Skip to main content

The next steps trustees should take on GMP equalisation

Insights from the Pensions and Savings Conference 2019

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Technology|Retirement

December 3, 2019

GMP equalisation work will take at least two more years to finish, according to the majority of trustees who were polled at the Willis Towers Watson Pensions and Savings 2019 conference. A year on from the High Court judgment in the Lloyds Banking Group case, a panel of experts assembled to talk about the next steps trustees should be taking to equalise pensions for members.


  • Claire Carey, partner, Sackers
  • Sean Burnard, director and independent trustee, Law Debenture
  • Colin Smith, senior director, Willis Towers Watson
  • Vanessa Burke, director, Willis Towers Watson
  • Andrew Long, managing director, Willis Towers Watson (Chair)

Some issues remain unresolved, said Sean Burnard. “We are all waiting for advice from HMRC and other parties. On the radar now are member communication, strategic decisions and data work. At this point in time we don’t know how complicated the process of GMP equalisation is going to be. What will really affect the timing are the resources of the scheme and resource within the advisers.”

Panellists discuss the next steps trustees should take on GMP equalisation
Panellists discuss the next steps trustees should take on GMP equalisation

Colin Smith added: “After a year of people getting to grips with the judgment, things are starting to move, strategic decisions are being made. Issues like, will you treat all members the same, what might post-conversion benefits look like and how to communicate changes will all need to be dealt with. I am not surprised by the reaction in the room – I think it will take 18-24 months for this process to happen. If you want to pay equalised benefits in two years, you need to start making decisions now.”

For help trustees could consult a series of guidance notes being produced by the Cross Industry GMP equalisation working group, suggested Claire Carey.

Trustees could start the process by assessing the quality of their data, added Vanessa Burke. “From a member data perspective, you have to understand the scale of the gaps and inconsistencies in your data. Then you can move ahead into understanding what you will need to complete equalization,” she said.

To keep GMPs or to convert

Should pension schemes be aiming to keep GMPs in their current form or convert them into other types of benefits? asked Andrew Long, the chair of the panel.

Conversion has a lot of advantages, replied Burnard. “It would mean GMP equalisation would be achieved as a one-off exercise, you wouldn’t have the year-on-year comparison going forward. That would reduce scheme risk. For instance, inflation risk could be hedged more easily and it would likely reduce the cost of buyout eventually. It would also be easier to explain to your members and subsequently easier to administer.”

It was noted that administration would be a key factor in any decision. “Not every administrator will be able to offer every route to implementing GMP equalisation,” Vanessa Burke explained. She suggested: “Treat your administrator as you would any other adviser in this. Understand what they have their systems set up to do. This has to be factored into your initial project considerations, rather than making a decision and realising later down the line that you can’t successfully implement it.”

Is everything in place to allow GMP conversion?

Long asked the panel if the legislation was in place to carry out a conversion exercise. Carey replied: “The legislation to carry out a conversion exercise has been in place since 6 April 2009, but it has been rarely used in practice, with the historic uncertainty from GMP equalisation playing a role here. Nonetheless, we have seen it successfully deployed in a scheme winding up as part of a buyout exercise.”

Any scheme looking to carry out a conversion exercise will have to satisfy several conditions and follow specific procedural steps, added Carey. “Member protection is especially important: trustees must convert benefits on an actuarially equivalent basis and there are some restrictions on what you can and can’t do. For example, it is not possible to convert GMPs into DC benefits.”

There are areas where GMP conversion legislation could be improved, said Carey. “For instance, at the moment, trustees are obliged to take all reasonable steps to consult with members before tackling GMP conversion, but there is no process in the legislation for trustees to follow. Trustees also need employer consent to a conversion exercise. The legislation is not as clear as it could be as it focuses in on the employers of members in contracted-out service from 20 years ago!”

The key message is that schemes should take actuarial and legal advice early in the process. Schemes will need to clearly document the process and the rationale they followed in order to take their decisions, in case it is questioned later down the line by insurers or members.

Treating all members fairly is important with GMP equalisation, explained Carey. “Whilst the high court didn’t say anything about whether you have to use the same methods for everyone, I think the starting point is to look at normal trust laws. These require trustees to treat members fairly, which includes treating them in a consistent way. That doesn’t mean you have to treat everyone exactly the same. If you are distinguishing between different groups, you have to be sure you are not bringing in anything discriminatory. It is a case of getting legal advice early to make sure you are being consistent.”

The word from insurers

Long asked the panel what they are hearing from the insurance market about what insurers consider to be acceptable conversion methodologies. This will be vital for schemes that are considering a buy-in or buyout transaction.

If you want to pay equalised benefits in two years’ time, you need to start making decisions now.”

Colin Smith

Insurers have typically used a methodology that is similar to the D1 GMP equalisation methodology in the past, answered Burnard. “Now, they seem increasingly comfortable with trustees using D2 as a method, although recently there have been some large transactions using the C2 methodology as a basis.”

Burke added: “Some of you may have seen a survey which said that seven out of eight insurers said they needed things converted on a D2 basis. But what we are seeing is possibly a shift away from that, not least because we think they will have to provide some kind of dual record option. It is a conversation you must have if you are on a journey with an insurer, to understand what you need to do. Insurers will expect well-documented decisions, a solid audit trail and evidence of the process that was followed.”

Wherever trustees are on their GMP equalisation journey, some principles are universal. Plan well ahead, start preparing your data and looking for gaps, keep in regular contact with your administrator, and seek legal advice in order to ensure your decisions are robust and well-documented.

GMP equalisation: experts’ top tips:

Claire Carey:

“Get advisers working collaboratively but most importantly, get your employer on board at an early stage. Whilst many trustees will be keen to crack on with GMP equalisation and conversion exercises, it is important that they are keeping themselves aware of the latest guidance”

Sean Burnard:

“As a trustee, I would say, start your project now. Get a GMP working party together. Who is the project manager, who is the team? Start thinking about what you can do now. Start looking at what data is missing.”

Colin Smith:

“Understand your key strategic decisions. Don’t let the project take over your other objectives. Take into account capacity constraints when everyone is trying to take action at the same time.”

Vanessa Burke:

“From a data point of view, set a solid foundation and have the strategy run alongside everything else. You really want as many people to run through those calculations in bulk as possible.”

Andrew Long:

“We as an industry must deliver GMP equalisation well. It is important to work through the steps at the right pace. There are no prizes for coming first, but there are prizes for doing it well.”

Next Chapter: Selecting a master trust for Carillion’s defined contribution plans

Title File Type File Size
Pensions and Savings Conference 2019 Overview PDF 1.5 MB

Andrew Long
Managing director

Vanessa Burke
Director, Retirement

Colin Smith
Senior Director, Retirement

Related Insights

Contact Us