The Pensions Administration Standards Association has published guidance for trustees striving to achieve GMP equality, providing examples of approaches that have been adopted or considered by “early movers”.
The guidance lists five conditions that must be met: the post-conversion benefits must be at least actuarially equivalent to pre-conversion benefits, pensions in payment must not reduce, members must not be switching to defined contribution benefits, there must be minimum contingent survivor benefits, and certain procedural requirements must be met.
These include employer consent, member consultation, member notification and HM Revenue & Customs notification.
GMP equality is defined as “making sure a member with a GMP relating to contracted-out pensionable service during the period May 17, 1990 to April 5, 1997 receives benefits that are not less than those which would have been provided had the member been of the opposite sex during this period”.
Though GMP equality is the ultimate aim, the guidance acknowledges a list of ancillary benefits of conversion.
These include reducing or avoiding increases in administration costs, reducing administration complexity, simplifying benefits to aid member understanding and communication, modifying benefits to make them easier to hedge, reducing the cost of buyout with an insurer, and “removing certain restrictions on members’ options”, the guidance states.
Schemes likely to find conversion attractive include those with complex benefits, smaller schemes looking to buy out, schemes with a significant number of low earners, schemes with in-house administration, those “which already have an at-retirement pension increase exchange option, a bridging pension option, or are seeking to introduce them”; and those “where the additional complexity of operating the year-by-year approaches on an ongoing basis would be particularly onerous”.
Where the aim is solely to achieve GMP equality, it suggests that the affected membership is likely to be constrained to cover only those who accrued a GMP between May 17, 1990 and April 5, 1997, and the dependents of such members.
Where trustees have wider objectives, it is likely they will want to include all those with a GMP, the guidance explains.
The guidance also covers some of the tax implications to be considered by those opting for GMP conversion.
It also sets out three scenarios and explores the ways in which GMP conversion is or can be used in each: a bulk exercise in retirement for pensioners over the age of 65 and under 60, an exercise at retirement covering both normal and late retirement, and a bulk exercise in deferment covering members deferred at ages 58 and 45.
Alasdair Mayes, chair of PASA’s conversion sub-group responsible for preparing the guidance, pointed to a recent survey by the Association of Consulting Actuaries showing that 43 per cent of respondents were likely or very likely to use GMP conversion, compared with 31 per cent who preferred a year-by-year approach. The remaining 26 per cent were undecided.
“GMP equalisation is a major undertaking. The conversion guidance addresses another significant step, enabling trustees and their advisers to better navigate their equalisation journey,” Mayes said.