Delivering GMP equalisation with the right outcome for members

Whether you are carrying out GMP equalisation, or combining GMP equalisation with a GMP rectification exercise, GMP projects aren’t straight forward. They involve complex calculations, multiple stages, vast amounts of data manipulation and can take over a year to complete. So, when you start your pension equalisation project, you want to know that it will be carried out in a simple, agile and tracked way.

GMP equalisation explained

On 26 October 2018, the High Court made a landmark judgment confirming that pension schemes were required to equalise male and female members’ benefits for the effect of guaranteed minimum pensions (GMPs).

Trustees therefore have to decide how to equalise members’ benefits and may also need to agree their approach with the Company. In most cases, the benefit adjustments will be quite small – but there could be significant individual exceptions. Some schemes will also want to combine their GMP equalisation project with the rectification of GMP following reconciliation with HMRC records.

Building on our experience of working on these projects since the original judgment, Mercer’s approach to GMP equalisation is designed to put people first and ensure that projects are executed in a way that is simple, agile and tracked for our clients and pension scheme members.

We offer a wide variety of services covering all aspects from strategy to detailed data checks, through calculations to communications, and can support GMP projects whether we are the Scheme Actuary or not, and whoever is the administrator for the Scheme.

GMP equalisation: simple agile tracked– how we can help

  • Simple
    • Promoting pragmatism and reducing the number of Trustee decisions is fundamental to our approach. We understand the important decisions and we deliver advice and support to our clients that focuses on these key decisions. We make clear recommendations based on our understanding of each client’s objectives and our knowledge of each scheme.
    • Standardising our calculations and documentation where possible makes the process simpler for everyone, focusing on the areas relevant to each scheme and material to member outcomes.
  • Agile
    • We prepare the data and run preliminary rectification and equalisation calculations towards the start of the project. This gives our clients early insight on the impact of GMP equalisation for a scheme, allowing decisions to be made in the context of member outcomes.
    • Using the results of the preliminary calculations, we focus on the data gaps and any areas of uncertainty that are relevant to each specific member, reducing the amount of data cleansing required and leading to a faster and more cost efficient delivery.
    • Our specialist GMP Projects Team works with you throughout the project, minimising the reliance on the business as usual administration team.
  • Tracked
    • Our Data Management Platform provides a robust audit trail by recording all data changes and any assumptions made to fill data gaps.
Visualisation of data flow through data management platform. Data from administrator's system flows into the data management plaform which carries out automated data validation checks (by GMP rectification), creates an audit trail of data changes (by GMP equalisation tool), distinguishes between assumptions and actual data changes (by GMP conversation tool) compares data to administrator data to manage data and status changes this is then outputted as data to administrator's system and member communication.
We are delighted Mercer has chosen to work with Intellica to support their clients with GMP Rectification and GMP Equalisation. Through close collaboration, Intellica and Mercer have utilised their extensive expertise and experience to develop an intelligent software solution, tailored for this data challenge. This solution provides an exciting approach to the GMP data challenge, enabling an end-to-end solution for GMP rectification and equalisation.

Brendan Doherty, Intellica CEO

Mercer’s approach to GMP equalisation

We support clients in making their key strategic decisions by providing:

  • Education on the decisions that need to be made;
  • Clear recommendations based on feedback.

Some strategy decisions will be made through the course of the project, but at the outset it is important to reflect the long term planning for the scheme, as well as agreeing key project milestones. Throughout the process we log your strategic decisions in a living document.

We believe our approach to data strategy and the preliminary calculations differentiates us from others in the market. We recognise that for the vast majority of members, only a small number of critical data items are required to complete GMP equalisation calculations. We also know that data management is critical:

  • Member data will change throughout the project, through pension increases, retirements or other data changes
  • Not all members need to go through each stage of the process e.g. some members will need rectification but not equalisation, some will require equalisation but not rectification and some members will require both rectification and equalisation. Ensuring that members are correctly tracked through the correct processes improves efficiency and speed.

Our bespoke Data Management Platform, specifically designed for GMP equalisation projects, does this job for us. It tracks all data changes throughout the project, whether that is from calculations, status changes or assumptions, and provides a clear audit trail of all those changes made.

It’s also the key at the start of our process: once your data is loaded onto the platform, it carries out checks on the critical data items we need to carry out the calculations. Provided there is sufficient data available we proceed to the preliminary calculations, avoiding the need for potentially unnecessary data cleansing.

At this stage our calculations are carried out on our standard, pragmatic approach.

Where member calculations can be completed (even if some data is missing) there may be no need to complete further data cleansing. Where member calculations cannot be completed the reason is recorded in the Data Management Platform. This allows trustees to make decisions on whether to only data cleanse for all data gaps shown in the data gap analysis, or only a subset of the data gaps that are required to complete the calculations.

We then provide an overview of the member impact of rectification and equalisation, reviewing the results where the impact is not material and focusing our advice on the outliers and the cases where there are gaps in data. This is key to making decisions on how to tackle gaps in data – making the decisions based on knowledge of the member impact.

Completing the preliminary calculations before completing data cleansing has the potential to:

  • Reduce the amount of data cleansing required, thereby reducing overall costs;
  • Allow the Trustees to gain insight into the magnitude of the impact for individual members at an early stage; and
  • Help the Trustees make informed decisions on the balance between making assumptions to fill data gaps versus completing data cleanse work.

The preliminary calculations will help us identify which areas for your scheme may require further investigation. This may be data cleansing. Or it could be testing assumptions to fill data gaps more efficiently. Alternatively, there may complex cases that require more in depth investigation. The key point is that this advice can be scoped and out considered based on what is important for your scheme. In our experience, trustees are likely to want to consider advice from their legal advisers when considering any assumptions and additional analysis required.

Once any bespoke advice and data cleansing is complete, we finalise our calculations. Depending on the timing of the project, new data may be required for example due to member movements, pension increases, or other pension revisions. Again, the required checks and audit trail would be carried out within the Data Management Platform. The final output would be the revised pensions to be paid to pensioner members, and any historic arrears payments.

The approach for future benefits might be agreed at the outset of a project, but we also know that the final decision might not be made until the historic position is clear and impact on current benefits understood. We work with trustees to provide advice and support to make the decision on the form of future benefits and the timing of this advice is driven by the needs of our clients.

Where a dual records approach is chosen, we can provide trustees with an estimate of the liability impact of choosing method B over C2. Where trustees decide to equalise benefits using conversion (method D2), we provide advice on the post conversion benefit design drawing out the key considerations relating to member impact, communications, ongoing administration and the wider objectives of a scheme. Once the decisions are made, our specialist GMP Project Team can prepare the data to be passed to the administrator for implementation and ongoing administration.

If required, we create impactful communications to members that are clear and simple, so that members understand what the changes mean for them and also that they can access and respond to information is the way that suits their needs and preferences. Our Impact team can design communications to make them easier to read, effectively breaking down complex data and information, as well as meeting the PASA guidance on communication. The Data Management Platform can provide the data required in a simple and efficient output.

Following completion of the final calculations, data from the data management platform can provided to the administration team for loading back onto the administration systems. We would, of course, have liaised with your administrator at an early stage on the data required for future administration. If required, we can also support your administrator on implementing post GMP equalisation processes. For example this might involve the review of revised pro-formas, calculation routines or providing the trustees advice on different ways future benefits can be administered.
We understand that GMP equalisation is not something that everyone gets excited about, so our simple, agile and tracked approach has been developed in part to make the subject easier and more accessible.
John Martin


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