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. 5. GMP equalisation template. Copyright © 2018 Willis Towers Watson. Be a part of our global team dedicated to building brighter futures for employers and their people. Alternatively, redress may be issued without allowance for GMP equalisation with advice that further redress may be due. The Court of Justice of the EU ruled in 1990 that pension benefits should be equal for men and women. 2.2 The consultation aimed to address two issues, namely: GMP equalisation is the process of ensuring equality between women and men for these entitlements. 1990 – in the Barber case (17 May 1990), the European Court ruled that occupational pensions were deferred pay and, as such, schemes were required to treat men and women equally. For around 80% of schemes, the impact of implementing GMP equalisation is likely to be relatively small, equating to less than 1% of the schemes’ total liabilities. Conversion can be used as part of a process by which schemes can remove any inequality between men and women resulting from the GMP rules. This is because of the complex interaction of the GMP rules with the way scheme pensions are increased each year. The government is announcing its response to the consultation on guaranteed minimum pension ( GMP) indexation and equalisation in public service pension schemes. The court has decided benefits should be equalised for the effects of GMPs ("GMP equalisation"). The method for calculating GMPs is set out in legislation and can result in inequality, predominantly because GMPs are payable from different ages (65 for men, 60 for women) and GMPs consequently accrue at different rates. A range of methods were considered by the court for achieving equalisation and the impact can vary significantly from scheme to scheme and even for members in different sections of a single scheme. This website has been prepared for general purposes only and does not purport to be and is not a substitute for specific professional advice. We believe that this means over 80% of UK defined benefit (DB) schemes are impacted. As we are not lawyers, you should take legal advice as to the proper interpretation of this issue. If trustees apply conversion to an individual member (or survivor), all GMPs for that member must be removed, not just the GMP for the period requiring equalisation. GMPs reflect state pension entitlement that for some members is based upon a state pension age that was different because of their gender. GMP Equalisation - Data and Benefit Assurance | Defined Benefit Pension Schemes Detailed planning is a key aspect to any GMP Equalisation project. During an assessment period, when calculations are completed, trustees and/or advisers need to complete and submit the GMP equalisation and underpin calculation template to their Scheme Delivery Associate. pension purposes was five years shorter than. In practice, GMP conversion has rarely been implemented, largely because of uncertainty around GMP equalisation. While the matters identified are believed to be generally correct, before any specific action is taken, specific advice on the circumstances in question should be obtained. The aim of a GMP equalisation project is to make sure a member with a GMP relating to contracted out pensionable service during the period 17 May 1990 to 05 April 1997 receives benefits which are not less than those that would have been provided had the member been of the opposite sex during At Mercer, we believe in building brighter futures. Trustees do not have to choose the same equalisation solution for every scheme member. Depending on the method adopted, trustees and plan sponsors can have the ability to substantially reduce the complexity that has built up and perpetuated over 40 years. Letter to HM Treasury in regards to Correcting “GMP” sex inequality in pension schemes, Managing the process to deliver better outcomes, A practical guide to GMP equalisation and conversion, Mercer calls for better clarity and certainty around Guaranteed Minimum Pension equalisation. /content/dam/mercer/attachments/europe/uk/uk-2021-mercer-letter-to-hm-treasury.pdf, https://www.uk.mercer.com/content/dam/mercer/attachments/private/uk-2019-gmp-equalisation-final.pdf, /content/mercer/europe/uk/en/our-thinking/gmp-equalisation-managing-the-process-to-deliver-better-outcomes.html, /content/mercer/europe/uk/en/our-thinking/gmp-equalisation-what-are-mercer-clients-doing.html, https://www.mercer.com/events/webcasts/gmp-equalisation.html, /content/mercer/europe/uk/en/newsroom/mercer-calls-for-better-clarity-and-certainty-around-guaranteed-minimum-pension-equalisation.html, Forensic Integrated Risk Management (FIRM), Statement of Corporate Governance Arrangements. As before, the pension at date leaving service totalled £2,142.70 p.a. •An equal scheme pension becomes unequal. Our latest announcements and press releases, both global and local. Equalisation: what is it? Early in 2019, the Pensions Regulator announced the formation of an industry working group to help pension schemes following the High Court’s ruling on the equalisation of GMPs in October 2018. A GMP is a minimum level of pension for members who were in a pension scheme which was contracted out of the State Earnings Related Pension Scheme (SERPS), on a salary-related basis. All schemes with GMP rights will have to act to allow for equalisation of GMPs. This latest judgment in relation to the Lloyds banking group pension schemes follows just over two years on from the landmark Lloyds case which confirmed that schemes need to equalise … As a result, What is clear is that, as equalisation is necessary, there will be no overnight fix. GMP equalisation on transfers – what next? •DWP legislation requires that a woman’s GMP. It could take several months to agree the position going forward; and possibly even several years to un-pick and recalculate benefits calculated over the last 28 years. The outcome of this judgement will affect any UK defined benefit scheme which has been contracted out of the State pension arrangements resulting in members of the scheme having a GMP. Equalisation of GMPs is an issue that has been known about since 1990 when the Barber judgement ruled that pensions are deferred pay and should not have an unequal pension age based upon gender. On 20 November 2020, the High Court ruled that pension schemes will need to revisit individual transfer payments made since 17 