United Kingdom tax authority HM Revenue & Customs (HMRC) has issued limited guidance on the tax implications of Guaranteed Minimum Pension (GMP) equalization. In the past, defined benefit schemes could contract out of part of the state benefits system, granting GMP benefits instead. Last year, the High Court ruled that pension schemes must equalize benefits to address the inequalities arising from different GMP entitlements for men and women between 17 May 1990 and 5 April 1997.
GMP equalization raises many tax related questions. This initial HMRC guidance relates to benefit adjustments arising solely from GMP equalization and addresses the annual allowance, lifetime allowance and members with any of the historical lifetime allowance protections. However, the guidance is very limited and does not cover the “conversion” approach — where benefits are converted to non-GMP rights. It also doesn’t cover the tax implications of equalization resulting from the payment of death benefits, transfers or total commutation.
Further HMRC guidance is expected, but no timescale has been announced.