Analysis of preliminary actions taken or being considered by our clients shows the majority:

 

  • have made an adjustment to cash equivalent transfer values to make allowance for equalising for the effects of GMPs; and
  • are minded to simplify their scheme benefits by converting GMPs into normal scheme benefits.

Analysis of Mercer client discussions shows that:

 

  • around three-quarters of sponsors and trustees who have reached an initial view on how to equalise members’ benefits are planning the conversion of GMP benefits, thereby removing GMPs from their schemes entirely. 
  • about one-in-six are minded, instead, to leave GMPs alone but keep track of a member’s accumulated benefit payments and compare them with what the opposite sex would have received, to make sure no one has lost out on overall payments. 
  • a smaller number are in wind-up and intending to make a one-off adjustment for members based on the difference in actuarial value of the member’s and their opposite sex’s expected benefits.

Financial impact of equalisation

 

Given the increase in benefits that is due to members following the requirement to equalise GMPs, it has been necessary to include the additional cost of these benefits in pension accounting figures. For around 80% of schemes, the impact of implementing GMP equalisation is likely to be relatively small, equating to less than 1% of the schemes’ total liabilities.  Nevertheless, for around 20% of schemes the impact is likely to be larger and, for a small proportion, the increase in liability is likely to be in excess of 3% of the scheme’s liabilities. The outcome for any scheme is dependent on scheme specific factors including the retirement age, the pension increases and the split of scheme members between males and females.

 

Whilst the scheme level impact may be small, the impact may be much more significant at the member level.


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