May 1990 to check if any additional value is due as a result of GMP equalisation. The GMP is a component of a member’s total scheme pension. Download the GMP Equalisation report to understand the current position and find out how companies and trustees can respond. A GMP is a minimum level of pension for members who were in a pension scheme which was contracted out of the State Earnings Related Pension Scheme (SERPS), on a salary-related basis. “The forthcoming GMP equalisation ruling, could lead to a one-off hit to profits this year of around £15 billion for FTSE 100 companies as well as a larger overall deficit and higher contributions. If the Lloyds case results in greater clarity on the matter, auditors will expect companies to prepare a reasonable estimate of the impact of the change in obligations. Explore Mercer’s latest thinking to see how we’re helping to redefine the world of work, reshape retirement and investment outcomes, and unlock real health and well-being. These GMPs differed between men and women as they reflected the different state pension age for men and women at that time. High Court passes judgement on GMP equalisation On 26 October 2018, in a long-awaited ruling, the High Court determined that defined benefit pension schemes will be required to equalise benefits for the effect of inequalities between males and females in respect of Guaranteed Minimum Pensions (GMPs) since 17 May 1990. All rights reserved. but the proportion that was GMP decreases for … Options include: A full re-administration However, a successful outcome for the effective implementation of GMP equalisation could be simpler, equalised benefits that are better understood by recipients. 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. There is a risk that proceeding with calculations where GMP equalisation is not accounted for could lead to regulatory challenge and a requirement to revisit past cases and potentially provide additional redress. due to further DWP legislation under which: that of a man. Some fit with the way pension schemes are administered currently; others could require a significant overhaul of systems. 7 The same pension regardless of gender Same retirement age Was 65 for males, 60 for females in many schemes NRAs equalised mainly in the 1990s Same total pension on leaving scheme Same benefit payments Same for males and females in most schemes But men and women build up GMPs on different terms It has also commented on the methods that could be used. Take a look at the Frequently Asked Questions section where we will post answers to your most frequently requested questions. The judgment in this case, may or may not provide all of the answers, but will hopefully start to provide a clearer way forward. Lloyds Bank GMP equalisation case. Together, we’re redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. However, to date there has been no certainty on whether this is necessary nor any consensus on how it should be done. Following conversion, trustees are no longer required to track and monitor GMPs. Deloitte can work with you not only to time the different aspects of GMP Equalisation Data and Benefit Assurance optimally, but also to review your In Depth – Solving GMP equalisation by conversion PAGE 8 Financial impact At the scheme level, the financial impact of GMP equalisation will generally be small – typically less than 1% of liabilities for many schemes, although a handful have seen an impact of up to 4%. In July 2018 Lloyds bank, together with the Affinity trade union and the trustees of three Lloyds pension schemes, went before the High Court seeking clarification on GMP equalisation.. It is therefore generally not clear without performing full calculations which members are affected – it can be both men and women in the same scheme depending on their circumstances. GMP Equalisation and Conversion RECAP ON THE LEGAL POSITION Why there is a problem • Inequalities between males and females resulting from : –Different GMP payment dates –Higher accrual rate for females than males –Anti-franking requirements –Different rates of increase applying to GMP / excess over GMP The Lloyds case looked at four different methods, with variations, to equalise GMPs and decided that the employer could require trustees to adopt method C2 – providing the minimum of what was legally required on the basis of minimum … GMP is a minimum pension that employers were required to provide their members of final salary schemes who contracted out of the state second pension from 1978 until 1997. Pre-GMP equalisation the pension is made up of the following component parts: Now we repeat the calculation except we assume Mrs. Oswald is male. The outcome of this judgement will affect any UK defined benefit scheme which has been contracted out of the State pension arrangements resulting in members of the scheme having a GMP. 1. This year the trustee of the Lloyds' pension schemes went to court to clarify the position for its schemes. A court ruling was announced on 26 October 2018 to determine whether members' benefits should be adjusted to reflect gender inequalities in Guaranteed Minimum Pensions (GMPs), and if so, how. ‘Guaranteed Minimum Pension (GMP) equalisation’ refers to a court ruling in October 2018 that pension schemes need to ‘equalise’ the GMP benefits of men and women, which are currently linked to the old State Pension ages of 60 (for women) and 65 (for men). A proposed methodology can be used - … Millions of people who were saving for retirement in the 1990s will have their pensions recalculated after a landmark High Court ruling last year. We can help you chose how to approach the rectification and implement your chosen solution. Latest proposals More than 21 years after the Barber case and eight years after Allonby , the DWP released a consultation laying out how schemes should go about equalising GMP last January ( PP Online, 20 January ). Equalisation. accrues at a greater rate than that of a man in. However, for individual members the impact can be more dramatic. However, for most UK schemes the pension built up by members until April 1997 included GMPs because their pension scheme contracted out of SERPS. GMP Equalisation Judgment On 26 October 2018, Justice Morgan ruled that the Trustee is under a duty to make sure that equal benefits are paid, including where these benefits are in the form of GMP. 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