It would mean trustees and sponsors would not have to track and monitor GMPs – benefits built up in a defined benefit scheme when members are contracted out of the second state pension – while members might find their pension rights easier to understand.
The proposal would also allow a member’s GMP to be converted when transferring out of a scheme with their permission.
David Everett, partner and head of pensions research at Lane Clark & Peacock, said: “While in theory the ability to convert GMPs into ordinary scheme benefits could be useful, in particular to those who wish to embark on radical simplification of an existing scheme, there are still many concerns about the practicalities of how this process will actually work.”
He expressed concern that there is no guidance on how schemes should deal with unequal GMPs to comply with the requirement to provide equal benefits to men and women for pensions accrued from May 17, 1990.
“There has to be a danger that this issue could result in GMP conversion becoming impractical, even for those schemes that might otherwise have considered it,” he said.
It is unclear whether the government will amend the proposal, but they are due to come into force in April or May.
Anne-Marie Winton, partner at Nabarro, said the proposal was particularly interesting on sex equalisation.
“The government states that schemes ‘should already have equalised their benefits, taking account of the GMP rules, where necessary’.
“GMPs are stated to be ‘not a separate pension’ but ‘a calculation factor in determining overall benefits’ which “does not have to be separately equalised”.
“So we are still in the dark on the precise GMP conversion calculations that would be needed.”
