A once in a lifetime opportunity – managing the process to deliver better outcomes.
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 and reduce the costs and improve member understanding of the benefits being delivered.
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;
- How to deal with incomplete data?
- What method to use for GMP rectification and equalisation?
- How and when to communicate changes to members?
- How to deal with historic over payments?
Mercer has developed a number of solutions to help trustees and sponsors deal with the challenges of GMP equalisation, including:
- Understanding of legislative and regulatory challenges – GMP equalisation is a complex legal and technical issue which is still evolving as new guidance is released and emerging practice becomes established. As a market leading actuarial firm with over 800 actuarial and administration clients, Mercer’s experience in this field means we are well positioned to help trustees and sponsors navigate these evolving issues.
- Effective member communication strategy – this is key to ensuring members’ understanding of GMP equalisation and in turn delivering positive member outcomes.
- Managing cost and uncertainty – GMP equalisation has the potential to add additional costs to pension plans. Clear visibility of these costs is key. GMP conversion can also be used as a risk management tool for pension plans.
- Managing the administration impact of GMP equalisation - this can lead to a simplification of administrative processes and also be used as an opportunity to improve the quality of the scheme’s administration data.
To find out more about Mercer’s solutions for defined benefit pension plans, please complete the contact form below and one of our consultants will be in touch.
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