The Department for Work and Pensions has published its first round of guidance to help trustees resolve unequal guaranteed minimum pensions today.
A GMP is the minimum pension that an occupational pension scheme, contracted out of the additional state pension between 6 April 1978 and 5 April 1997 on a salary-related basis, has to provide to its members.
GMPs were abolished for contracted out service after 5 April 1997.
Judges in that case found the GMP system had historically operated unequally. The High Court ruling endorsed the government’s methodology for the complex process of restoring equality to GMP schemes.
The government goes onto to say the guidance will be updated if needed to reflect any changes to future legislation or any material developments in case law.
Minister for pension and financial inclusion Guy Opperman says: “This vital guidance will provide pension trustees with the detailed road map they need to navigate this complicated equalisation process, ensuring they can meet their legal obligations.
“I am determined to ensure that pensions are fair for everyone and this guidance will help achieve this.”
In February a Freedom of Information Act request from HM Revenue and Customs showed more than 100,000 pension savers could face six-figure tax bills if GMPs were equalised.
Lawyers have also warned IFAs who advised clients in contracted-out schemes with guaranteed minimum pension benefits to transfer out should watch the fallout of a key Lloyds ruling closely.
Commenting on the release today LCP research partner David Everett says: “GMP conversion has a lot of potential, enabling schemes to remove inequalities and simplify benefits.
“This guidance is a useful first step to assist trustees and their advisers who may be thinking of using the GMP conversion legislation to resolve the GMP inequality issue brought into focus by last year’s High Court judgment involving the Lloyds Banking Group.
“However, more needs to be done, by both the DWP, HMRC and the courts before much needed clarity is achieved on how to operate this approach in practice.”