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Margaret Ferrier’s Private Members’ Bill, the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill 2021-22. would clarify the existing legislation providing for schemes to convert Guaranteed Minimum Pension (GMPs) rights into ordinary scheme benefits, which are subject to fewer restrictions. The changes are intended to help schemes meet their duty to equalise GMP rights for men and women. The Government’s suggested approach to GMP equalisation involves those rights being converted to scheme benefits.

Requirement to equalise GMPs

When the State Earnings Related Pension Scheme was introduced in April 1978, it was possible to contract-out of it into an occupational pension scheme. A condition of it being used to contract-out was that the scheme provided a defined benefit (known as a GMP). The requirement to provide a GMP was removed from April 1997 but schemes still have to provide them for rights built up before that date. A member’s pension will often have a GMP element and an excess above it.

The Pension Schemes Act 1993 required GMPs to be calculated on a different basis for men and women. For example, there are differences regarding the rate at which benefits build up in the scheme and the age at which they can be drawn. The rules reflected inequalities in the State Pension age at the time. GMPs are generally part of scheme benefits.

The position of successive governments – following decisions of the European Court of Justice, since reflected in UK law – has been that pension schemes “are under an obligation to equalise overall scheme benefits accruing from 17 May 1990 including, in respect of accruals from 17 May 1990 to 5 April 1997, any inequality resulting from the GMP rules, where an opposite sex comparator existed in the scheme.”

Debate about what the legal requirements on schemes regarding GMP equalisation continued until October 2018, when the High Court held in  Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank PLC and others that schemes were “under a duty to amend the Schemes in order to equalise benefits for men and women so as to alter the result which is at present produced in relation to GMPs.”

Approach to equalisation

The legislation does not specify the approach schemes should take to GMP equalisation. Following consultation, the Government issued guidance in April 2019 on one approach. This involves:

  • Placing an actuarial value on benefits accruing between 17 May 1990 and 5 April 1997;
  • Taking the higher of two values i) that of the member’s benefits; and ii) what it would have been had the member been of the opposite sex during that period; and
  • Converting this into scheme benefits that are no longer subject to the (unequal) requirements of theGMP 

The Government’s suggested approach to equalisation involves GMPs being converted into scheme benefits.

The Government had legislated to enable schemes to convert GMPs into scheme benefits in the Pensions Act 2007 (s14), which amended the Pension Schemes Act 1993.  However, in its 2019 guidance, DWP noted that the provisions had been rarely used in practice.

Following the Lloyds Bank judgement, the Government said it would make changes to the existing GMP conversion legislation. This was needed to address pensions industry concerns that the existing legislation was unclear in some areas.

The Bill

The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill 2021-22 is scheduled to have its Second Reading in the House of Commons on 26 November 2021. The measures in it would amend existing legislation enabling GMP conversion to:

  • Clarify that the legislation applies to survivors as well as earners.
  • Provide for a power to set out in regulations the conditions that must be met in relation to survivors’ benefits.
  • Provide for a power to set out in regulations detail about who must consent to the conversion.
  • Remove the requirement to notify HMRC.

The Explanatory Notes for the Bill were prepared by the Department for Work and Pensions.

GMP equalisation is discussed in more detail in Commons Library Briefing Paper 8427, November 2021.


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