax will also be issued.

In a statement, Lynsey Ellis, Akash Rooprai and Geraldine Brassett who chair the sub-groups that prepared the call to action said: “Equalisation has the potential to be a highly complex project for many schemes. We felt all stakeholders in the operation of a scheme could benefit from some information and guidance to help them take the first step on this journey. This Call to Action aims to provide exactly that kind of assistance to the industry.”

David Fairs, executive director for regulatory policy, analysis and advice at the Pensions Regulator, welcomed to call to action: “Taking early action will help trustees to be in the best possible position to deliver this complex work.”

At the time of the Lloyds ruling, the court did not set a definitive method for equalisation.

John Cormell, head of GMP equalisation at consultancy Barnett Waddingham, said: “Trustees need to understand the actions they are required to take to equalise GMP benefits in their schemes. Preparation is key, and a crucial part of the journey, whichever equalisation method is used, is for trustees to get their data in order.”

He added that equalisation is going to be a “long and winding road” for many schemes.

“For those who have not completed GMP rectification, it brings in the added complexity of whether to combine both GMP projects,” he said.