The proposed approach to guaranteed minimum pension (GMP) equalisation will be costly for schemes, according to some experts.

Last week the Department for Work and Pensions published a consultation setting out a proposed approach to equalising pensions for men and women. The move would satisfy European legislation requiring removal of state legislation that provides for unequal treatment between the sexes.

KPMG pensions partner Mike Smedley said the guidance suggests that when calculating the GMP element of a member’s pension, the person should receive the higher of whatever a man or a woman would have received according to the scheme’s own rules in any given year.

“[the] draft guidance aims to clarify the issue of how to equalise the calculation of the fiendishly complicated ‘guaranteed minimum pensions’ for men and women. However it seems to only add to the confusion and opaqueness of the issue and intriguingly raises the prospect of pensioners being treated as some sort of sequential hermaphrodites able to transform their genders from male to female and back again,” Smedley said.

Towers Watson head of UK pensions John Ball said the approach suggested by the government is very much at the expensive end of the spectrum, in terms of payments to members and administrative costs.

Ball pointed out that the government has not said other, potentially cheaper, methods of equalising benefits are necessarily illegal.

“Employers and trustees will therefore have to weigh the sense of external validation from following the government's method (assuming this survives the consultation) against the extra costs. A lot may come down to whether lawyers think the government's approach is gold-plated. Schemes which have bought out have had to grasp this nettle, so there will be other precedents out there.”

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