It’s been nearly four years since Lloyd’s judgment gave us all clarity on how Guaranteed Minimum Pensions (GMPs) need to be equalised.

 

These three letters - ‘G’, ‘M’ and ‘P’ - are feared by many and might lead to quiet sighs or even more likely, excuses to leave a meeting. It is a problem that has hung around for decades, but now trustees have the requirement and power to uplift member benefits so they are paying properly equalised benefits.

 

Relatively few schemes have actually completed the project, meaning that even for pensions currently in payment, thousands of pensioners could be missing hundreds or even thousands of pounds in back-payments. Given the current inflationary pressures, that is extra cash that could be of welcome relief to retirees.

 

So what is causing the hold up?

 

John Martin, a GMP expert with Mercer, a global leader in employee health, wealth and career consulting, explains why equalisation is moving at a snail’s pace and how to get a project off and running at speed.

 

Since the Lloyd’s judgment, there have been many updates in guidance from both PASA and HMRC that, in theory, leaves us in a position where a solution can be implemented. In practice, many schemes have not yet fully implemented GMP equalisation for two reasons; capacity and complexity. Capacity on trustee meeting agendas to make the complex decisions and oversee a project that will potentially run for 12 months or more; capacity from administrators and advisers to manage a complex project that needs to deliver changes at an individual member level, potentially in conjunction with rectification following reconciliation with HMRC. In the current climate where pensioners need all the income available to them, it doesn’t feel right that ‘capacity’ or ‘complexity’ is what is holding us back from implementing a legal requirement to pay equalised benefits.

 

So what can we do better to solve this?

 

Having completed this process for over 50 clients and discussed with many different stakeholders, including trustees, we believe the focus should be on:

 

  • A clear and pragmatic approach – using standard methods as much as possible, reducing the number of decisions trustees need to make.
  • Considering technical issues in the context of member outcomes – spending less time on hypothetical points and missing data; looking at calculations early on in the project to see where there is a material impact on a member’s pension.
  • Having a robust approach to data management that reduces spreadsheet data manipulation, keeps an audit trail on data changes, and streamlines the communications process where there can be numerous different permutations that trustees may need to communicate, depending on member outcomes and trustee decisions.

One of the biggest risks in a GMP project is managing data from start to end, through multiple calculation stages and into member communications, over a project that typically lasts more than 12 months.

 

Technology has a part to play and while traditionally, this project would ordinarily use electronic spreadsheets, there are a number of pitfalls and risks in using this approach due to the issues around project complexity.

 

Working with pensions software firm Intellica, we have jointly developed a new data management platform specifically to solve the GMP data challenge. The aim is to reduce data risks, advocating an approach that tracks data throughout the project using features such an audit trail of changes made to data throughout the project; formatted data output into each of Mercer’s GMP rectification, equalisation and conversion tools; and an ability to distinguish between assumptions made for the purposes of calculations, and data changes that need writing back to the administration system. It can also provide data in a format compatible with standard suite of communications.

 

As the industry has evolved, and through process improvement, there are now few excuses for trustees to defer the adjustments they are legally required to make to equalise member benefits.






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