The long running issue saga of equalisation, which started with the European Court of Justice judgment in the famous 'Barber' case in 1990, has a new chapter published in April 2013 under the title of "Interim Government response to consultation on draft regulations and possible equalisation method" ("2013 Government Response").
The Government's 2012 Consultation
In its January 2012 Consultation the Government assumed schemes were legally obliged (under European case law) to equalise GMPs accrued in defined benefit schemes between 17 May 1990 and 5 April 1997 when contracting-out on the GMP basis ceased. The Government in its 2012 Consultation also proposed removing the need for claimants to identify an opposite sex comparator and a possible GMP equalisation method.
It is a sign of the opposition to the Government's 2012 proposals that although the Consultation closed on 12 April 2012 it has taken the Government until now to publish its response.
What is the Government response?
The Government has not backed down. EU law requires GMP equalisation because in the Government's view:
- Members are entitled to a single, equalised pension and GMP is merely a calculation factor;
- It is not unreasonable to assume the pool for comparators is everyone in the country; and
- GMP has never been a replacement or substitute for SERPS.
All, or at least some of the above points are highly debatable and to an extent contradict other Government statements. For instance, in its recent comments on other legislation relating to certifying contracted-out changes, the Government refers to contracting-out provisions mirroring the State additional pension "which contracted-out benefits replace". Notwithstanding this, it is clear that Government is going to stick to its guns. It will not support a case to test the legal correctness of the Government's views on GMP equalisation.
So what is Government going to do?
Government says it is going to legislate to, in effect, require GMP equalisation, but not yet. This is to allow Government further time to consider the conversion of GMPs to ordinary scheme benefits and maybe give guidance on GMP equalisation. The Government states it wants to work with the pensions industry on developing guidance.
So, are we any further forward?
Not really! The Government insists it will legislate to require GMP equalisation but without any timetable for achieving this.
So where is the Government on conversion of GMPs?
Conversion of GMPs to ordinary (non-GMP) defined benefits became theoretically possible under April 2009 Regulations. These Regulations have, in practice, proved unworkable mainly because of uncertainty over GMP sex equalisation!
Five years later the Government is re-examining the conversion methodology, with GMP equalisation being an element in the conversion process. The Government's advice on GMP equalisation methodology as and when it appears may be of limited use. Unless the methodology is specified schemes will have no legal certainty as the Government's recommended equalisation method could turn out to be incorrect in law.
Conclusion
A cynical view:
The last Labour Government passed the parcel marked "GMP equalisation" to the present Coalition Government; and the Coalition are now repackaging the parcel ready to return it to the new Government in 2015 so that it becomes another Government's problem.
A positive view:
GMP equalisation is an exceptionally difficult issue and Government is doing its best to assist trustees and employers to deal with it.
Time will tell whether the cynical or positive view is correct!
Way forward for schemes
At this stage the Government is not requiring Trustees to equalise GMPs. Wedlake Bell's Pensions & Employee Benefits Team will continue to monitor developments and keep you posted as the position becomes clearer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
