Future Pensioners must understand that getting GMP adjustments right will take time
27 February 2019
Closing the gender pensions gap is a top priority, but uncertainties remain following the recent Lloyds Bank GMP equalisation ruling. Solutions won’t be instant, so communicating that to members is vital, says Alasdair Mayes.
The High Court’s judgment late last year on removing Guaranteed Minimum Pension (GMP) inequalities was a big step forward in the drive towards closing the gender pensions gap. To most people, it seems perfectly natural (if not overdue) that all benefits should be equalised between men and women, so many Future Pensioners may be expecting instant results. That’s unlikely to happen in practice, and it’s important to be upfront and transparent about this.
Fools rush in…
This is a hugely complex area and despite the judgement, many unanswered questions remain. Further clarification from the court and guidance from the DWP on implementation is anticipated later this year. HMRC and the Pensions Regulator may need to step in on tax implications or regulatory concerns, too. So, clearly, there are lots of players and moving parts.
With that in mind, making immediate changes - for instance to transfer values and even trivial commutations - may backfire in the long run. Even once the legal position is clearer, addressing GMP inequalities is likely to remain a complex and time-consuming process.
…but inaction is not an option
That doesn’t mean scheme trustees and sponsoring employers should be doing nothing now – far from it. As I’ve recommended before, there’s a huge amount of work that can and should be going on behind the scenes to prepare for action once there is more clarity.
Completing the GMP reconciliation process and understanding in detail scheme rules and administrative practices (past and present) are key issues to be tackled early on. There are also a raft of other issues and options to consider and plan for, including what solutions might be most suitable for specific schemes, assessing different methodologies and identifying and prioritising potential steps to be taken. Seeking expert advice on all of the above is a sensible first move.
Communication, communication, communication
At the same time, a proactive communications campaign is necessary, to manage Future Pensioners’ expectations and keep them informed of progress. Members of schemes – particularly those who may be contemplating retirement, transfer or other options in relation to their benefits - need to understand why the situation has arisen and to know that employers and schemes are on the case.
It is also important to explain not everyone will see an impact on the value of their benefits or their retirement income. Even for those that do, not all will see a material difference, so it’s vital – again – that expectations are managed carefully.
Therefore, a joined-up, engaged approach between trustees and employers is a must.
Don’t be misunderstood
The costs of removing GMP inequalities look set to be significant with a multi-billion pound P&L hit for the FTSE100, added to which there may be larger deficits to fill and higher contributions to be paid. With that in mind, there’s potential for a lack of visible action to be mis-read as inertia. Employers and schemes would do well to head off that misconception by being as proactive as possible in their planning and ensuring members know they are doing everything they can via a well thought-through communications campaign.