Well, it’s not been the most exciting of weeks in the pension universe but I suppose the big story – well big for us pension junkies – is the announcement made by Angela Eagle that the Guaranteed Minimum Pension element of a pension will have to be equalised for men and women.
In fairness, she did state that this would only apply in respect of schemes falling into the Governments ‘junior’ lifeboat, the Financial Assistance Scheme, but there are few of us who believe that the principle will not be extended to the ‘big’ lifeboat, the Pension Protection Fund and from there to all schemes that carry GMP’s for their members, that is, those who contracted out of the second limb of the state pension arrangements.
We have always known in our hearts that ever since the Barber judgement of the 17 May 1990 which first required the equalisation of benefits in pension schemes, that GMP’s would one day need to face their ‘day of judgement’ too. The problem is that GMP’s are inherently unequal, based as they are on State Pension Ages which currently are 60 for women and 65 for men – although of course this is gradually changing. No one has provided any real guidance for schemes on how they are supposed to equalise these benefits which up to fairly recently have been another file in the ‘it’s a bit too difficult’ basket at the Department for Work and Pensions. The PPF has consulted on how it would like to see it happen and this may well prove to be the model that schemes will have to adopt.
But, and it’s a very big but, this additional burden on schemes will not be an easy one for them to bear in these days of deficits and recovery plans. Actuaries are pulling their hair out trying to understand just how schemes are now to be valued given this additional tranche of liability. If the GMP is to be equalised with effect from 17 May 1990 one can only imagine the howls as millions are added to already overburdened employers’ contributions.
All we have so far is an announcement of course with no detail or even an inkling of how the process will work in practice and certainly no legislation yet. Opening one’s mouth without engaging gear in brain is seemples Ms Eagle. Now let’s see if you can put your money where your mouth is – or will you leave it to your successors to sort out?
The death rattle for DB schemes grows ever louder.
Jennie advises large multi-employer schemes as well as smaller single employer arrangements and has wide experience of both Defined Contribution and Defined Benefit schemes. Jennie qualified in 1986 originally as a criminal prosecutor. She sits as a Magistrate in her local justice area and is an Approved Chairman and Deputy Chair of the Bench Training and Development Committee. Jennie was formerly Legal Director of the Occupational Pensions Regulatory Authority. When her busy practice allows, Jennie likes to indulge her passion for travelling. To consult Jennie on any corporate Pensions matter, please call her on +44 (0)20 7749 2700 or send her an email by clicking below:
Good article. We knew it in our hearts too. However what is so difficult with modern software of simply comparing a male and female every month. Ten years ago neither administration software or indeed any practical actuarial software would have easily coped. Not such a problem now. Here is our take on the subject.
http://www.spenceandpartners.co.uk/archives/gmp-equalisation-government-signals-the-way-forward/