We discussed the slow pace of progress on pension equalisation at our webinar: GMP equalisation: what’s the delay? Our poll of 220 participants showed that complexity and lack of capacity were two of the main barriers to getting on with the job. But these aren’t good excuses — especially when pensioners need all the money they can get during the cost of living crisis.
When it comes to GMP equalisation, aiming for perfection is the enemy of the good and is costly, time consuming and ultimately, in many cases, impossible because of missing data. We asked webinar participants what their priorities were on GMP equalisation and how confident they were about the support they had to deliver a project.
Top priorities for GMP equalisation
Bar chart showing respondents top priorities for GMP equalisation
100% technical accuracy = 3.97%
Getting the job done = 30.95%
Reasonable cost of delivery = 17.46%
Simple trustee decision making = 7.94%
Data management = 20.63%
Good governance = 19.05%
Getting the job done was the top scorer with almost a third of votes, compared with a handful of participants striving for total accuracy. Data, governance and costs were also high scorers.
Stuart O’Brien, a partner at the law firm Sackers, told the webinar there was now clear enough guidance on GMP equalisation for trustees and their advisors to take a pragmatic approach. He made these key points:
- Striving for perfection will probably leave members worse off by compounding underpayments, delaying back payments and underpaying newly retired pensioners.
- DB schemes always contain risks that members aren’t in practice paid exactly the right benefits. Whilst the general legal obligation on trustees is to pay the “correct” benefits, they can be risk-based and proportionate in their approach to assessing this and some pragmatic assumptions can usually be made by trustees acting within their legal duties.
- Once you have done your best after taking legal advice you should accept there may be some residual risk.
Support should cut through pension equalisation complexity
Bar chart showing how confident respondents were that they have the support they need to deliver their GMP project – with 10 being very confident and 1 being not confident at all
1 = 0.86%
2 = 0.86%
3 = 3.45%
4 = 6.03%
5 = 11.21%
6 = 15.52%
7 = 24.14%
8 = 31.90%
9 = 5.17%
10 = 0.86%
Only a handful of schemes said they were very confident (9 or 10) and almost one-quarter scored less than 5. The majority were reasonably confident (7 or 8).
Mercer’s Sam Marshall said capacity had been an issue across the industry. Mercer has responded by developing ways to cut through complexity and deliver projects efficiently. Sam gave these examples:
- Identify issues that are relevant to the scheme and its members and focus on them. This can be achieved by advisers running calculations early on to spot these issues and present them to trustees.
- Take the burden off trustees. Stakeholders don’t need to understand all the detail about how calculations are made.
- Provide greater detail only on the specific cases that trustees need to decide on, so that they understand the issue and are able to make informed choices.
- Use a standardised approach and make appropriate assumptions when data is missing.
Data is the big issue behind many of the challenges of pension equalisation. We deal with this subject in greater depth in our third article.
In the meantime you can watch the webinar or contact us if you would like to discuss how we can help you navigate GMP equalisation.
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