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Guaranteed Minimum Pensions

Guaranteed Minimum Pensions (GMPs) have been a long-standing complication of UK pensions. However, after a long and complex history, including in more recent years the abolition of contracting out and greater clarity on GMP equalisation, schemes are entering the final stage of their GMP journey, potentially waving GMPs goodbye entirely.

Following the abolition of contracting out and the closure of HMRC’s GMP data service, many schemes have spent the last few years reconciling their GMP data with HMRC. The deadline for submitting final queries to HMRC now passed, with many schemes now in the final stages of their GMP reconciliation and moving on to the next phase of this data project, including recalculation.

And following years of legal uncertainty, October 2018 saw a landmark ruling in relation to GMP, with the Lloyds Judgment confirming that GMP equalisation is required. There are a number of possible methods that could be used to implement this, many of which are expected to have implications on scheme administration. In light of this, the option to convert GMPs into an alternative form DB benefit is being considered by many schemes, with the April 2019 GMP conversion guidance provided by DWP providing helpful clarification on various matters.

Many pension schemes have used these developments to begin their own GMP journey. Where this will take them will vary by scheme, but the end of this journey could be a pension scheme without any GMPs. In practice, this could mean the following for UK pension schemes:

  • Simpler ongoing administration – with many equalisation methods expected to resulting in dual record keeping, converting GMP could remove this and simplify calculations
  • A pension that members understand – allowing member communications to focus on the bigger picture of their retirement options
  • More member flexibility – removing red tape caused by GMPs may allow earlier retirement and more flexibility to take tax-free cash
  • A more efficient investment strategy – it will be easier to match a scheme’s liabilities more closely

We can guide you through the different steps on this journey and the four main stops en-route to the end destination:

  1. GMP reconciliation – making sure that scheme GMP and membership data is the same as that held by HMRC. Traditionally completed when a member reached their GMP payment age, but now brought forward to avoid problems that might come to the fore when HMRC’s Scheme Reconciliation Service (SRS) is removed.
  2. GMP recalculation – recalculating pensions and implementing adjustments for any members where you have accepted a change in data through the SRS.
  3. GMP equalisation – performing calculations to uplift some members’ benefits to equalise for the effects of GMP.
  4. GMP conversion – the process of converting GMPs into other benefits offers opportunities to simplify and streamline pensions.
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