Commenting on the consultation Tyron Potts, Associate and Head of Pensions Research at Barnett Waddingham LLP, said: “The DWP’s proposed method is a pragmatic improvement on the so-called ‘Jack and Jill’ methodology proposed by the previous government, and in particular we expect the new approach will typically lead to smaller overall increases in scheme’s liabilities than under the 2012 approach. Furthermore, the new approach should be less complex to implement and considerably simpler to administer going forward.
“We expect that, once the legislative details have been ironed out, schemes will welcome the opportunity to use the conversion regulations to simplify benefit structures and do away with the need for separate GMPs altogether.
“However, it remains that equalising GMPs is likely to involve material cost for all schemes who attempt it. Such an increase in costs will be particularly unwelcome at the current time given the larger funding deficits many schemes are reporting. Many trustees and companies will be disappointed that the Government has decided to press ahead with equalising GMPs, given there had been hope that this might not be required at all following the referendum vote to leave the EU. Indeed, we note that the DWP hasn’t completely closed the door on the possibility that, post-Brexit, the requirement to equalise GMPs could fall away. Instead the DWP has chosen only to emphasise that the obligations of being an EU-member state remain in force until the exit process has been completed.”
“The equalisation method has been developed by the DWP alongside a working group of pensions practitioners and, as such, there is already momentum within the industry to adopt this as the preferred equalisation approach. Having some clarity over the method to use will be helpful especially for those pension schemes who, for example, need to equalise GMPs as part of a bulk annuity transaction with an insurer. “
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