The Pensions Administration Standards Association (PASA) has today published further guidance for schemes undertaking guaranteed minimum pensions (GMP) equalisation.
30 SEP 2019 | CHRIS SEEKINGS
Developed by the GMP Equalisation Working Group over the last nine months, the guidance draws on expertise from the actuarial and legal professions.
It puts forward good practice recommendations, and suggests how schemes should deal with common issues that arise when implementing an equalisation project.
This comes after a landmark court case last October concluded that Lloyds Bank must correct inequalities in GMPs between males and females earned from 1990 to 1997.
The decision is expected to have far-reaching implications for pension schemes, and could hit the profits of UK companies by up to £32bn.
"For most members any changes to benefits will be modest and not all members will need an adjustment," said Duncan Buchanan, chair of the sub-group that prepared the guidance.
"While the court helpfully approved a number of methods to achieve GMP equality, many technical issues remain unanswered. These issues need to be addressed."
The guidance suggests that schemes carry out no work on cases where there is no ongoing liability, and outlines how different conversion shapes might operate in practice.
It also recommends no compensation for lack of opportunity, recognising that a scheme cannot realistically say a member would have made different historic decisions in alternative situations.
Professional services firm Aon said that the PASA had provided "pragmatic leadership" with its latest guidance.
"However, the real challenge that many early movers are facing is how to address the myriad of tax issues," Aon head of GMP equalisation, Tom Yorath, said.
"There will be a number of schemes stuck in limbo, not wanting to risk potentially significant tax charges for members to deliver small equalisation payments.
"Until HMRC are able to address these issues, schemes face a taxation minefield in trying to address many of the aspects of equalisation."
Further guidance from the GMP Equalisation Working Group will be issued in the coming months covering data, impacted transactions and tax.