Following the recent High Court judgment in the Lloyds Bank Group GMP equalisation case, Aon held a joint webinar on the subject with law firm Sackers, which drew over 500 attendees – a clear indication of the widespread interest in the issue and pension schemes’ need for clarity on how to go about handling it.
When polled during the webinar on what GMP equalisation method they would favour, 51% of respondents on the webinar said they favoured Method C – a dual record approach. However, showing that the industry needs to prepare for both approaches, 36% said they would favour Method D2, ‘Conversion’.
Tom Yorath, principal consultant at Aon, said: “It’s no wonder given the complexity of GMP equalisation that there is some divergence in opinion on the way to go about dealing with it. Both approaches have their pros and cons. Conversion is attractive because it is a ‘once and done’ approach that does away with the complexity of GMPs altogether. The downside is that invariably, the assumptions that are needed in conversion won’t be right for every member and this creates its own set of winners and losers.
Dual records mostly avoid this problem but comes with a heavy administration burden.
“However, as tempting at it is to jump to an answer on which method to use, in practice schemes have a big preparation job to do first which will be needed whichever approach is taken.”
Respondents to a second question, ‘What are your biggest concerns with implementing GMP equalisation?’, gave a much clearer collective viewpoint with 71% saying that the cost of and time involved in implementation were by far their greatest concerns.
Tom Yorath said: “While there is obviously concern in the industry, there is at least consensus on where the thinking and resource should be concentrated. It’s clear that pension schemes are keen to seek practical, pragmatic solutions and to manage the cost and time constraints.
“As with any exercise such as this, good project management will be key to achieving what schemes need. Time is also on the industry’s side, for while there are some immediate actions to take, much of the rest of the project can progress at a more measured pace. We would also hope that thinking can be shared across the industry so that the most efficient approaches can be followed from scheme to scheme.”
“It is easy to see this as a big implementation headache, but we should not lose sight of the human element in all of this. While the vast majority of people will see very little in the way of increases, there are a small minority where members have been on the wrong end of some real inequalities and the sums involved are quite material.”
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