When the State Earnings Related Pension Scheme (SERPS) was introduced in April 1978, it was possible to contract-out of it into an occupational pension scheme. A condition of it being used to contract-out was that the scheme provided a defined benefit (known as a GMP). The requirement to provide a GMP was removed from April 1997 but schemes still have to provide them for rights built up before that date.
The legislation (Pension Schemes Act 1993, s14 to 16) requires GMPs to be calculated on an unequal basis, with the age at which it can be drawn and rate at which benefits build up, different for men and women.
On 17 May 1990 the Court of Justice of the European Union ruled that occupational pensions were deferred pay and, as such, schemes had to treat men and women equally: “the Barber judgment.” The judgment, which applies to rights built up from 17 May 1990, imported an equal treatment rule into occupational pension scheme rules, meaning that where a scheme rule would result in a member of one sex being treated less favourably than one of the opposite sex, it must be read as though it does not do so.
The Government took the view that the Barber judgment required schemes to equalise GMPs and consulted on a proposed approach to this in 2012. However, because of concerns that this would be particularly onerous to implement, the Government withdrew the draft regulations in 2013. In 2016, it launched a further consultation on an alternative methodology, which was generally considered to be a distinct improvement.
The legal position regarding whether there was a legal requirement to equalise GMPs remained uncertain until the judgment of the High Court on 30 October 2018 in the case of Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank PLC and others. The court held that the Trustee was “under a duty to amend the Schemes in order to equalise benefits for men and women so as to alter the result which is at present produced in relation to GMPs.”
The arrangements for increasing GMPs in payment are discussed in Library Briefing Paper CBP-4956 (May 2018).
The current position is that before conversion can be undertaken, schemes would need to ensure that they have accurate reconciled data, along with a finalised methodology to convert those GMP benefits where conversion on a £1:£1 basis would not result in equalisation. This will be resource intensive at a time when public service pension schemes do not have the capacity to undertake conversion until 2024 at the earliest. Public Sector Pension Schemes are also dealing with the Remedy as a result of the McCloud Sargeant judgment, so conversion might not be deliverable by that date.
Update 15th December 2023
Update 1
The Government decided to discount conversion as a long-term policy solution and make full GMP indexation (ie the interim solution) the permanent solution for public service pension schemes. Public service pension schemes will therefore provide full indexation to those public servants with a GMP reaching state pension age beyond 5 April 2021.
The current position is that before conversion can be undertaken, schemes would need to ensure that they have accurate reconciled data, along with a finalised methodology to convert those GMP benefits where conversion on a £1:£1 basis would not result in equalisation. This will be resource intensive at a time when public service pension schemes do not have the capacity to undertake conversion until 2024 at the earliest. Public Sector Pension Schemes are also dealing with the Remedy as a result of the McCloud Sargeant judgment, so conversion might not be deliverable by that date.
Update 2
The House of Commons has produced a Briefing Document on GMP Equalisation, which was released in September 2023. This can be accessed using the following link- https://commonslibrary.parliament.uk/research-briefings/cbp-8427/
April 2022
Please see the latest Government Newsletter
Update 24th March 2021
Having considered the responses, the Government has decided to discount conversion as a long-term policy solution and make full GMP indexation the permanent solution for public service pension schemes. This approach will mean that public service pension schemes will be directed to provide full indexation to those public servants with a GMP reaching State Pension age beyond 5 April 2021.
This was our preferred option and is a very good outcome to the GMP indexation consultation, and ends the uncertainty and reviews every three years.
The Consultation response can be viewed at: Public Service Pensions: Guaranteed Minimum Pension Indexation consultation – GOV.UK (www.gov.uk)
Update 26th January 2021
Update 7th October 2020
On 7 October 2020, the Government launched a further consultation which proposes either to extend the interim solution for a few more years or to make it permanent (the latter being the Government’s preferred option). For more information you can see the Consultation paper at:
The consultation closes on 30 December 2020 and the consultation response is expected to be published before 6 April 2021, i.e. before the interim solution expires.
The Public Service Pensioners Council [PSPC] will be making a response to the consultation and, dependent on the nature of that response, NARPO will consider whether it needs to make an additional submission.
Update 21st February 2020
HMRC has published a newsletter that provides guidance on some of the pensions tax issues arising when equalising benefits for the effects of inequalities in guaranteed minimum pensions (GMPs) in light of the Lloyds case ([2018] EWHC 2839 (Ch)). The guidance supplements the existing guidance in the Pensions Tax Manual relating to benefit adjustments for registered pension schemes with periods of contracted out pensionable service between 17 May 1990 and 5 April 1997.
HMRC says that it will continue to explore with its working group those pension taxation issues associated with the equalisation of GMPs but not included within its supplementary guidance, including the treatment of lump sum and death benefit payments, and aims to give more guidance on these as soon as possible and also aims to continue to explore the tax implications for schemes choosing to use the conversion method of GMP equalisation.
Update 30th September 2019
The GMP Equalisation Working Group (GMPEWG) has published guidance which outlines guaranteed minimum pension (GMP) equalisation methods that pension schemes could use and suggests how schemes should deal with common issues that can arise when implementing an equalisation project.
Pension professionals should pay attention to this guidance, especially as Anthony Arter (the current Pensions Ombudsman) has indicated that the Ombudsman will refer to it when reviewing complaint cases.
However, this is not to say that schemes should go ahead and begin to equalise their schemes for the effect of unequalised GMPs now. Even the GMPEWG expects that most schemes will choose to wait for the publication of the awaited HMRC guidance (on the tax implications of adjusting scheme benefits) before implementing an equalisation project. However, such schemes should at least start to prepare and consider the steps referred to in the Call to Action previously published by the GMPEWG. For some other schemes, such as those in winding-up, there may be no choice but to begin GMP equalisation.
Significantly, the guidance presently published by the GMPEWG fails to resolve all uncertainties relating to GMP equalisation. Besides the awaited HMRC guidance, uncertainty remains around the treatment of transferred-out benefits. The guidance indeed chooses to leave this issue for the Lloyds hearing expected in spring 2020.
More significantly, the guidance fails to discuss whether an actual opposite sex comparator is required for GMP equalisation purposes, proceeding on the basis that if no actual comparator can be found (something which according to the guidance is highly likely to happen), then a hypothetical comparator should be used. This echoes the government’s stance that no actual comparator is required. This stance is based on the government’s interpretation of Allonby v Accrington & Rossendale College, but it could be argued that it contradicts the wording of section 64(1) of the Equality Act 2010 which seemingly requires an actual comparator. Importantly, this issue was not considered in the Lloyds case and while the government has previously stated its intention to amend legislation to reflect its stance ‘as soon as a suitable opportunity presents itself’, this has yet to be done. It seems vital that this comparator issue should be resolved before schemes implement GMP equalisation.