Why specialist advice is critical for GMP equalisation

By obtaining legal advice early on, schemes will be in a stronger position while they carry out their reconciliation and rectification processes and before they begin their GMP equalisation exercise in earnest.

Once legal advice has been sought, schemes should start reviewing their GMP data, assessing previous administrative practices and evaluating the actuarial factors used for calculations.

If there are gaps in the data, they will need to seek information from previous advisers, actuaries and administrators. Where data is unreliable there is scope for making pragmatic adjustments, but the starting point is to do a fact-finding exercise.

There should already be a project underway for all pension schemes that have GMPs, to reconcile their data with HM Revenue & Customs and then rectify scheme benefits. The equalisation process will neatly follow and link in with that reconciliation project.

While most schemes have made meaningful progress on the reconciliation project, the vast majority have not yet completed the process of rectifying GMPs to correct for any inconsistencies that cropped up during reconciliation.

Valuations and transfers

As well as reviewing historical data, it is important that schemes think about their current “business as usual” work.

If an actuarial valuation of the pension scheme is in progress, for example, it would be prudent for schemes to make an approximate allowance for GMP in that valuation.

Decisions also need to be made on how to continue paying cash equivalent transfer values. This is a point where legal advisers differ; however, our stance is that schemes can continue to process payments because members are still demanding them and are receiving financial advice.

Trustees and advisers have been solving equalisation issues for a long time – this just happens to be a very specific one.

Schemes should make it clear to members and their advisers that GMP equalisation has not been taken into account in the calculation, and that it may be necessary to pay an additional amount further down the road.

Schemes should begin the process sooner rather than later to avoid the process dragging on for longer than is necessary.

Some advisers have suggested equalisation will take three years to complete, but if advisers, trustees and administrators work together in an efficient and pragmatic manner it need only take months, not years.

Trustees and advisers have been solving equalisation issues for a long time – this just happens to be a very specific one.

Methods of equalisation

A big decision for schemes is which method of GMP equalisation to adopt.