A Private Members' Bill is going through Parliament which will make amendments to the statutory regime for Guaranteed Minimum Pension (GMP) conversion.
GMP conversion has been on the statute books since 2007 and case law in 2018 confirmed that pensions must be equalised to address the inequality in Guaranteed Minimum Pensions provided by schemes that were historically contracted out on a salary-related basis. Case law also confirmed that equalisation can be achieved using the statutory conversion mechanism. The statutory conversion mechanism is very detailed and the Bill seeks to address some of the features of the current conversion regime that are regarded as making the conversion overly complex.
The Bill amends the conversion legislation to make it clear that conversion applies both to earners and to any survivors. The current obligations regarding conversion set out detailed requirements regarding survivors' benefits which are to be provided following conversion. The details will be removed and replaced with requirements laid down in regulations. It is hoped that this will result in a more streamlined approach which can be more easily met and achieve a more simplified benefit structure following conversion.
The Bill also amends the employer consent requirements. Currently the legislation requires the employer in relation to a scheme to give consent. This has given rise to practical challenges as employers may have changed over time and the entity which employed members of the scheme while they were contracted out might no longer exist. Typically the solution has been to obtain consent from a scheme's statutory employer so it will be helpful to have the legislation clarified on this point. The Bill will also remove the requirement to notify HMRC about conversion.
Other concerns have been raised about the current regime, particularly around the actuarial certification process. Where conversion takes place as a bulk exercise, the requirement to obtain an actuarial certificate is straightforward. However, where conversion takes place as a member retires, the actuarial certificate must be updated. A more streamlined approach to the confirmation of actuarial equivalence would be welcome. However, this is not currently included within the Bill.
"The amendments will simplify and clarify how these [GMP Conversion] provisions operate".