Many schemes had halted the transfer process at the end of 2018 after the High Court ruled last summer that trustees must equalise benefits between women and men who have guaranteed minimum pensions 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, as the values of these could need an uplift.
But the cross industry GMP Equalisation working group, launched in January, published a call to action last month for pension funds to start tackling the issue, stating the transfers could be paid as long as they included an allowance for the uplift in benefits.
Now Paul McGlone, president of the Society for Pension Professionals, has provided some insight on how the values will change after schemes conclude their calculations.
He said a woman who had a GMP between 1990 and 1997 has a one third chance of seeing an increase in her transfer value.
“If she does get an increase then it’s likely to be modest – typically up to 2 per cent,” he noted.
A man in the same situation had about two thirds of a chance of seeing an increase in his transfer value.
“If he does get an increase then it can be quite variable, but on average it is more like 5 per cent,” he said.
Mr McGlone noted that men “were broadly disadvantaged by the old state pension system, primarily because they received their pension at a later age, and that flows straight through to GMPs”.
He added: “It’s more complicated than that in practice with lots of other issues affecting it, but that’s the primary driver of inequality.
“Although there are cases where women are worse off, for around two-thirds of schemes its men who are worse off as a result of GMPs.”
Considering a cash equivalent transfer value of £300,000, the typical woman could be offered an extra £6,000, whilst a typical man might get an extra £15,000.
Sir Steve Webb, former pensions minister and director of policy at Royal London, said the uplifts could turn into meaningful amounts as a capital value.
He said: “Ceding schemes will need to make sure that members who transfer out following the recent judgment are not disadvantaged if they do so before the scheme has completed the process of equalisation.
“The big unknown is whether historic transfers and other historic transactions will have to be revisited, and we remain dependent on future court decisions for clarity on this point.”
Sir Steve noted that in many cases where legal changes are designed to remove inequality in pensions it is about putting women in a stronger position.
“But in the case of GMPs, it is men rather than women who are most likely to see an improvement,” he added.
Tom Selby, senior analyst at AJ Bell, noted that this uplift will represent a boost to some members’ retirement pots, “but a further strain on already creaking DB schemes required to pay out bigger pensions”.
He added: “While it’s hard to know for sure the aggregate cost of equalisation to DB schemes, estimates suggest an £8bn hit could be on the cards.”
According to Nathan Long, senior analyst at Hargreaves Lansdown, the transfer value improvements don’t alter the overall picture.
He said: “Transfer values are a reflection of the benefits being given up, if the value goes up it’s because providing those benefits has become more expensive.
“DB transfers remain a niche activity and are unlikely to be beneficial for the vast majority of people who have access to a promised pension from a former employer.”
maria.espadinha@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
