GMP Equalisation – DWP guidance on the use of GMP conversion legislation – Summary of the 10-stage process

  • Stage 1 – Reach agreement with the employer – as employer consent is needed under the conversion legislation, trustees should agree with the employer that GMP conversion is to be undertaken and the terms on which benefits will be converted
  • Stage 2 – Select the members (including those in receipt of survivors’ benefits) for conversion and agree which benefits are to be converted and the form of the new benefits – it is not necessary to convert all GMPs under the scheme, as the legislation permits schemes to undertake conversion in stages (eg deferreds and pensioners first). Conversion can also be extended to members whose GMPs accrued entirely before the Barber judgment. However, the whole of a selected member’s GMP must be converted as it is not possible to dissect the GMP, converting only the part affected by the requirement to equalise. Legislation imposes specific constraints on the form of post conversion benefits, such as the fact that they must be actuarially at least equivalent to pre-conversion benefits and the same survivors’ benefits must attach to the post conversion benefits, as were applicable to the GMP
  • Stage 3 – Set the conversion date – the trustees and the employer must agree the date at which conversion will take place (the “conversion date”).
  • Stage 4 – Pre-conversion consultation – trustees have to take “all reasonable steps” to consult affected members before tackling a conversion. As this is a standalone consultation requirement which is not governed by the statutory consultation regulations which apply when a listed change is made, the guidance offers some suggestions for “high level” content here.
  • Stage 5 – Valuation – this is probably the area where there is most detail in the guidance. The trustees will need to instruct the scheme actuary to carry out calculations of “amount A” and “amount B” for each selected member (along with attaching survivor benefits). “amount A” is effectively the pre-conversion, pre-GMP equalisation value of pre-1997 benefits. “amount B” is then calculated by reference to the same period of pensionable service except that, in respect of the period 17 May 1990 to 5 April 1997, GMP entitlement is calculated as if the member were of the opposite sex. Although the legislation does not specify the assumptions to be used, the DWP notes that “it would often be reasonable to use the assumptions used in CETVs as a starting point when undertaking conversion and equalisation having taken appropriate scheme-specific actuarial advice that the basis is suitable for this purpose”.
  • Stage 6 – Equalisation – equalisation is then achieved “as part and parcel of conversion by using a conversion value for each selected member which is the higher of amount A and amount B”.
  • Stage 7 – Conversion – this involves turning the conversion value into a revised pension benefit. The approach used here should be consistent with the Stage 5 valuation basis.
  • Stage 8 – Certification – the actuary will need to certify that the calculations have been completed and to confirm actuarial equivalence. The certificate, which should be in respect of all those covered in the specific conversion exercise, must be sent to the trustees no later than three months after the calculations have been completed.
  • Stage 9 – Modification of scheme to effect conversion – The relevant statutory provisions provide a mechanism for trustees to modify a scheme by resolution to permit GMP conversion, even if the amendment power in scheme rules would restrict this. The resolution may include other amendments the trustees think are necessary or desirable as a consequence of, or to facilitate, GMP conversion.The legislation confirms that section 67 of the Pensions Act 1995 (which protects members’ subsisting rights) will not apply to a power to modify a scheme to enable GMP conversion.
  • Stage 10 – Post conversion notifications –  trustees must take “all reasonable steps” to notify affected members and survivors either in advance or as soon as reasonably practicable after the conversion date. They should be told what this means in terms of the date, amount and the shape of their benefits going forward, and the on which any benefits in payment will change (or have already changed).

Note: HMRC also needs to be notified on or before the conversion date that GMPs have been or will be converted.