GMP equalisation and data “gaps”
As we are all now aware, the Lloyds judgment has made it clear that schemes must equalise for the effect of unequal GMPs accrued between 17 May 1990 and 5 April 1997.
In order for trustees to move forward with GMP equalisation calculations, a substantial amount of membership data would normally be required. The key point here is that the data needed is different to the data schemes use for “normal” pension calculations and so we are seeing GMP data issues being widely raised in GMP equalisation projects.
Legal starting point
Trustees have a duty to pay the correct benefits under the scheme’s trust documents and under legislation. In reality, the practicalities and other considerations (eg whether the data is available at all and, if so, where it is, who holds it and what level of resources is needed to access it) mean that a more nuanced approach may be appropriate.
Trustees should take reasonable, practicable and proportionate steps to address member data. It is not, however, incumbent on trustees to go to all possible exhaustive lengths to correct all missing or incorrect data.
The data needed
When the Lloyds judgment first came out you may recall that lawyers were very careful about saying “equalising for the effect of GMPs”, rather than “equalising GMPs”, and this distinction is reflected in the way that the data works.
The important thing to remember is that we equalise the whole pension amount, and so we need data on both the GMP and also on the excess.
So, two separate data sets, and that data might sit in different places.
Taking a pragmatic approach?
There can be circumstances in which trustees can become comfortable that it would be appropriate to take a more pragmatic approach.
Trustees need to satisfy themselves that there is a good reason for taking a different approach and that their approach is appropriate and proportionate in the circumstances.
Before making a decision, trustees should consider a range of factors, such as:
- Do they have any of the necessary data at all? Where there is simply no data available, or significant gaps, trustees will often be forced to take a pragmatic approach
- If nothing is held by the scheme itself, trustees could potentially ask members to provide them with the information required. However, this is potentially challenging from a communication perspective
- Trustees should also be considering what other parties they could approach to check if data is held (eg employer or previous administrators)
- Where there is some data available, could trustees use a “sampling” approach? That is to say could they take a look at some of the data available to allow them to understand how helpful that data might be and whether it is worth doing further work.
The PASA GMP Equalisation Working Group recently published guidance on data issues. The guidance is very technical and goes right into the detail on the specific data fields needed for GMP equalisation.
It does not cover some of the broader legal considerations covered above and so trustees should be seeking legal advice as and when necessary.
We are also expecting a judgment in the second Lloyds case on GMP equalisation, which may change the position on how transfers to or from schemes should be treated for GMP equalisation purposes. The outcome of this judgment could potentially mean that more data is required to effect GMP equalisation for former members of schemes who have historically transferred out.