Media Briefing Note: PPF Issues Statement on Equalising GMPs

What's new?

The Pension Protection Fund (PPF) has today issued a statement on the steps it expects trustees of occupational pension schemes in assessment periods to take in relation to equalising for the effects of GMPs.  The PPF paper makes clear that it expects schemes to compensate pensioners for the inequalities by paying a lump sum (with interest).  Potentially the compensation could relate back to May 1990 (the date of the "Barber" judgment – please see below).

Commenting on the statement, Duncan Buchanan, partner in Hogan Lovells' pension group, said:

"GMP equalisation is a hugely complicated area which, if required, will cause many schemes considerable practical difficulties and expense.  We have urged the Government to sponsor a test case or to equalise GMPs in one of the large public sector schemes to identify the complexities before issuing regulations and guidance applicable to occupational pension schemes more widely.

The publication of this statement by the PPF prior to the issue of the expected guidance by the Department for Work and Pensions is not helpful.   It is to be hoped that the approaches adopted by the DWP will coincide with the PPF's. Expecting retrospective equalisation back to 1990 from schemes entering the PPF will cause significant additional expense, likely to fall on other levy-paying schemes."

What's the issue?

Equalising GMPs to ensure equal outcomes for men and women is highly complex. Requiring schemes to equalise benefits back to 1990 will have significant cost implications as well as creating considerable additional administrative difficulty as many schemes may not have complete records going back that far.

Whilst the statement covers only schemes in a PPF assessment period it could have far wider implications.  Other commentators have suggested that compensation for unequalised benefits need only go back for the statutory period of six years (rather than 21 years).

Background – Contracting-out and GMPs

  • Individuals who contracted-out of the State Earnings-Related Pension Scheme (SERPS) at any time between 1978 and 6 April 1997 will have built up rights to Guaranteed Minimum Pensions (GMPs) in relation to their contracted-out service. 
  • GMPs reflect the SERPS pension foregone by contracting-out.  In particular, legislation requires GMPs to be payable from 65 for a man and 60 for a woman, reflecting the difference in State pension age.

Background – equalisation of GMPs

  • On 17 May 1990, the European Court of Justice (ECJ) held that different pension ages for men and women under an occupational pension scheme constituted unlawful sex discrimination.  Subsequently, the ECJ confirmed that where there was unequal treatment, the benefits of the disadvantaged sex had to be leveled up to those of the advantaged one, at additional cost to the scheme.
  • For many years, debate has raged on whether (and, if so, how) the inequalities of GMPs need to be equalised.  The topic is controversial because, under EU law, different male and female retirement ages for State pensions are lawful – and, of course, GMPs replace State pension and UK legislation still specifies unequal GMP retirement ages.
  • The DWP stated in January 2010 that it believes GMPs should be equalised and the Pensions Minister has promised draft guidance to assist employers, expected later this year.

Background – the Pension Protection Fund (PPF)

  • The PPF is a statutory fund that provides compensation to members of eligible defined benefit schemes whose sponsoring employer becomes insolvent with insufficient assets in the pension scheme to buy out members' benefits (capped in some cases).  PPF compensation is funded from the assets of the schemes it takes over and annual levies on defined benefit schemes.
  • Where the PPF assumes responsibility for a scheme, it is required to pay any benefits to which a member had become entitled but which have not yet been paid.

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