Simplification of GMPs
This time theyíre announcing that theyíre going to allow company pension schemes to convert Guaranteed Minimum Pensions (GMPs to the initiated) which are based on contracted-out service between 6 April 1978 and 5 April 1997 into different forms of pension benefits of (supposedly) equivalent value. This, of course is nothing new. It was one of the main recommendations of the Pickering Review, but itís popped up again now I should think to keep employers happy. Most employers seem to be concerned about the red tape surrounding company pension schemes, and a large part of that has to do with the way GMPs have to be treated for various bits and pieces of contracted-out service.
The original Pickering Report and the consultation that followed it, ended up with three main proposals to simplify the way schemes could treat GMP benefits for people who had contracted-out of the state scheme. One way suggested was to simply contract people back into the state scheme, and another equally problematic way forward was to go the other way and abolish the requirement for schemes to provide GMP benefits. Both of these extremes have clearly been ruled out in favour of a middle-of-the-road approach of allowing schemes to convert GMP benefits, on the grounds of actuarial equivalence (a term that probably strikes fear into the hearts of ordinary mortals), but not making it compulsory either. So it would be up to individual trustee boards whether or not schemes take up this option.
Hmm! Well, this is all very well, but these current proposals are a little light on the detail we need to know before we can really say what we think of them. The detail, presumably, will follow and will I suppose be contained in the now eagerly-awaited Pensions Bill due out any time soon. The main thing missing is any detail of how the actuarial conversion process will work. This is a shame, because it doesnít really take us any further forward than where we were over a year ago, and before we entered into this seemingly endless period of consultation.
The big questions are whether the conversion will apply on a group basis, which could create winners and losers in a scheme, or on an individual basis, an approach that could itself generate much more red tape for employers. Also it is important to know whether the Government is considering introducing retrospective changes, thereby allowing trustees to change the structure of scheme benefits for people who have already left service with the employer, but have left deferred pension benefits behind them in the employerís scheme. And, call me Mr Picky, but what about Section 32 pensions with GMPs in them? And what about the equalisation of GMPs between men and women?
All in all, my initial reaction when reading the Governmentís announcement on this was ďOK, so whereís the rest of it?Ē A bit too much like getting a birthday card without a fiver in it for my liking (Admit it, we all had horrible things like that happen to us in our childhood, didnít we?). Well, itís happening now with our pensions legislation and I donít like it. The sooner we get the detail the better. Or, as I seem to have been saying endlessly this year, roll on Penny-Dropping Day!
5 November 2003
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