28 April 2022
The GMP conversion bill has completed its passage through Parliament, receiving Royal Assent today, becoming the snappily named “Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022”. In this blog Alasdair Mayes, Head of GMP Equalisation at LCP explains how the Bill becoming an Act was a close-run thing and how this legislation will help make it easier for pension schemes to equalise benefits between men and women for Guaranteed Minimum Pensions (“GMPs”).
A close-run thing
Few private member bills make it to the statute book. This bill, sponsored by Margaret Ferrier and Baroness Redfern made it through just in time, with Parliament to be prorogued today. The fact that it made it through is testament to the hard work put in by the Department for Work and Pensions and cross-party support, demonstrating the political consensus around the importance of equality of treatment between men and women and ensuring pensioners are paid what they are due.
The immediate impact of the Act once it is brought into force will be two minor, but helpful, points:
- It confirms that GMP conversion can be applied not just to those that earned the GMP, but also their survivors, removing legal ambiguity; and
- It removes the need to notify HMRC of each and every individual whose benefits are being converted, saving time and cost for trustees.
Regulations to come
The potentially more significant impact of the Act is to give the power to make regulations on two areas that have been complicating GMP conversions:
- Which employer needs to provide consent for conversion; and
- What level of minimum survivor pension needs to be provided post-conversion.
The expectation is that the employer consent requirements can be materially simplified, making the process easier and reducing the risk that a conversion is later deemed invalid. It could also be really useful for schemes with numerous or unassociated employers.
The current rules on minimum survivor pensions are complex and unclear. We set out in the PASA guidance a potential way through, but the Act provides the opportunity to clarify the position and simplify it. The result can hopefully be better protection for members at the same time as simplifying the process for trustees.
Guy Opperman has promised a consultation on the regulations. It’s important this takes place quickly to help streamline the process of using GMP conversion to equalise benefits.
In the meantime trustees can still make progress on equalising members’ benefits for GMPs. A shown in our six-step plan, there is no need to make a decision up front on whether you will use GMP conversion. It’s right for some but not others. You can make progress on transfer values and calculating how much members have been underpaid in the past and the results of that work, as well as the forthcoming Regulations and on-going work by HMRC on the pensions tax implications of GMP conversion, can then be factored into your decision making without delay to the whole project.