GMP working group publishes anti-franking guidance

The cross-industry GMP Equalisation Working Group (GMPEWG), chaired by the Pensions Administration Standards Association (Pasa), has published supplemental guidance allowing for anti-franking when achieving guaranteed minimum pension (GMP) equality.

The supplement builds on the previously issued guidance from the working group in September 2019, which included a short section address anti-franking.

In the guide, the working group has identified three potential techniques for applying anti-franking for GMP equalisation purposes: the ring-fence or 90-97 technique, Department for Work and Pensions 2012 (whole of service mixed sex) technique, and the apportionment (whole of service pure sex) technique.

It also provides practical examples following the ring-fencing technique, which were designed to provide a useful illustration to schemes and their administrators.

The term anti-franking covers complex rules within GMP legislation, designed to make sure the revaluation provided to GMPs in deferment cannot be offset against a member's other benefits (other than in limited circumstances).

This is implemented by means of an ‘anti-franking minimum pension’ defined under legislation, which can result in pensions in payment being stepped up when a member reaches their GMP age, or at retirement when a member remains in active pensionable service after their GMP age.

The working group's guidance clarified that whilst anti-franking may have little impact on the overall scheme liability or benefits for many schemes, for those members to whom it does apply, it can “have a significant impact – which usually only apples to one sex”.

In light of this, it warned that anti-franking can “significantly impact” GMP equalisation, including changing which sex is better off overall.

Anti-franking sub-group chair and Aon consultant, Felicity Boyce, commented: “Following requests from the industry, we have produced a supplement to the original methodology guidance which examines the interaction of anti-franking and GMP equalisation in more detail.

"The guidance explains why anti-franking is important in the equalisation journey, highlights the potential significance of the Later Earnings Addition and suggests approaches to deal with the key areas of uncertainty.”

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