The High Court in England ruled on 26 October 2018 that all Guaranteed Minimum Pension (GMP) benefits in UK pension plans must be equalised for males and females. As a result, all pension plan trustees and sponsors must decide on the approach to adopt for equalising GMP benefits.
Whilst there are a number of different methods available to achieve GMP equalisation, one of the approaches is to convert GMP to a ‘normal’ scheme benefit, which would not only address GMP equalisation but could also simplify other aspects of the plan’s benefits, administration and member communications.
What action should trustees and sponsors be taking?
Implementing a GMP equalisation solution is a multi-stage journey, with a series of decisions to take at each stage. Firstly, trustees would need to ensure they have completed their GMP reconciliation process, cross checking the scheme’s GMP records with HMRC records. This is likely to result in some member records needing to be corrected and member benefits being adjusted. Only then can the GMP equalisation and conversion process take place. Through this journey, trustees and sponsors would need to work together to address some important challenges, for example;
Other key considerations for both parties include:
GMP equalisation is now a reality for trustees and sponsors of defined benefit pension plans. However, it also presents an opportunity for pension plan trustees and sponsors to proactively manage the risks and complexities within their plan, reduce the costs and improve member understanding of the benefits being delivered.