80% of employers could face increased pension costs over GMP

Up to eight out of 10 pension schemes’ employers could face additional costs due to the High Court ruling on GMP equalisation, according to XPS Pensions Group (XPS).

Due to the ruling, inequalities between men and women must be removed, and this could result in higher benefits for some members and higher costs for employers as a result.

Furthermore, employers must now reflect the cost of equalising GMP benefits in company accounts

XPS principal, Wayne Segers commented: “It is unwelcome news for employers that they are now forced to quickly calculate the cost of GMP equalisation. In order to prevent overestimating in their accounts, employers do need to look at all options available to estimate the cost.”

Up to 60 per cent of FTSE 350 companies have DB scheme liabilities and “for most, these are set to increase following the recent judgement".

Estimates forecast that GMP costs across all UK pension schemes could total £10bn.

XPS is warning sponsoring employers that they must act quickly, as the cost of equalising GMP benefits must be reflected in companies’ accounts at the end of the year.

For most companies this will be in December, so many employers have only weeks to make decisions and take action.

Segers added: “Our view is if employers embrace this change it is an opportunity for them to ultimately remove their GMPs once and for all and simplify benefits, reducing future administration burden and cost.”

These changes are due to the High Court verdict on 26 October 2018, in which it ruled that Lloyds Bank must equalise benefits between men and women.

Earlier this week, The Compass Group said it expected GMP equalisation to cost between 1-2 per cent of liabilities, after it recorded a surplus of £346m for its main defined benefit scheme.

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