Pensions - Articles - ACA calls for radical simplification of DB pension benefits


The Association of Consulting Actuaries (ACA) welcomes DWP’s GMP conversion guidance (published last week) as a first step in the journey to achieving not only GMP equalisation but the ultimate goal of genuine simplification of the DB pensions landscape. Such simplification would bring significant benefits for members, employers and trustees.

 The ACA notes that there is a need for significantly more detail before work can begin in earnest. We look forward to the clarifying legislation and HMRC guidance on how to address the pensions taxation implications.

 The ACA agrees that there is much sense in progressing GMP conversion and simplification in tandem with GMP rectification. However, we are concerned that the ‘final’ GMP reconciliation process itself has been running since 2014, with many schemes still awaiting final confirmation of member records from HMRC. It is imperative that HMRC devotes adequate resources to this project – at the same time as addressing the tax implications of GMP equalisation – so that the pensions industry can build on the welcome conversion guidance.

 ACA Chair, Jenny Condron added: “DWP’s guidance provides useful clarification that conversion can apply to all those in a scheme where there is a GMP element, and to all benefits accrued between 1978 and 1997.

 “Building on ACA and Royal London’s recent paper (with technical input from the Association of Pension Lawyers) on benefit simplification, we believe that adoption of a model scheme structure to which benefits could be converted will offer many schemes the opportunity to achieve radical efficiencies. The resulting cost reductions in the ongoing administration, actuarial calculations and necessary legal advice will, we expect, be material. Risk management options will also improve, with better accuracy in hedging and potentially accelerated access to affordable buy-outs.

 “The ultimate beneficiary of such simplification is of course the member – with a better understanding of their DB and DC benefit entitlements and, with the implementation of pension dashboards to collate that information, they stand a better chance of providing for an adequate retirement income. Surely, that is a goal worth striving for.”
   

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