Govt drops GMP conversion in favour of full GMP indexation for public service schemes

The government has confirmed plans to discount guaranteed minimum pension (GMP) conversion as a long-term policy solution for public service pension schemes, and make full GMP indexation the permanent solution.

This will mean that public service pension schemes will be directed to provide full indexation to those public servants with a GMP reaching state pension age beyond 5 April 2021.

In its response to the Public Service Pensions: Guaranteed Minimum Pension Indexation consultation, the government highlighted this as the “most practical solution” to GMP indexation.

It stated that this is because before conversion could be undertaken, schemes would need to ensure that they have accurate reconciled data, along with a finalised methodology, to convert those GMP benefits where conversion on a £1:£1 basis would not result in equalisation.

It also argued that this is likely to be resource intensive at a time when public pension schemes do not have the capacity to undertake conversion until at least 2024, and that there remains a chance that conversion might not be deliverable by then.

In addition to this, it emphasised that existing legislation is not appropriate for public service pension schemes to undertake conversion.

The government response and included impact assessment also noted that the benefits of converting GMPs of those public servants who have not yet reached their state pension age diminish over time as the number of members is "steadily reducing".

However, reflecting information based on the responses received in the initial consultation, the government stated that it was “evident” that the majority of public service pension scheme members with a GMP will have reached State Pension age by 5 April 2024.

Whilst the government also acknowledged that there were benefits of undertaking conversion, such as a reduction in administrative clarity, it clarified that these do not outweigh the benefits of making full indexation the permanent solution.

The response stated: "On the basis of the points set out above, such as capacity constraints; outstanding technical issues relating to conversion; legislative requirements; the diminishing numbers of members below state pension age with a GMP; and that the majority of consultation respondents expressed a preference for the permanent extension of full indexation, the government is of the view that full GMP indexation should be made the permanent solution for public service pension schemes."

The government had previously confirmed when launching the consultation that whilst it had “an open mind”, public service pension schemes had made “clear” that their preferred policy option was to discount conversion and make full indexation the permanent solution.

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