GMP equalisation

Publication date: 02/12/2021 10:24:10

‘Guaranteed minimum pension (GMP) equalisation’ is about a court ruling from October 2018, that pension schemes need to ‘equalise’ the GMP benefits of men and women. These are currently linked to the old State Pension ages of 60 (for women) and 65 (for men).

Although GMPs are due to be paid from the old State Pension ages of 60 for women and 65 for men (their ‘GMP age’), they’re not paid as well as a pension. This is because it’s already included within the make-up of the pension. However, the different starting points for men and women can, for some schemes, create an inequality.

For most private sector pension schemes (not the LGPS), the GMP is held separately to the rest of the pension and attracts a different rate of increase. Once the pension is in payment and the member has reached GMP age, the GMP built up between 1978 and 1988 is no longer increased. Although, the GMP built up between 1988 and 1997 is increased in line with the rest of the pension (capped at 3%).

However, for public service pension schemes like the LGPS, the GMP isn't separated out of the scheme pension until the member retires, so the GMP is treated in the same way as the scheme pension.

When an LGPS member reaches State Pension age:

  • For those whose GMP takes affect after 5 April 2016 – public service pension schemes must increase GMP’s in line with the rest of the pension; therefore, the GMP is treated no differently to the rest of scheme pension and is, essentially, equalised.
  • For those who GMP takes affect before 6 April 2016 – the increases applied to GMP’s are split between the Government and the pension scheme. The only real difference between this method and that used for people reaching State Pension age after 5 April 2016, is that the increase is paid by two bodies, rather than one. Therefore, as all parts of the pension get full increases, the scheme pension is, once again, equalised.

As well as the October 2018 ruling, another ruling was made in November 2020 confirming that historic GMPs also need to be equalised. This could potentially affect some members of the LGPS, mainly those members with a GMP who transferred out of the pension scheme after 1990. The Government are currently looking at if this judgment to equalise historic GMPs applies to all historic transfers made by all public service pension schemes (including the LGPS).

We need to wait for the Government’s decision before we can take any action.

Categories:

GMP