[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

Widespread concern over GMP equalisation costs uncovered

Many UK employers are concerned about the unexpected costs and complexity of guaranteed minimum pensions (GMP) equalisation, the Association of Consulting Actuaries (ACA) has uncovered.

Employers worried about costs iStock
Employers worried about costs iStock

After surveying 308 employers of all sizes, the ACA also found that a quarter of firms running defined benefit schemes are unsure of what GMP equalisation method to adopt.

A total of 43% say they are likely to opt for GMP conversion – known as the ‘D2 method’ – while 31% lean towards the ‘C method’ of year-on-year calculations and dual records.

The complexity of the challenge is reflected in the finding that 64% believe it will take more than two years to complete GMP equalisation as required by the law.

This comes after the High Court ruled last year that Lloyds Bank much equalise GMPs for males and females earned from 1990 to 1997 – a decision that could hit company profits by £32bn.

ACA chair, Jenny Condron, said that recent guidance from the GMP Equalisation Working Group would be helpful for employers still unclear on what method to adopt.

“It’s perhaps surprising that close to a third are favouring method C, the duals record approach,” she continued. “It is hoped that this doesn’t reflect simply the High Court judgement, which favoured method C2.

“The approaches to be used by employers and trustees need to reflect each scheme’s particular circumstances and an understanding of the cost implications.”

The ACA found that administrative complexity and time is considered the biggest challenge for employers undertaking GMP equalisation, followed by the cost and increased liabilities.

Taxation and other uncertainties, communication with members, and missing or poor data complete the top six greatest challenges identified by the employers surveyed.

"It’s perhaps surprising that employers see ‘missing and poor data’ as one of the less significant challenges – that’s not a view many of our members would have," Condron said.

"We believe many schemes will need to focus resources on their data as a first step in addressing this complex issue, including completing long-running GMP reconciliation exercises.

"The ACA believes there is a real opportunity to use GMP equalisation as the catalyst to simplify member benefits, reducing ongoing governance costs and potentially improving member understanding."

Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession