There is no protection for trustees wanting to use the Department for Work and Pensions proposed new method of GMP equalisation against the risk of it being challenged in court, Sackers has said.

In response to the government’s consultation on GMP equalisation, which has now closed, Sackers partner Michaela Berry said that while the new proposals to offer a solution to the question of GMP equalisation are more straightforward that those put forward in 2012, that fact remains that “the pensions industry does not agree that equalisation of pensions for the effect of GMPs is actually required”.

“As drafted, there is no protection for trustees wanting to use the DWP’s proposed new method against the risk of it being challenged in court or unpicked following a court challenge, if the regulator then considers at some point in the future that a conversion element has not been satisfactorily achieved.

“Unless and until there is a definite legal requirement for schemes to equalise pensions for the effect of GMPs, schemes are unlikely to jump at the chance to use the DWP’s method unless they are winding-up,” Berry said.

The proposed new methodology seeks to achieve equal benefits in private sector pension schemes using a one-off calculation followed by GMP conversion. In summary, the new method put forward by the working group involves a one-off calculation and actuarial comparison of the benefits a man and woman would have, with the greater of the two converted into an ordinary scheme benefit under the legislative facility for converting GMPs.

This calculation involves comparing the future expected cash flows for the member in the period that needs to be adjusted for GMP inequalities (i.e. 17 May 1990 to 5 April 1997) with that for the opposite sex comparator, allowing for contingent benefits.

If the opposite sex comparator has the greater discounted value of expected cash flow, then that greater value is delivered. Sackers said that schemes will need to consider whether it is appropriate to use the CETV calculation method, or whether another method would be more appropriate for this purpose.

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