How far should schemes go when it comes to past transfers and equalising GMPs? How far is it even possible to go?! With audit trails and data quite possibly not in the best shape, it’s no wonder Trustees are uncertain about the depths of analysis and cleansing necessary to set things right.
In the past pension schemes calculated transfers values on an unequalised basis so, no consideration will have been made for how a member’s benefits will need to be equalised for GMPs. Since then, over twenty years have passed, multiple court cases and ample guidance giving schemes less reasons than ever to postpone making payments to receiving plans/former members.
As the industry presses on with GMP reminders, for most schemes the largest hurdles are still data-related.
- Scope: The first consideration should be identifying the population in scope of transfer-based GMP exercises. By analysing the current data and benefit structures, the scheme can quickly eliminate large parts of their member population that will not be due a top-up payment, reducing the larger task at hand.
- Minimising data: For some transferring schemes there may be insufficient data retained so it is unlikely there will be enough evidence to calculate a top-up payment. However, schemes could decide to wait for these former members to come forward before calculating and paying top up payments, although the liability of course will stay with the scheme until the top up payment is made.
- Calculations: Once excluded members have been accounted for, the next stage which requires the scheme’s data is calculating whether top-up payments are due for remaining members. This can become a more complex task when administrating historical transfers where there is insufficient data. Estimated assumptions are likely to be used which are far easier to make when the rest of the scheme’s data covers many members and is of high quality.
- Tracing & verifying: On top of data searching and making calculations, assuming the top up is going to be made to the member information is needed to locate members so they can receive their top-up payments. Tracing services will likely be needed, however transferring schemes need to give thought to the resource expenditure on locating members, particularly ones that may be more complex to find, for example, “former members who’ve emigrated”.
With much of the above-mentioned data being linked, schemes which now possess large data gaps may be fearful about attempting to equalise transferred members. Pragmatism is key to approaching this task. With almost zero likelihood of any further court cases related to GMPe going ahead, due to their costly nature, a now important conclusion made by the Judge in the Lloyd 2020 case recognised
“the administration costs involved could easily exceed any correction payments needed”.
Showing that the courts understand the impossibility for some scheme of trying to equalise all members. A further aide has been that the liability on the scheme to help transferring members can only be called upon if an individual comes forward enquiring about their potential membership. Also, PASA this week within their communication guidance concluded that it would be unlikely for a scheme to communicate with all members who have transferred out, and instead a general statement on the scheme website, which links members to contact details and further advice would be sufficient. It’s important that schemes don’t view GMPe as one mammoth task and instead focus their efforts on members who are most likely to receive a top-up payment and members who are due the largest top-up payments.
Outside of this, delays will no longer help the process. The potential scope of members for underpaid transfers has now been formed with the consensus being for most transferring schemes that it’s likely that the forfeiture rule will not apply, and discharges (both member and statutory) will not be effective. Furthermore, a looming capacity crunch is of concern within the market with the Lloyd 2020 Judge urging trustees to be proactive in applying remedies to members. This urgency for GMP equality will be amplified for schemes winding up, who in order to avoid these industry capacity crunches need to be implementing their equalisation plan as soon as possible.
Rory Tucker, Technical Research Analyst