I transferred my final salary pension to my private pension scheme in summer 2020 at a value of around £526,000.
As part of that transfer I had to sign a document provided by the administrators running my old scheme which covered the ‘equalisaion of Guaranteed Minimum Pension’.
This said ‘if you decide to go ahead with the transfer of your benefits now, (on an unadjusted basis), you will need to let your receiving scheme know that there could be a further payment due in the future’.
GMP equalisation: What does it mean and will you get more money as a result?
I liaised with my other scheme which confirmed this future ‘additional’ transfer would be accepted if it arose.
I wrote to my old scheme in May last year to enquire whether the trustees had made progress to ‘equalise benefits between men and women to correct for the unequal effects of GMP’, for which the employer had specifically set aside an additional £17million in its December 2020 actuarial valuation.
The response I got was diametrically opposed to this and states that ‘I can confirm….of your HMRC Pension Scheme Benefits…there is no liability held for you within the scheme/no further benefits paid from the scheme’.
So, in essence there is 100 per cent no liability for any future payment to me even though I was employed continuously and a member of the pension scheme during the equalisation period between 1990 and 1997.
I am not a pensions expert, far from it, hence this e-mail to yourself, but if you look at this issue in black and white, it cannot make sense for me to sign a form specifically for a future additional benefit, and for the trustees to set aside further monies to compensate those who are exactly in the position I am in, but for me then to be told I am due nothing.
Perhaps I am missing something or have a complete misunderstanding of this?
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Steve Webb replies: Large numbers of members of company pension schemes can expect to get letters about something called ‘GMP equalisation’ in the coming months and years.
I will start by recapping what that means before moving on to your specific question about what happens after you have completed a pension transfer.
Between 1978 and 1997, company pension schemes had the option to ‘contract out’ of part of the state pension scheme. In simple terms, this was a deal between the scheme and the government.
The worker and employer were allowed to pay a reduced (‘contracted out’) rate of National Insurance contributions and in return the pension scheme had to promise to pay a good pension, similar to what the worker would have built up from the state earnings-related pension scheme (SERPS).
The promise was called a Guaranteed Minimum Pension or GMP for short.
Back then, state pension ages for men and women were different. This meant that a promise to match state benefits via a GMP applied at 60 for women and at 65 for men.
In 1990 a landmark court verdict was handed down which said that having unequal rights in a company pension scheme amounted to sex discrimination.
Schemes equalised the main aspects, such as retirement ages but it was unclear whether the law required changes around GMPs.
There was a lack of clarity on this ‘GMP equalisation’ point until another landmark ruling in October 2018 (involving the Lloyds Bank scheme) confirmed that action needed to be taken and gave guidelines to schemes on how to carry out the calculations.
A follow-up ruling in 2020 confirmed that even people (such as yourself) who have already transferred out of a Defined Benefit pension scheme could still potentially benefit from any GMP equalisation in the old scheme.
It is worth saying that undertaking the GMP equalisation process is an expensive and complex business for schemes and it is expected that it will be years before all have completed the process.
My firm is equalising guaranteed minimum pensions between men and women…
So will I end up with more money or less…? Pensions expert Alasdair Mayes of Lane Clark & Peacock explains here.
In many cases any uplift will be very small, but in a minority of cases we could be talking significant amounts.
There is no guarantee that every scheme member will get a payment because of GMP equalisation.
Everything depends on the exact rules of the individual pension scheme and the circumstances of the individual member, and both men and women are potentially eligible for an uplift.
There should be no need for scheme members to claim any of this, as the scheme should comply with the law and be trying to trace and contact those who are entitled once it has undertaken the necessary calculations.
Turning now to your specific question, the 2020 court ruling confirmed that – in simple terms – provided that you would have got an uplift as a result of GMP equalisation if you had stayed in the scheme, you should not lose out simply because you transferred out.
This is why you were asked to check that your receiving scheme would be willing to receive any additional payment.
I see however that you have been told that nothing further is owed to you.
If the scheme has already completed the GMP equalisation calculations and has decided that nothing further is due to you then that is the end of the matter.
But if they have yet to complete the process then the letter was sent in error and you should ask for confirmation that they will be checking for any entitlement to a transfer value uplift you may have.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at [email protected].
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
TOP SIPPS FOR DIY PENSION INVESTORS
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