GMP Equalisation Exercise

FIREDreamer

i received a letter yesterday telling me that my smallest private sector pension (NRA 60 taken at 56 in 2020) is being increased by approx £120 pa from December and also a back payment of approximately £500 for past underpayments will also be paid. A nice surprise.

I also have a larger pension from a later employment (NRA 62 taken at 55 in 2019) but heard nothing about that one. There may be nothing to hear, obviously.

Is there a deadline for when these calculations and redresses need to be completed by?

NB: Both taken early to alleviate LTA issues.

Tommyjw

No strict deadline (that i am aware of) , however DB Schemes in general (where it applies) will all be moving towards it. Buy-in/buy-out/winding up are the desired end results of the vast majority of private sector DB Schemes, a lot of them want to get there as soon as possible, data issues such as GMPE are one of those so they will be going down the process as soon as they can. Sooner it's done, sooner the Scheme can take whatever next step they want to do.

If anything, the lack of Scheme's completing GMPE work at the moment is largely down to a lack of people resource capable of doing so, rather than a lack of desire of Scheme trustee's to want to undertake it.

I currently work on ~20 schemes and only 1 has reached that point, all of the rest that are applicable are in the process and have work 'booked in' to go etc once resource is available.

Marcon

FIREDreamer said:

i received a letter yesterday telling me that my smallest private sector pension (NRA 60 taken at 56 in 2020) is being increased by approx £120 pa from December and also a back payment of approximately £500 for past underpayments will also be paid. A nice surprise.

I also have a larger pension from a later employment (NRA 62 taken at 55 in 2019) but heard nothing about that one. There may be nothing to hear, obviously.

Is there a deadline for when these calculations and redresses need to be completed by?

NB: Both taken early to alleviate LTA issues.

This whole issue kicked off in 1990 with a case (infamous in the pensions industry) known as Barber, concerning equalisation. It took some 30 years to get to the point where we had clarification from the courts on acceptable methods of equalising Guaranteed Minimum Pensions. GMPs are inherently unequal because of their link to the old unequal State Pension Ages of 65 for men/60 for women.

Unfortunately the required calculations are protracted, specialist and not of the 'press a button' variety, so I suspect we are looking at an exercise which will run for some years to come.

As you say, there may be nothing to hear, and for obvious reasons schemes won't be writing to members to tell them 'no change'. I'm assuming that your larger pension was contracted out of SERPS and included pre-April 1997 service? If not, you won't have a GMP which needs equalising - a point made more for other readers of this thread than for you.

FIREDreamer

Marcon said:

FIREDreamer said:

i received a letter yesterday telling me that my smallest private sector pension (NRA 60 taken at 56 in 2020) is being increased by approx £120 pa from December and also a back payment of approximately £500 for past underpayments will also be paid. A nice surprise.

I also have a larger pension from a later employment (NRA 62 taken at 55 in 2019) but heard nothing about that one. There may be nothing to hear, obviously.

Is there a deadline for when these calculations and redresses need to be completed by?

NB: Both taken early to alleviate LTA issues.

This whole issue kicked off in 1990 with a case (infamous in the pensions industry) known as Barber, concerning equalisation. It took some 30 years to get to the point where we had clarification from the courts on acceptable methods of equalising Guaranteed Minimum Pensions. GMPs are inherently unequal because of their link to the old unequal State Pension Ages of 65 for men/60 for women.

Unfortunately the required calculations are protracted, specialist and not of the 'press a button' variety, so I suspect we are looking at an exercise which will run for some years to come.

As you say, there may be nothing to hear, and for obvious reasons schemes won't be writing to members to tell them 'no change'. I'm assuming that your larger pension was contracted out of SERPS and included pre-April 1997 service? If not, you won't have a GMP which needs equalising - a point made more for other readers of this thread than for you.

First smaller pension was contracted out 1990-1992 with 1988-1990 service transferred in. This was the one with redress. ER pension was basically the age 65 revalued GMP, so no tax free cash was available.

Second larger pension was contracted out 1995-2005 with NRA 62. Tax free cash was taken on a 24:1 basis without reducing the spouse pension.

Subsequent pensions (2005-2024) are contracted in money purchase so irrelevant here. I retired in June and loving it.

fly-catchers

Can this adjustment work the other way where a bit of your pension goes down! Though I have read that you don’t have to pay anything back. 

FIREDreamer

fly-catchers said:

Can this adjustment work the other way where a bit of your pension goes down! Though I have read that you don’t have to pay anything back. 

No. If your sex based pension is greater than that you would have got if you were the opposite sex, no adjustment is made.

GMPEqCommenter

FIREDreamer said:

fly-catchers said:

Can this adjustment work the other way where a bit of your pension goes down! Though I have read that you don’t have to pay anything back. 

No. If your sex based pension is greater than that you would have got if you were the opposite sex, no adjustment is made.

It can get slightly more complicated than that. Pre-tax you'll never be asked to pay the Scheme money due to equalisation but:

• Depending on the method the Scheme uses, you can end up in a weird situation where the Scheme pays you a lump sum of money but also reduces your ongoing pension until they've clawed back the lump sum of money. The answer to the obvious question of "why don't they just not pay you the money in the first place in that situation" is "because if you died tomorrow you'd be financially worse off".
  
• For people with high enough pensions that they've breached the Lifetime Allowance, you can occasionally end up in the situation where you owe more in additional taxes than you gain from GMP equalisation.

In addition, whilst not directly due to GMP equalisation as such, the detailed work documenting the benefits that tend to occur before doing a GMP equalisation exercise can sometimes make the Scheme realise they've been administering the wrong benefits, at which point they may end up doing a benefit correction exercise that could move the benefits either way.

MABLE

Mine was a GMP
rectification check.  The one checked increased my pension by £488 a year with a lump sum of £25,359.  I have asked my pension
provider for a full breakdown in years so I can decide to ask HMRC to recalculate the affected years.

MarkCarnage

The cost/benefit for the lengthy and complex work involved in GMPE often for pretty small amounts has to be highly questionable. Sometimes the data quality is so poor that it's also questionable how accurate it is. 

Marcon

MABLE said:

Mine was a GMP
rectification check.  The one checked increased my pension by £488 a year with a lump sum of £25,359.  I have asked my pension
provider for a full breakdown in years so I can decide to ask HMRC to recalculate the affected years.

For most people the difference will be zero or a few pence - yours is not typical (a comment I make in the interests of expectation management if others are reading your post and mentally spending funds they almost certainly won't get).

FIREDreamer

MarkCarnage said:

The cost/benefit for the lengthy and complex work involved in GMPE often for pretty small amounts has to be highly questionable. Sometimes the data quality is so poor that it's also questionable how accurate it is. 

Quite. One DB was increased by £10 a month (less than 3%), the other (larger one) did not change. How much time did these calculations take I wonder and at what cost.