Equalising GMPs

Towards the end of 2018, the High Court made a judgment on a case to do with Guaranteed Minimum Pensions (GMPs). It confirmed that pension schemes like ours, who have some members who have earned a GMP, will need to treat them differently.

We’ll need to make sure that any GMP benefits built up between 17 May 1990 and 6 April 1997 are equal between men and women. If you don’t have any GMP benefits built up between these dates, this judgment will not affect you.

Since then, the Department for Work and Pensions, HMRC and an industry working group have been producing guidance on how this will work in practice. There have also been further court judgments on how to deal with things that have happened in the past.

The Trustee and Company have worked together to understand the impact of these developments on the Scheme, but there are still areas that need to be made clear. It will be a complex process and it is likely to take a long time before we can update members who may be impacted.

We’ll keep this page updated as the situation and timing become clearer. If we have anything new to tell you we’ll let you know through our regular communications and if it’s important we’ll write to you separately. In the meantime, we’ve responded to some questions you may have.

 

About Guaranteed Minimum Pensions (GMPs)

What is a Guaranteed Minimum Pension?

Put simply, a Guaranteed Minimum Pension (GMP) is the minimum amount of pension the Trustee must provide for a member who had built up pension before April 1997. This was one of the conditions of all Scheme members being contracted-out of the Additional State Pension.

Your GMP makes up part of your total annual pension amount, with the amount that’s left (in excess of your GMP) representing your Scheme pension.

What does the State Pension have to do with GMPs?

The State Pension used to be made up of two parts – the Basic State Pension and the Additional State Pension.

From April 1978, some workplace pension schemes chose to ‘contract out’ of the Additional State Pension. The rules for contracting-out were very complex, but the general idea was that both employees and employers would pay a lower rate of National Insurance contributions. In exchange, employees would not build up an Additional State Pension and up to April 1997 they would earn a minimum amount of pension in their workplace pension scheme instead. This was called the Guaranteed Minimum Pension (GMP).

The amount of GMP is broadly the same as the Additional State Pension that you would have received if you had not been contracted-out and had paid a higher rate of National Insurance contributions.

What does it mean if I have a GMP?

Firstly, the Trustee must always make sure that the total annual pension you receive when it is in payment is more than the amount of GMP you have earned.

Secondly, because the rules for GMPs are set by the Government, the Trustee must apply increases to the GMP part of your pension in line with legislation. Wheres your Scheme pension increases in line with the Scheme Rules.

This means that the increases applied to your pension, whether it is in payment or not yet in payment, will be affected by how much of your total annual pension is taken up by your GMP.

General questions

Do I need to do anything?

You don’t need to do anything. If your pension is impacted by this judgment we’ll write out to let you know and we’ll apply the change automatically.

Is my pension impacted by this judgement?

You’ll need to have built up a GMP between 17 May 1990 and 6 April 1997 to fall into the group of members that need to be assessed by the Trustee.

If you don’t have any GMP benefits built up between these dates, this judgment will not affect you.

How might my pension be impacted?

It’s not yet possible to say exactly how members’ pensions will be affected. Even if you do fall into this group of members, there may not be any impact on your pension.

Will my pension be increased because of this?

We’re unable to confirm if your pension will increase. There’s a lot that still needs to be made clear following the judgment and we’ll need to work through the full details once they become available and then produce some complicated calculations. However, because this only applies to pension built up between 1990 and 1997, it’s likely that if an increase is payable it will be small and a lot of members won’t be due to receive any increase at all.

I get a spouse/dependent’s pension. Is my pension impacted?

If your pension as a spouse/dependent includes a GMP that was built up between 17 May 1990 and 6 April 1997, your pension may also be assessed as a result of this judgment.

How long will it take to find out how it might impact our pension?

We’re not able to tell you exactly how long it might take just yet, but we’ll keep you up to date when the timing becomes clearer.

It will be a long and complicated process which means that any changes are unlikely to be applied this year.

I’m not receiving my pension yet, how am I affected?

If you’ve earned a GMP that was built up between 17 May 1990 and 6 April 1997, the calculation of your GMP will be reviewed by the Trustee and if an amendment needs to be made it will be applied automatically.

I'm planning to take my pension soon, should I wait until this has been sorted out?

We recommend taking independent financial advice when deciding when is the right time for you to take your pension and what the best option is for your personal circumstances. If you do take your pension before we’ve completed an assessment and it is later determined that an increase is due, we’ll contact you to explain any rights and options.

I'm thinking about transferring my pension to another arrangement

We’re not able to pay a transfer value that reflects equalised GMP benefits at the moment. If you’re thinking about transferring your pension, we’ll explain what your options are when we write out to you.

Will I get a back payment for the higher pension I should have received in previous years?

If you’re owed something, you will be paid arrears which may be taxable. The back payment is likely to be taxed through PAYE, where you could apply to HMRC to spread the payment over the relevant number of tax years. HMRC have not yet confirmed how tax will be applied.

What happens if I die before you’ve worked out any adjustment?

We’ll pay any back payments to your estate.

Will there be any tax implications?

There are some potential tax implications. For example, in the same way as you pay PAYE on the pension you receive now you may also need to pay PAYE on any additional sums. Once HMRC have clarified some details we will be able to let you know more.

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