In earlier posts we addressed the issue of GMP equalisation. Just to be clear – eliminating inequalities as a result of GMPs is not complicated or difficult or indeed costly when considering a member with a new pension coming into payment or a transfer value being quoted unless you are operating:
- Administration software that is not capable to making a monthly comparison between the benefit paid to a male member and on the other hand the benefit that would have been payable to a female comparator. Our P3 pension administration software is capable of handling this.
- Actuarial software that projects only to the point of retirement and then applies an annuity factor. By definition an annuity factor cannot capture potential cross over between a male say and his female comparator.
We have developed our own in-house actuarial software that can handle this.
There are however two areas which can present genuine challenges:
(1) The period that has elapsed since the Barber Judgement on 17 May 1990. The data required to be able to identify underpayments is often difficult and in some cases impossible to obtain. In theory you need to be able to reconstruct a set of pension payments back to retirement and a comparator set of cash flows for a notional female to identify cumulative underpayments. This should act as a further spur to trustees to grasp the nettle and sort out their data.
(2) When annuitising (e.g. on buy-out or buy-in) the annuity providers cannot currently take on board equalised benefits because they do not have the systems to support this. For this reason in some recent cases where we have been involved we have used workarounds and made a broad brush allowance for GMP equalisation.
We do not think the Government is going to come forward with a single particular method. Any such method would not fit all schemes and would inevitably result in some members getting a higher benefit than “equality” would require. Schemes that have inadequate data or who are unwilling or unable to fix their inadequate software will have to adopt a “method” which will inevitably have a cost associated or they could appoint administrators and actuaries with the capacity to deal with the problem.