Public service pensions' GMP conversion unlikely until 2024 'at the earliest'

The government has warned that it may not be feasible to implement Guaranteed Minimum Pension (GMP) conversion for public service pensions before the current interim solution period ends in April 2021, and is unlikely to be implemented until April 2024 "at the earliest".

This comes as part of a consultation into how the government will continue to meet past commitments to public servants regarding the full indexation of public service pensions, including any GMP element.

The consultation, which closes on 30 December 2020, considers the policy options available to the government following the interim solution, which is currently expected to be in place until 5 April 2021.

In particular, it considers whether the government should discount conversion as a long-term policy solution and make the interim solution of full indexation permanent.

If not, it considers how long the government should extend full indexation for before reconsidering conversion or a feasible alternative solution in the future.

The government emphasised that it is conducting the consultation with “an open mind”, clarifying however that on the basis of current evidence, public service pension schemes’ preferred policy option would be to make full indexation the permanent solution.

It emphasised that scheme administrators are undertaking a “large volume of work”, both in response to court rulings as well as contending with issues arising from Covid-19, noting that the “high volume and intensity of work will continue for some time”.

In particular, it highlighted that public service pension schemes are currently undertaking remedy work required in response to the McCloud judgment, stating that the preparations for this are scheduled to last until April 2022 with implementation for the majority of cases "continuing well beyond that date".

The issue around GMPs arose after the introduction of the new State Pension in 2016, which saw simplified pension provision but removed the mechanism that enabled those public servants in contracted out employment between 1978-1997 to have their GMP fully price protected.

The government confirmed that since the last consultation on this matter, which resulted in the interim solution currently in place, it has worked with public service pension schemes and administrators to undertake “in-depth investigation” into the implications of adopting conversion as a long-term solution.

This included an assessment of any technical issues which could arise, with the government highlighting a number of "outstanding questions" around how to convert those cases where full indexation does not achieve equalisation and consequently conversion on a £1:£1 basis would also not achieve equalisation.

It clarified that whilst this affects only a small number of public service pension scheme members, it requires “careful consideration” and potentially “complex solutions”.

The government also stressed that, as there is a “steadily diminishing” number of public servants with a GMP who are yet to reach state pension age, as no further GMPs were accrued after 5 April 1997, a further extension of the interim solution would “significantly” reduce or even remove the benefits of implementing conversion.

The consultation has outlined three options in particular, which include the extension of the full indexation to cover those reaching state pension age up to and including 5 April 2024, or the extension of the interim solution to cover those reaching state pension age beyond 5 April 2024.

The third option outlined in the consultation is to use discount conversion as a long-term policy solution and make full GMP indexation the permanent solution for public service pension schemes.

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