As you may have seen from the Pensions press, the PPF is currently consulting on the means of equalising PPF compensation to counteract the discriminatory effects of GMPs, known as GMP equalisation. This is a notoriously thorny subject and has been the subject of debate for a decade or more.
It is worth noting that the tone of the PPF consultation is not whether GMP equalisation should happen (they have legal advice saying it should and this advice probably follows the majority view in the legal community) but how. This puts pressure on trustees to consider the position in their schemes.
The PPF is in a slightly different position from pension schemes as it pays compensation rather than pensions and its obligation to equalise arises from an equal treatment provision in the 2004 Pensions Act. Further the PPF is keen to state that its legal advice relates only to itself and makes no comment about what pension schemes should do. However, this development cannot be ignored by trustees. The statutory provision on which the PPF base their view is very similar to the obligation on all pension schemes in the 1995 Pensions Act, meaning the PPF's move must not be dismissed as simply irrelevant for schemes with a solvent employer.
Put most simply, men and women with identical service will get different pensions solely as a result of their gender – this stark fact means that trustees should at the very least have a defined position on the issue.
It is tempting to think GMP is a minor part of any pension but for many people with small pensions it could be a significant factor. Having witnessed the understandable furore over government changes to tax rates for the low paid we should not underestimate the impact of GMPs on those with small pensions.
Unless something remarkable happens during the PPF consultation GMP equalisation for the PPF will become a reality. This will mean an increase in overall liabilities which eventually is likely to have a knock on effect on the risk based levy and possibly section 179 valuations. As the PPF has declared its wish to keep the overall level of the levy steady for the next three years it is hard to see this affecting the overall size of the levy in the immediate future however.
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Guaranteed Minimum Pensions are a defined benefit underpin broadly equal to SERPS (the State Earnings Related Pension Scheme) which must be provided by schemes if they contracted out of SERPS. They were introduced with contracting out in 1978, and could accrue up to 5 April 1997 when contracting out arrangements were changed. GMPs are unequal between men and women because women accrue them more quickly than men because the state pension age for women was lower at the relevant time. The rates of revaluation of GMP are different to the increases to GMP in payment opening up further scope for divergence between men and women. |
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