£8bn GMP costs half what previously thought

The cost of equalising guaranteed minimum pensions (GMP) is likely to cost almost half of the £15bn anticipated by the industry after the ruling, new analysis has found.

According to research by Hymans Robertson, the cost of equalising to pensions schemes is more likely to cost around £8bn, suggesting that most companies will not see “significant” disruption to their long-term funding strategies.

Following the High Court ruling last October, many in the industry believed that the cost to businesses would be in the region of £15-£20bn.

The cost to Lloyds, which took the case to the High Court, was thought to be around £500m, before the figure was quickly revised down to £150m.

Hymans Robertson head of GMP equalisation, Matt Davis, said: “It is really encouraging news for UK business that our more detailed analysis indicates that it will be closer to half that amount. This suggests that most companies will not see significant disruption to their long term funding strategies.

“While many financial directors will be relieved that the impact is not as bad as first feared, we‘ve seen noticeable differences from scheme to scheme. This means it is important to complete a thorough assessment, especially as this extra cost normally flows through ‘profit and loss’ in company accounts.”

As schemes come to terms with the process, many have estimated that it is going to cost between 1-3 per cent of their liabilities.

Despite this, Davis warns that it is still one of the biggest challenges facing the industry, as 28 years of pension records will need to be re-analysed.

Previously, the consultancy firm said that pension schemes should look to adopt the D2 method for equalisation in order to get favourable buy in and buyout pricing.

The survey found that seven out of eight insurers had a “unanimous” preference for pension schemes who opted for the D2 method, with six out of seven offering more competitive pricing to schemes who had used the method.

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