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GMP Insights

Our viewpoint

Welcome to our insight hub - to help provide clarity on the issues around Guaranteed Minimum Pensions (GMPs) and actions for trustees and corporates.

Understanding the complexities for equalising GMPs can be hard and knowing which direction to travel is not a straight forward decision to make. This GMP insight hub is a one stop resource to help you find out all you need to know about how to approach GMP and give you the knowledge to make the best decisions for you, your scheme and your members.

There are three key tasks that need to be addressed in relation to GMPs:

  • Reconciliation
  • Rectification
  • Equalisation

Here we offer insight into the issues on all three topics, and what trustees and corporates need to consider to get your GMP's sorted.

Reconciliation

GMP reconciliation is the process of checking that the pension scheme’s records for who the trustees need to pay a GMP to and the amount of that GMP match the records of HMRC. We have a specialist team that has worked closely with HMRC over recent years to complete this exercise. Here are two blogs that will help you understand the final steps in the process.

Rectification 

GMP rectification is the process of updating the benefits and membership records for any members for whom it has been identified during the GMP reconciliation that the scheme’s records are incorrect. We can help you chose how to approach the rectification and implement your chosen solution. 

Options include: 

  • A full re-administration

If the GMP used to calculate a member’s benefits was incorrect, one way to rectify the benefits is to re-calculate the member’s pension. As the GMP normally has an impact on both revaluation in deferment and indexation in payment, this can mean going back to the pension at the member’s date of leaving and re-calculating everything that happened since then.

  • A differences approach

A more proportionate approach to rectification maybe to consider the difference between the GMP used originally and that now agreed with HMRC. The impact of this difference in isolation can be established and used to adjust the benefit in payment.  

  • Re-tranching

In some circumstances it may be reasonable to keep the current pension unchanged and simply update the split of the pension between GMP and non-GMP to reflect the GMP agreed with HMRC. 

A common question is whether to complete your GMP rectification straight away, or wait to combine it with your GMP equalisation. To learn more about what this involves and the steps to take, please read the blog below. 

Equalisation

In this video LCP's Holly McArthur outlines the methods considered as part of the Lloyd’s Banking Group judgment.

Despite recent guidance from a number of sources there is still uncertainty and a number of unanswered questions. Understandably with that in mind schemes may be reluctant to carry out the full equalisation of benefits for unequal GMPs immediately. However, there is still plenty that trustees can be working on at this stage. Much of the data required is the same no matter which method you adopt long-term.

The key to efficient implementation will be a clear project plan. There will be a significant number of parties involved, and several work streams, from data gathering and cleansing, establishing of comparator records, calculating back payments, choosing and implementing a method for future equalisation, as well as communication strategy.

Trustees may wish to equalise transfer values as the first stage of implementation as delaying may just build up the cases to go back and potentially revisit to pay top up payments. Equalising transfer values is a balance of costs and risks and the solution opted for will differ between schemes.  We can help you equalise transfer values using any of the Lloyds approved methods.

Corporates want to understand how the different methods for equalisation fit in with their long-term journey plan, risk and cost management.  Our LCP GMP Focus tool can help you understand the impact of different approaches on an accounting, funding and buy-out basis.  It will also quantify the impact of combining equalisation with options such as a pension increase exchange (PIE).

The first movers in terms of equalising benefits in payment for GMPs have been schemes looking to complete a buyout with an insurer. We have implemented such equalisations on both dual record and the GMP conversion methods, working through both the administrative issues associated with dual records and the pensions tax issues of conversion. 

Whichever method is chosen, member communication is an important part of the process. We can help you communicate to members in a clear, reassuring and proportionate way.