The Government has issued a plea to the pensions industry for help devising a solution for equalising guaranteed minimum pension payments between men and women.
GMPs are the minimum level of pension an occupational scheme must provide to people who contracted-out of the state earnings related pension scheme between 6 April 1978 and 5 April 1997.
The issue of how to equalise GMPs, and whether pension schemes are actually required to do this, has divided industry opinion for over 20 years.
The Government believes the “Barber” judgement of May 1990 means all schemes are required to treat men and women equally in relation to their pension rights. It says the ruling covers any pension accrued from the date of the judgement, including GMPs.
However, experts say it is not possible to equalise GMPs because they accrue at different rates for men and women and are payable at different ages. As a result, most schemes have continued to ignore the sex inequalities that exist in the calculation of the payments.
In January last year the DWP published a consultation setting out a possible method for equalising GMPs. The DWP method relies on a comparison between a member’s GMP and their GMP had they been of the opposite sex.
The DWP said schemes should then pay the higher of the amount the member would receive under scheme rules and the amount they would have received under the rules were they of the opposite sex.
In April last year, a joint letter from seven influential trade bodies, including the ABI and the NAPF, urged pensions minister Steve Webb to reconsider the proposed method, which they said is complicated and would cost schemes around £13bn.
The DWP has now published an interim response to the consultation asking experts for help in agreeing guidance on how to equalise GMPs. Officials are considering producing statutory guidance which would tell pension schemes how this could be done.
The response says: “Following the consultation, the Government is considering the responses in detail and looking, in particular, at proposals for how the GMP conversion process might be used to equalise scheme benefits for the effect of the GMP. The Government may provide statutory guidance on GMP conversion, which would incorporate advice on GMP equalisation as part of the conversion process.
“The Government would welcome assistance from the pensions industry on this subject and would like industry representatives to work with the department in preparing the outline of the guidance. The Government is currently deciding the best way to progress this work.”
The DWP says a full response to the original consultation will be published “at a later date”. It says it will postpone laying the regulations before parliament while guidance on GMP equalisation is being considered.