What’s left to do on GMP equalisation?

However, a new set of draft regulations has been issued (the consultation period ends on January 15 2017.

Proposed method is no surprise

The provisions contained in the consultation process should come as no surprise to those with an interest in this issue, the smart money long being on a GMP conversion method.

The proposed method is to look at a member’s pension built up during the GMP accrual period and for two actuarial values to be calculated: the first based on the member’s overall benefits built up between 1978 and 1997, and the second calculation on the same basis but substituting the opposite sex GMP within the equalisation period.

It is likely that GMP equalisation will highlight historical data issues. If the trustees feel that any problems may exist, there is no reason to delay action on resolving these issues

The higher of the two amounts (the conversion amount) is used to convert the member’s overall benefit into a revised scheme entitlement, which is then GMP-free.

What are the practical problems?

In reality there are many difficulties to address. Employer consent will be required, actuarial advice sought, the conversion certified and undoubtedly legal advice will be needed.

As for the data, overall scheme benefits as well as GMP will need to be considered as it is the overall benefit that will be equalised, not just the GMP.

In addition, for pensioners there is a wealth of historical data potentially required. This all adds up to an exercise of undoubted complexity, and having accurate data is essential.

The consultation recommends GMP equalisation is carried out by specialists. This should mean firms with strong actuarial consulting expertise and administrators who specialise in benefit rectification, equalisation and GMP rectification.

Maximising automation will control costs, so an integrated actuarial and administration platform would be ideal for this exercise.

Save yourself money and time

However, the need for actual calculations is still some time away:

• We are still in a consultation period. For schemes not currently wishing to buy out or buy in, there is no immediate need to progress this exercise.

• After the consultation period ends, schemes will have to wait for legislative changes planned to simplify the process.

• Once the finalised guidelines are issued, schemes can then make a decision on scope and timing. The consultation document clearly steers away from a prescribed basis, even for the actuarial assumptions.

• The big unknown is undoubtedly Brexit. The consultation guidelines unsurprisingly do not give any indication of how this will impact on GMP equalisation. There will be a point when schemes will need to know if the government will give direction, or if it will be up to each scheme to take advice on this point.

So if we are still in the wait-and-see period, is there anything that schemes should be doing now?

There are certainly actions that will provide standalone benefits and will also impact positively on any future GMP equalisation exercise by removing the ‘rubbish in, rubbish out’ problem:

• Complete the GMP reconciliation. HMRC support is to be withdrawn at the end of 2017, so this is time critical.

• Stress test the scheme’s equal treatment solution. Current legal requirements may not have been fully considered and a more up-to-date review will ensure a robust approach.

• Complete any other data or benefit rectifications.

It is likely that GMP equalisation will highlight historical data issues. If the trustees feel that any problems may exist, there is no reason to delay action on resolving these issues.

These are all actions that will be required at some point in a scheme’s life. By completing them now, schemes will save themselves time and money down the line.

Catrina Browne is administration consultant at Spence & Partners