Tom Yorath, head of GMP Equalisation at Aon and an expert witness in the Lloyds case said: “Today’s guidance from HMRC provides welcome clarity and pragmatism for schemes that are looking to find a simple way through dealing with historic inequalities in transfer values.
“Many schemes have been considering practical ways of dealing with this legacy issue. The ability to pay cash amounts to former members, rather than dealing with the schemes that originally received the transfer values, significantly simplifies the process. HMRC has clarified that using ‘relevant accretion’ is permissible; this will allow schemes to make top-up payments of less than £10,000 direct to members – and without having to make an onwards payment to another scheme. Our analysis suggests that this will cover the vast majority of cases.
“One issue with relevant accretion, is that schemes have a six month window in which to make the payment. Helpfully, HMRC have confirmed that the clock does not start ticking until you’ve engaged with and verified the former members – which reduces the risk of members being ‘timed out’ of receiving a cash payment.”
In addition, the HMRC guidance addressed GMP Conversion:
Tom Yorath continued: “On GMP Conversion, and the associated tax issues, we think that HMRC could have gone further.
“GMP conversion tax issues arise as the current pensions tax framework does not cope well with changing a member’s pension benefits before they have reached retirement. Put simply, it’s the unhelpful consequence of the interaction between two complex areas.
“In our view, legislative change is needed to navigate a simple path through these issues. The challenge is that these are complex areas and there isn’t necessarily a straightforward fix that avoids further unintended consequences. To that end, HMRC is conducting further work to establish whether legislative change can happen.
“This doesn’t mean conversion is impossible – far from it. At present, we have more than 100 schemes looking at GMP conversion and the best progressed are using practical work-arounds to sidestep some of these issues. Indeed, we are almost four years after the Lloyds Judgment which required schemes to equalise - and most want to get on with fixing this problem now, rather than waiting for legislative change that may or may not come.”
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