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GMPs: To equalise or not to equalise?
In January 2000, the Pensions Ombudsman ruled (in the case of Williamson), that schemes should equalise their guaranteed minimum pensions (GMPs).
This ruling was appealed and, in a judgment issued in February 2001, set aside.
The High Court decided that the Ombudsman should never have made a decision affecting all other members of the pension scheme when the other interested classes of member were not represented before him.
The High Court judgment clearly stated that GMPs were just a factor in the calculation of the pension and, being simply a step in that calculation, should not be equalised and indeed (being a formula within a statute) could not be altered. In the judge's opinion, it was the overall pension which needed to be equalised and not the GMP calculation within it.
Although the judge expressed his views as to whether GMPs in general must be equalised, he made clear that because he had decided the procedural point (that the determination should not have been made), his views on the equalisation issue were not binding.
Following this decision, schemes were advised to sit tight and await further developments. Unfortunately, several years later, the question remains unanswered.
On 28 January 2010 the Department for Work and Pensions (DWP) published a consultation on draft guidance in relation to the transfers of scheme assets to Government (the Financial Assistance Scheme (FAS)). The Government also consulted on draft guidance on how transferring schemes might deal with the impact of GMPs on the equalisation (between men and women) of members' expected pensions, ahead of providing data to the FAS scheme manager.
On the same day, the then Minister for Pensions and the Ageing Society, Angela Eagle, made a statement to the House of Commons in which she noted that:
"the Government have been preparing guidance for trustees who are preparing to transfer their scheme assets to Government. As part of that work, the Government have considered whether further practical guidance on equalisation for these transferring schemes is desirable, to ensure that payments of assistance do not discriminate between men and women."
Ms Eagle went on to note that the Government has concluded that "where a scheme member has accrued entitlement to a guaranteed minimum pension after May 1990, European law requires that any inequality in scheme rules which results from the legislative provisions governing GMPs should be removed, whether or not a person can show that a comparator exists." The Government therefore intends to bring forward amending legislation to deal with this "when Parliamentary time allows" and considers that "in order to ensure full compliance with European law, trustees and others should act as if existing domestic legislation requires equalisation in respect of differences resulting from GMPs whether or not real comparators exist".
We understand that the DWP will publish a consultation on GMP equalisation early in 2012.