As noted in our most recent blog on Guaranteed Minimum Pension (GMP) equalisation, the third hearing in the Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank PLC & Others (HC-2017-001399) (“Lloyds case“) took place in May. The Judgment on the treatment of historical transfers is awaited, but in the meantime, some help to support pension scheme trustees in dealing with the quagmire of issues relating to GMP equalisation can be found in two pieces of guidance published over the summer months by the GMP Equalisation Working Group (the industry working group formed to help pension schemes following the decision in the Lloyds Case).

The GMP Equalisation Working Group Data Guidance

In July, the GMP Equalisation Working Group published its guidance on the key data aspects involving equalising GMPs ("the Data Guidance"). This follows on from the group's methodology guidance and rectification guidance issued in November 2019 and March 2020 respectively.

The Data Guidance includes helpful tips and considerations for trustees who are getting their schemes ready to equalise GMPs. The Data Guidance also includes a detailed appendix on the data trustees will need and key considerations where this data is not readily available, along with suggested practical approaches to gathering data. It sets out several different calculation solutions (for determining the comparator's GMP in relation to pensioners and pensions in payment) and approaches to dealing with scheme data. However, much like the decision as to the methodology for GMP equalisation, the Data Guidance makes it clear that it is up to the trustees of each individual scheme to decide what approach is most appropriate for their scheme and its individual situation.

The Data Guidance applies whether a year-by-year approach or the conversion method approach is adopted for equalising GMPs.

The GMP Equalisation Working Group Communications Guidance

Further Guidance from the GMP Equalisation Working Group's Communications Sub-group ("the Communications Guidance") was published this month containing guidance for schemes in the early planning stages of GMP Equalisation on how best to communicate with members throughout the process. Although it doesn't offer further clarification on how GMP Equalisation will work in practice, the Communications Guidance does provide support and advice for trustees in communicating to members about the approach to the scheme's GMP equalisation whilst taking into account the complexities of the process. The Communications Guidance will be a welcome support to trustees dealing with the complexities of GMP equalisation whatever stage of the GMP equalisation journey they are on.

Next steps for GMP Equalisation

The Data Guidance and the Communications Guidance along with the recently published HMRC Guidance dealing with the impact of benefit adjustments on past and future lump sums, which is summarised in our blog here, should help to take schemes forward on their GMP equalisation journeys. 

However, there are still some areas of ambiguity. In addition to awaiting a decision from the Court in the Lloyds Case as to whether there is an obligation for scheme trustees to apply GMP equalisation to historical transfers from the scheme, we still await further guidance from HMRC on the tax implications of GMP Equalisation where schemes adopt the conversion method for equalising GMPs. Further guidance from the GMP Equalisation Working Group covering anti-franking and the related complexities in more detail is also awaited.

In light of these outstanding issues, many schemes may continue with a "wait and see" approach to GMP equalisation. For schemes wanting or needing to cross the starting line or continue forward on their GMP equalisation journey, the support and guidance that is now available will be invaluable in helping them to navigate this.

If you would like to discuss anything raised in this blog, please get in touch with your usual contact at Brodies.


Maureen Burns

Senior Associate