The long-debated issue of whether and how Guaranteed Minimum Pensions (GMPs) should be equalised as between men and women was finally addressed in the 2018 High Court decision in Lloyds Banking Group Pension Trustees Ltd v Lloyds Banking Group plc. The HMRC GMP Equalisation Working Group was formed to consider the issues arising in light of the Lloyds decision and HMRC published the first part of the GMP Equalisation Guidance on 20 February in its GMP Equalisation Newsletter ("the Guidance").
Since the judgement of the European Court of Justice on 17 May 1990 in the case of Barber v Guardian Royal Exchange, it has been clear that equal pay for men and women applies to occupational pension schemes. Trustees and employers along with their advisers have been knee-deep in equalising benefits under their schemes ever since but GMPs were, for good reason, not included in these exercises.
GMPs are linked to the State Pension Age, which was, until November 2018, different for men and women. Between 6 April 1978 and 5 April 1997, a contracted-out salary related pension scheme could contract out of the old State Earnings Related Pension Scheme (SERPS) by providing benefits that met certain standards and these benefits were required by legislation to be calculated on an unequal basis by reference to State Pension Age.
The High Court decision in Lloyds has made it clear that GMPs must be equalised, however, many questions remain outstanding as to how this should be done, not least how the many tax issues surrounding GMP equalisation should be addressed.
The Guidance goes some way to addressing some of these questions. It covers the annual allowance, lifetime allowance protections, the lifetime allowance and benefit crystallisation events and payment of the lifetime allowance charge. However, the Guidance does not cover the payment of lump sums and death benefits and HMRC will give more guidance on these issues "as soon as possible".
The Guidance applies to benefit adjustments made where a year-by-year equalisation approach is adopted and applies to all the acceptable "dual-record" equalisation methods set out in the Lloyds case. The Guidance does not apply to future benefit adjustments made as a result of GMP conversion. HMRC will continue to explore the tax implications for schemes choosing to use the conversion methodology.
A few key points arising from the Guidance are:-
- Benefit adjustments made as a result of GMP equalisation do not, on their own, constitute new accrual of benefits to be tested for annual allowance purposes or which would prejudice applicable lifetime allowance protections.
- Benefit adjustments made as a result of GMP equalisation should not result in the loss of the deferred member carve out for the purposes of the annual allowance test and there is no need to revisit past pension input amount calculations for changes to implement GMP equalisation.
- Revised pension amounts should be factored into future annual allowance calculations.
- Lifetime allowance calculations will need to be revisited and scheme members may need to correct a previous Self-Assessment tax return.
- Individuals with primary or individual protection will need to notify HMRC of any increase in the protected figure as a result of GMP equalisation benefit adjustments "without undue delay".
- HMRC will consider late claims for lifetime allowance protections where GMP equalisation benefit adjustments mean an individual would now qualify for protection from the lifetime allowance charge.
Further detail is available in the Guidance itself which can be accessed here.