Omnium Employee Benefits

Guaranteed Minimum Pensions: Equalisation

Guaranteed minimum pensions (GMP) are provided by defined benefit (final salary) occupational pension schemes that contracted out of the State Second Tier Penson Scheme, known as the State Earnings Related Pension Scheme or SERPS.

The idea of GMPs was that they broadly mirror the benefits available via SERPS.

However, at the time they began being introduced in 1978, the retirement ages for men and women were different. As a consequence, the GMP accrual rates were different. They were generally higher for women as the benefits were spread over a shorter time period.

As a result of the Barber judgement, from 17 May 1990, provision of unequal benefits was deemed unlawful.

Since then, there have been a number of rulings regarding GMP equalisation, as it is known. However, the most significant was on 26 October 2018. On that date, the High Court gave two key rulings:

  1. All pension schemes must equalise for GMP.
     
  2. Clarification of acceptable equalisation calculation methods – five different options.

Hence, some defined benefit scheme members with GMPs earned for service between 17 May 1990 and 05 April 1997 will be entitled to additional benefits.

This puts further responsibility on the shoulders of scheme trustees, who have ultimate accountability for paying the correct benefits.

In some cases, this also affects the sponsoring employer, who may have to pay additional contributions into the pension scheme.

This is made even more complicated, as GMP increases in payment changed in 1988.

The overall cost to any scheme is dependent on its benefit structure and the demographics of its membership.

In addition, other situations can further complicate matters:

  • Early and late retirement (i.e. not at the scheme retirement age).
  • Commutation of lump sums.
  • Members who have already transferred out.
  • Anti-franking minimum requirements.
  • Different pension increases based on different periods of service.
  • Dependants’ benefits.
  • Back-payments.

We can help

Please talk to us about your pension; we are here to help explain the complexities and consequences.

Call us on 01483 205890 or email at eb@omniumbenefits.com

 

 

 

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