Delivering GMP equalisation with the right outcome for members
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 data checks, and strategy, through calculations to communications and implementation, and can support GMP projects whether we are the current administrator, Scheme Actuary or neither.
GMP equalisation: simple agile tracked– how we can help
- 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.
- 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.
- Our Data Management Platform provides a robust audit trail by recording all data changes and any assumptions made to fill data gaps.
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 compete 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 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 provide trustees documentation outlining our standard, pragmatic approach for administering dual records in the future (under method B, C1 or C2, whichever is chosen). 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 prepares the data for ongoing administration.
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