Pensions Aspects February 2020

The year of the GMP

Contracted-out pension schemes will soon be commencing the work necessary to deliver equalisation of GMPs. The path to equalisation has many stops along the way and stop 1 is a data gap analysis to determine missing contracted–out data. Stop 2 is uploading important data that have been collected from HMRC (service and contribution histories, etc.), and stop 3 is rectification. GMPs reconciled with HMRC are used to re-calculate each members’ benefit entitlement; this does not mean rectifying benefits but finding out how many need rectification and the amounts involved. These two activities can, in fact, run side-by-side to deliver information necessary for GMP equalisation.

So when do we start telling members what we are doing?

GMP equalisation is a highly complex concept for scheme members and is going to challenge their understanding. Members will be affected in different ways:

• underpaid members under rectification
• overpaid members under rectification
• members not affected by rectification
• members not affected by equalisation
• members underpaid under equalisation, and
• members underpaid under equalisation who have been overpaid under rectification, and so on and so forth

As we move into 2020, the mainstream media will begin to start reporting this issue and members will see and hear more about it and have questions.

Big Bang or slow and steady?

One possible way of managing member expectations is to drip feed information. What members will want to know is ‘am I affected?’ and ‘how much will I get?’. It is unlikely that schemes will know the answer to the second question until much later. However, schemes should already know who is affected. Therefore, the first communication could be:

• you are not affected; or
• you are affected and it is likely that you will receive a small additional pension, we will keep you up-to-date with progress, and our next communication will be in a few months’ time.

Regular communications should head off a lot of enquiries and manage expectations.

With the Big Bang approach, some schemes believe that they will deal with rectification and equalisation in one communication. This will be a complex communication containing variable member data; it is not simply a benefit statement: benefits will change as a result of re-tranching, revaluation, etc.about the moral issues? What about the moral issues? Reconciliation work means that schemes could have known they are underpaying or overpaying members for up to two years; how can trustees justify waiting any longer? Members might die in the intervening period and why should trustees continue overpaying a member thus increasing the burden where sponsors decide to claw-back overpayments. Convenience is not a strong argument as a defence. Schemes should be developing a communications plan early in 2020