GMP working group issues updated guidance on transfer payments

The cross-industry GMP Equalisation Working Group (GMPEWG), chaired by the Pensions Administration Standards Association (Pasa), has published supplemental guidance on transfer payments.

It provides an update to the initial methodology guidance published in 2019 and reflects the November 2020 Lloyds Bank pension scheme High Court judgment, which ruled that trustees should equalise GMPs in past transfers.

The impact of this ruling is considered from the perspective of both schemes which paid transfer values and those receiving them within the guidance.

Commenting on the updated guide, chair of the methodology subgroup, Duncan Buchanan, said: “The GMPEWG is passionate about helping schemes address the need for GMP equalisation adjustments.

"We always knew our original guidance on methods would need updating once the Lloyds 2020 judgment was issued. It quickly became apparent to us Lloyds 2020 leaves many issues unanswered for both schemes which have paid transfer values and those which received them.

“Members of our subgroup have again pooled their extensive knowledge and wide experience as actuaries, administrators, lawyers and pension managers to produce this Supplemental Guidance on Transfers.

“It is designed to fill in the gaps to help address unresolved issues in a pragmatic and practical way. It is telling the judge in Lloyds 2020 recognised administration costs could easily exceed correction payments needed for past transfers."

Buchanan also noted that whilst it is nearly three years since the first judgment in Lloyds, most schemes "remain at the foothills of their GMP equalisation projects, gathering data to prepare for the task ahead".

He continued: “It will be some time before most schemes have scaled the summit of their GMP equalisation exercises, corrected member benefits and reviewed historical transfers.

“Along the way, schemes will find past transfers where insufficient data exists to perform calculations. Even where a top up payment can be calculated it might not be easy to discharge the liability because receiving schemes may be unwilling to accept payments and/or former members may be untraceable or unresponsive.

“Having undischarged or unquantified liabilities to make top up payments may not be a problem for an ongoing scheme but will cause headaches for those moving to wind up, particularly given the lack of a limitation period."

The supplemental guidance has also been welcomed by The Pensions Regulator, as head of policy, Louise Sivyer, commented: “The November 2020 judgment confirmed that schemes will need to revisit historical individual transfers to check if additional value is due to savers as a result of GMP equalisation.

“This is a complex exercise, and we welcome the guidance from the industry GMP equalisation working group, which aims to assist schemes and advisers to find a pragmatic approach to equalising past transfers.”

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