GMP equalisation

GMP equalisation is complicated. We’re experts at this puzzle, we can help you.

GMP equalisation has been a hot topic for DB schemes over the last few years. Although we’re still waiting for some additional guidance, schemes need to get started on their equalisation projects.

 

They’re often complicated, with complex data requirements, calculations, implementation and communications.

The pieces of the equalisation puzzle...

Data readiness
Equalisation calculations are complex and require many data components to ensure accuracy. Our targeted analysis identifies inaccurate or missing data essential for these calculations. With these issues addressed members can be equalised more efficiently.

Additional data requirements
In order to carry out GMP equalisation, you’re likely to need more detailed data than is typically used for your day-to-day administration. Examples include full contracted-out earnings data to calculate GMP accrued specifically over the equalisation period 17 May 1990 to 5 April 1997. As well as the pension given up for cash lump sum solely in respect of service between 17 May 1990 and 5 April 1997.

Scheme level data
Detailed scheme level data is required including historic factors like those used for early retirement, late retirement and commutation – going all the way back to 17 May 1990, alongside information on administrative practices such as anti-franking.

Member data updates
Additional data items will need to be stored e.g. additional tranches of pension in respect of service post 17 May 1990, opposite sex elements of pension.

How can ITM help?
GMP equalisation is complicated. We’re experts at this puzzle, we can help you.

  • An equalisation data-ready assessment
    We can work with your in-house team or third party administrator to carry out an assessment to determine whether your data is GMP equalisation ready. This will give you an independent assessment of your data readiness including a data ready score.
  • Materiality calculations to identify those members likely to be most affected by GMP equalisation. This enables data work to be focussed on these members – increasing efficiency and reducing costs.
  • A comprehensive data cleanse plan to identify what cleansing/additional data would be required to accurately calculate GMP equalisation corrections.
  • Implement the data cleanse plan including the calculation of the additional GMP equalisation data elements.
  • Monitor progress using our data assessment tool to monitor the success of the data cleanse plan.
  • Member tracing using our specialist team to locate your members, update your records and provide ongoing monitoring to keep your data clean.

Once we’ve carried out data preparation, the next step is to calculate equalised pension payments and determine which members and dependants need an adjustment to their pension using the method agreed by the trustees. These underpayments will then need to be corrected. The process broadly falls into the following steps:

  1. Roll back the pension to the date of retirement/death
  2. Unwind cash commutation and early/late retirement factors
  3. Roll back the pension to the date of exit
  4. Compare the rolled back pension to pension at exit held on the admin system
  5. Calculate additional tranches at date of exit including opposite sex tranches
  6. Roll forward to current date calculating the equalised pension payments due
  7. Calculate any equalisation uplift/reduction to the pension at date of rectification
  8. Calculate any arrears due to members
  9. Communications exercise and operation of member contact centres

How can ITM help?
Our GMPe application is built on our core data management platform – eDAaRT.

This means we can work on pensions system data irrespective of the source of that data, and build core applications that are ‘system agnostic’. Our GMPe application can carry out all your GMP equalisation calculations including the calculation of equalised benefits and rectification.

Administration systems and procedures are likely to require a significant overhaul to administer equalised benefits under any of the methods approved under the Lloyds Bank judgment.

Scheme calculation changes
You’ll need to update your systems to calculate benefits on an equalised basis (including opposite sex GMPs and the resulting excess benefits) and output the additional data items required to administer equalised benefits going forward. Many calculations will require updating, for example:

  • Benefits on leaving service – additional tranches of pension are likely to be required in respect of service between 17 May 1990 and 5 April 1997.
  • Retirement benefits – on retirement it will be necessary to calculate the benefit due to the member based on their true sex and the equivalent benefit for an opposite sex comparator – for service between 17 May 1990 and 5 April 1997.
  • Death benefits – calculations will need to be amended to calculate equalised death benefit lump sums and dependants’ pensions.
  • Transfer values – calculations will need to be updated to calculate these on an equal basis.

Opposite sex GMPs
These will need to be calculated alongside the corresponding excess benefit elements.

How can ITM help?
Our data consultants and GMPe application are the perfect partnership to help you prepare your data for GMP equalisation and conversion.

We’ve updated our pension’s administration platform, PenScope, to manage equalisation. It can calculate equalised benefits due under any of the methods approved under the Lloyds judgment including dual payroll approaches.

If your own administration system and processes need updating we can provide advice, independent audit and calculation of any additional data items.

Dual Payroll
The Lloyds Bank judgment approved a number of methods. Methods B and C under the judgment are often referred to as ‘dual payroll’ methods. These methods involve a year-on-year comparison of the member’s current pension elements in payment with those that would apply for the alternate sex.

GMP Conversion
The Lloyds Bank judgment made it clear that existing GMP conversion legislation could be used to equalise GMPs by converting GMPs and other pre-1997 benefits into alternative non-GMP benefits of equivalent actuarial value. This approach has the advantage of removing GMPs entirely, and will be of particular interest if you have a fiduciary objective such as buyout planned.

Jump to Downloads

DOWNLOADS

GMPe

Document - 204.8kB Before you get to equalisation there are key pieces of the puzzle to put together

GMP equalisation roundtable

Document - 5.6MB A write up of a joint GMP equalisation roundtable - published in Pensions Age

Technical Supplement July 2019

Document - 323.4kB Solving the GMP equalisation puzzle - Pensions Aspect Technical Supplement July 2019
Processing...
Thank you! Your subscription has been confirmed. You'll hear from us soon.
ErrorHere