The Department for Work and Pensions has delivered trustee guidance on how to equalise guaranteed minimum pensions (GMP), despite still considering changes to the conversion legislation.

Published today, 18 April, the 10-stage process will offer a “roadmap” for trustees six months after the High Court ruled that Lloyds must start the process of equalising benefits in relation to GMP, thought to have cost the bank roughly £150m.

The government added that it looking to change the legislation in order to “clarify certain issues”, meaning the guidance will be “updated from time to time”.

A point which Willis Towers Watson senior director, Richard Akroyd, believes may make schemes reluctant to commit to conversion.

“The DWP guidance provides some reassurance about what the legislation permits and lists the main steps that schemes need to take. However, schemes will be reluctant to commit to conversion until they know the potential tax consequences for members,” he said.

“That requires clarification from HMRC, both regarding conversion and GMP equalisation more generally. If HMRC decides that changes in the law are needed, that will obviously take time, but schemes will be looking for a steer as soon as possible.”

First introduced in 1978, GMP were a means of allowing schemes to contract out of State Earnings Related Pension Schemes (SERPS), as good as the statutory amount, which were allowed to be calculated differently for men and women.

Regarding the method for equalisation, the government said “it is for the trustees of each scheme to decide the methodology that is most appropriate for their scheme”.

In February, research found that insurers favoured the D2 method of equalisation in order to achieve favourable buyout pricing, contrary to the High Court judgement which favoured the C2 method.

Commenting on the guidance, Pensions Minister Guy Opperman, said: “This vital guidance will provide pension trustees with the detailed road map they need to navigate this complicated equalisation process, ensuring they can meet their legal obligations.

“I am determined to ensure that pensions are fair for everyone and this guidance will help achieve this.”

Schemes have been calculating the cost of equalisation since the ruling was delivered in October, with most estimating a cost of between 1-3 per cent of liabilities.

According to research by Hymans Robertson, the cost of equalising to pensions schemes is expected to be half of the £15bn previously anticipated, with schemes more likely to face an overall cost of £8bn.

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