Pension schemes can pay out defined benefit transfers to members with guaranteed minimum pensions, as long as they include an allowance for the uplift in benefits.
This is the opinion of the cross industry GMP Equalisation working group, launched in January, which today (July 16) published a call to action for pension funds to start tackling the issue.
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.
In today's document, the working group stated that schemes could pay out transfers by making an allowance for GMP equalisation in transfer values - either as an adjustment to benefits, or as an assumption – which could remove the need to re-visit these transfers in the future.
However, the group warned that trustees should discuss this option with their legal and actuarial advisers, to make clear in which cases transfer values may still need to be re-visited, and to make sure the approach taken to transfer values doesn’t fetter the trustees’ choice of equalisation method.
The Lloyds High Court ruling established four different methods which pension schemes can choose to equalise benefits.
The working group alerted, however, that schemes should take particular care with any transfer value which contains a GMP benefit previously transferred in from another pension scheme.
Besides managing transactions, the group, chaired by the Pensions Administration Standards Association, also identified two other areas for schemes to look at.
Trustees should start understanding and progressing GMP 'reconciliation' and 'rectification', and review the quality of the data needed for equalisation, it stated.
Schemes have been checking the data they hold on these benefits with HM Revenue & Customs, after it came to light in 2016 that some pensioners had been paid contributions to their national insurance when in fact they were contracted out, which is known as reconciliation.
FTAdviser reported in March 2018 that thousands of DB scheme members faced demands for pension cash back as a result of this process.
A spokesperson for Lynsey Ellis, Akash Rooprai and Geraldine Brassett, who chair the working group sub-divisions which prepared the document, 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."
According to David Fairs, executive director for regulatory policy, analysis and advice at The Pensions Regulator, "taking early action will help trustees to be in the best possible position to deliver this complex work".
The document will be followed up with a guidance paper on the relationship between GMP rectification and equalisation, the working group stated.
maria.espadinha@ft.com
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