Defined Benefit 

Schemes start including GMPs in transfer values

Schemes start including GMPs in transfer values

Pension schemes have started to include equalised contracted out benefits in their transfer values after months of deliberating how they should be calculated.

FTAdviser can reveal that JLT Employee Benefits is one of the first administrators to allow its clients to amend the basis of their transfer value, after introducing the option earlier in March. 

Many schemes had halted the transfer process at the end of 2018 after a landmark ruling on guaranteed minimum pensions last summer in which the High Court ruled trustees must equalise benefits between women and men who have GMPs because of contracted out benefits.

Due to the ruling final salary scheme members who contracted out are set to receive millions of pounds in back payments and pension schemes and administrators were concerned they shouldn’t process transfers until equalisation has taken place.

Malcolm Reynolds, managing director at JLT, told FTAdviser the company has provided actuarial advice to its clients on GMP equalisation, and where they are in agreement it has started amending the transfer value basis.

He said: "We have done this to offer a better member experience and a better experience for the adviser community supporting those members.

"By providing the full value of benefits (including GMP equalisation), members and advisers can make their decision on transfers in that knowledge and don’t have to worry about a potential second future transfer (representing the GMP equalisation amount only) that their new pension product may not be willing to accept."

Sir Steve Webb, former pensions minister and director of policy at Royal London, who first alerted to this issue, said he was  happy with JLT's push forward.

He said: "For most people, the change to the value of their pension as a result of GMP equalisation will be tiny, and they will not want to see a potential DB transfer held up while the GMP calculation is being made. 

"It would also be absurd to have a second transfer months or years later to pick up on any GMP adjustment. If members can be given an accurate GMP adjustment now so that a full transfer can go ahead then this could be the best of all worlds."

JLT is doing these calculations on a member by member basis, including individual specific adjustments.

Steven Scholefield, partner at law firm Pinsent Masons, explained why it was possible to do these calculations quickly for pension transfers, while the remaining members will have to wait.

He said: "The real challenge with GMP equalisation is the practical one of implementing it in a cost-effective manner.

"Equalisation could involve maintaining dual membership records and doing calculations each year - which is expensive in terms of ongoing administration costs.

"Because a transfer calculation is a one-off calculation, the same practical issue does not arise.

"So whilst the calculation isn’t straight-forward, once it’s done, it’s done. That’s why trustees can allow for GMP equalisation in transfers before they are in a position to correct the pensions they pay from their scheme."