To rectify or not to rectify?
With GMP equalisation/conversion on the horizon there may be a temptation to consider the best course of action as deferring rectification of benefits and completing this as part of an equalisation/conversion exercise.
There are pros and cons to both approaches but, either way, it is the Trustees’ responsibility to carefully consider what the right decision is for their impacted members
Some aspects of the rectification cannot wait. Changes to records required for active and deferred members must be implemented, so that the administration team are using corrected data. Any communication to active and deferred members might be delayed pending equalisation if the impact on benefits coming into payment is not material.
The position for pensioners is less straightforward. Action taken has to consider the needs of the member, alongside the inevitable resource constraints that there will be in the industry when schemes are in a position to start implementing GMP equalisation/conversion. Anecdotally, there is talk of the pipeline for these projects extending into 2022 and beyond, so trustees need to be confident that deferring rectification work for two to three years (potentially longer) is the right thing to do.
Progress now or wait and see?
Data cleanse - Historic pensioner data is often not good enough to run an automated bulk rectification calculation so it’s worth undertaking a data cleanse now and considering extending this project to include more members and/or the data needed for equalisation.
Scheme information – Rectification will require a history of pension increases and other scheme information. Much of the same information will be required for equalisation, so collating required scheme related information now is an exercise well worth thinking about.
Rectification calculations – These must be completed as schemes will need the correct pension from which to equalise. Arguably this could all be done as one-off exercise with equalisation, but timings may mean that rectifying some or all members in scope now is a more appropriate course of action
Implementing and communicating the revised pension figures - Once the calculations are complete, it must be decided whether to implement and communicate the changes to pensions.
The following categories of member could be considered as a starting point:
· Members who only have GMPs that accrued before 17 May 1990.
o These could be rectified as they will be untouched by GMP equalisation.
· Members who accrued all or part of their GMP post 17 May 1990
o Where a member has been underpaid it is probably fine to rectify the benefits as any equalisation exercise may provide a further uplift
o Where it appears that the pension in payment is too high and there has been a past overpayment, it is less straightforward. Do the trustees want to write to the member to reduce benefits only to potentially be writing to the same member in a relatively short time to advise of an increase? In these circumstances, will members understand and what might be the impact on member confidence?
The right approach will be a scheme-specific decision based on individual circumstances, the timing of GMP equalisation decisions and what is best for scheme members.
Feeling the pinch?
Or more precisely the pinch point. GMP equalisation is going to have a huge impact on our industry (and this is no exaggeration). It will involve many of the trustees’ advisers and early indications are that it could take years to complete. Clearly an ‘equalisation-ready’ scheme will complete more quickly than one where no preparatory or due diligence work has been undertaken. This should be the key consideration when trustees make that important decision – to rectify or not to rectify.
Geraldine Brassett, Chair of PASA’s GMP Working Group and cross industry GMP Equalisation Group.
