Implications

As the name suggests, if the industry does not continue with GMP equalisation, inequalities will remain prevalent within members’ pensions. The convoluted approaches of multiple methods that the court, actuaries and the Government have proposed, are further damaging trustees’ faith in the industry – with most trustees believing that equalisation has become a money-grab, blown out of proportion by the rest of the industry. If trustees are frustrated then their attitudes will understandably be inherited by the rest of the industry. Ultimately affecting members, as they begin to receive confusing and negative communications.

More importantly before benefits are equalised, some members will be receiving less than they should via their pension. Considering the industry has been aware of these scenarios for over 20 years, it’s time that these problems are fixed. With many schemes still apprehensive about how they’ll approach GMP equalisation, it’s vital they start pushing on with tasks they can do now, such as data cleansing, to reduce the upcoming workload.

Public sector reforms have created age discrimination between workers, which means individuals who did not receive ‘transitional protection’ could be receiving a lower pension.

Not only are members being affected but these ongoing court cases are preventing the routine process of public sector schemes. This is because until a resolution has been reached member benefits post 2015 (2014 for LGS) cannot be calculated.

Similar to GMP equalisation, the public sector schemes are not over-communicating until solutions have been finalised. Currently Civil Service Pensions have been the hotspot for member communication, with a web page dedicated to the background of McCloud. If members want further information they have also set up an FAQ page.  However due to the unions involvement, member engagement before remedies have been implemented is likely to be far higher, compared to GMP equalisation.

Remedies

When implications impact an entire industry, it’s no surprise there are so many final pieces needed to complete the GMP puzzle. The cross-industry GMP equalisation working group (GMPEWG) is attempting to release as much guidance as possible, to cover the equalisation spectrum. Their June 2019 open letter explained that the industry can expect equalisation guidance covering multiple topics.

• Methodology
• Impacted transactions
• Data
• Tax issues
• Reconciliation & rectification

So far, they’ve released guidance on methodology, during September 2019. This focused on how schemes can use either a comparative year by year approach or conversion to finish their equalisation project. Crucially though, the GMPEWG consistently state that their information “is not a definitive guide… nor is it a substitute for professional advice”.

More authoritative updates have been expected from the Government, but so far this has been sparse, delayed and limited.  Conversion has barely been noted, with many consultants believing that the Government is finding it too challenging an issue to currently weigh in on. Without these updates schemes will remain within the initial stages of their equalisation plan, many still with rectification work to do.

Similarly public sector schemes are in the initial stages of implementing their solution, with remedies still needing to be calculated. The Government have confirmed that whatever remedy is decided, it will apply to all public sector schemes. Worryingly, the costs are expected to be high, with the treasury making provisions of almost £30bn (equivalent to around £4bn a year) to cover the potential increase in liabilities that McCloud shall bring. Whereas the industry cost for GMP equalisation is expected to be far less impactful, with experts now estimating it should cost in the region of £8bn.

It’s important that remedies are carried out in a correct, transparent manner. As, not only do the Government need to financially reimburse disadvantaged workers, they also need to regain their trust. Trade Union Congress’ Deputy General Secretary explained, “It’s vital that public sector workers have confidence in the future of their pensions…. engagement needs to be informed by serious scheme level discussions involving the relevant unions.”

From a scheme perspective it’s important to retain as much data as possible. It will be key to reuse such information when the remedy has been agreed. It’s still uncertain which members will be in scope, so scheme-wide retention will be important. What currently makes the scope even more ambiguous, is that experts believe only a small change in a member’s experience can mean they’ll be affected.  The effects on an individual pension are expected to be far more significant, in comparison to the majority of member affected by GMP equalisation, who’ll likely see small change or no change at all. The individual member risk relating to McCloud will most likely be higher.

Timescales

The pension minister knows the GMP equalisation cloud has been looming over the industry for far too long. Last autumn he was reported saying that it was “time for pension schemes to act to equalise GMP payments”. But with another hearing in the Lloyd’s case and schemes dissatisfied with the lack of official guidance, it’s understandable that they’re not rushing to the finish line.  Although the Government are pushing the industry to equalise, no legislative dates have yet been put in place, forcing deadlines upon schemes. Until then perhaps we’ll see many schemes waiting in limbo.

After months of build-up and delay, HMRC have released GMP equalisation guidance that covers some of the more overriding tax issues that schemes have anticipated. This has been heavily anticipated by the industry, with many using it as reason to delay equalisation. However the guidance only covers dual administration, meaning schemes hoping to use conversion may need to sit on the fence a bit longer.

For firefighters a date has been announced for the final hearing, where they’ll receive a final decision for members of the 1992 scheme, on the 17 July 2020. This may not be the date for other industries, such as police and civil service. However if not included, their remedies will likely be similar and follow closely behind, as they’re subject to similar issues.

So far remedies surrounding McCloud that the Government have proposed are being opposed. The Public and Commercial Services Union have said that their concerns surrounding the “robbery” of the judicial staff have not been listened to.  Due to these complications the union now plan on launching a nation-wide campaign to build traction behind their voices. They’ve also teamed up with the Fire Brigades Union to launch legal action, which they hope will lead to a judicial review of the Government’s actions so far. This movement and alliance between industries may end up pushing the remedy date further away, until a resolution is met. So, despite the dates put in place by the Government there’s a chance they may end up being postponed.

The similarities are significant, and the effect on public trust in pensions could be damaging for years to come unless the industry gets the ball rolling a little faster.