Kick off your GMP equalisation project by getting your data in good shape. Given the length of time since benefits have accrued this may well be a challenge - especially as the data required is generally more detailed than that needed for ongoing scheme administration.
Before equalising benefits for unequal GMPs, you will need to ensure GMP records are accurate. Completing your GMP reconciliation is therefore essential. It is important to reconcile both the scheme membership and the level of GMP entitlement for each member. Only then can benefits be correctly equalised.
Any errors identified in member benefits as part of your GMP reconciliation must be rectified, considering how this will interact with your GMP equalisation project. It may be appropriate to hold off taking action on reconciliation and to instead dovetail this with future work on GMP equalisation. For example, you may not want to start recovering overpayments only to increase benefits again some months down the line. However where you are underpaying a member it’s likely to be more difficult to argue that you should delay rectification.
Ensure member data such as sex and service dates are validated and clean. Once specific datasets are being reviewed and corrected, there is a knock-on effect to other data used for administration. It is therefore sensible to review wider data integrity and accuracy so that any issues can be identified and addressed, to avoid further amendments in the future. High-quality data is essential and will have a real impact on the benefits individuals receive.
In order to carry out GMP equalisation, you are likely to need more detailed data than is typically used for your day-to-day administration. Examples include full contracted-out earnings data to calculate GMP accrued specifically over the equalisation period 17 May 1990 to 5 April 1997, the cash taken by a member at retirement along with the commutation factor used to calculate the cash entitlement.
Detailed scheme level data will be required including historic factors like thosed used for early retirement, late retirement and commutation - going all the way back to 17 May 1990, alongside information on administrative practices such as anti-franking.
These will need to be calculated alongside the corresponding excess benefit elements.
It is important to have current addresses for all members so that you can communicate with your membership through the GMP equalisation process.
How can ITM help?
GMP EQUALISATION READY ASSESSMENT
We can work with your in-house team or third party administrator to carry out an independent assessment to determine whether your data is GMP equalisation ready. This will give you:
Once the data preparation has been carried out, the next step is to calculate equalised pension payments and determine which members and dependants have been underpaid using the method agreed by the trustees. These underpayments will then need to be rectified. The process broadly falls into the following steps:
Our GMPe application is built on our core data management platform – eDAaRT.
This means we can work on pensions system data irrespective of the source of that data, and build core applications that are “system agnostic”. The GMPe application can carry out all your GMP equalisation calculations including the calculation of equalised benefits and rectification.
Administration systems and procedures are likely to require a significant overhaul to administer equalised benefits under any of the approved methods.
Member data updates - Additional data items will need to be stored e.g. additional tranches of pension in respect of service post 17 May 1990, opposite sex elements of pension.
Scheme calculation changes – Systems will need to be updated to calculate benefits on an equalised basis including opposite sex GMPs and output the additional data items required to administer equalised benefits going forwards. Many calculations will require updating, for example:
Our pensions administration platform, PenScope, has been updated to cope with equalisation. It can calculate equalised benefits due under any of the methods approved under the Lloyds judgment including dual payroll approaches.
If your own administration system and processes need updating we can provide advice, independent audit and calculation of any additional data items.
The Lloyds Bank judgment approved a number of methods. Methods B and C under the judgment are often referred to as “dual payroll” methods. These methods involve a year-on-year comparison of the member’s current pension elements in payment with those that would apply for the alternate sex.
How can ITM help?
Our pensions administration platform, PenScope, is able to store the additional pension elements required on a dual payroll basis. It will maintain a “true sex” and “opposite sex” record for each member and calculate the equalised pension due to the member each year. Equalised payments can be calculated on any of the methods approved under the Lloyds Bank judgment.
The Lloyds Bank judgment made it clear that existing GMP conversion legislation could be used to equalise GMPs by converting GMPs and other pre-1997 benefits into alternative non-GMP benefits of equivalent actuarial value. This approach has the advantage of removing GMPs entirely, and will be of particular interest if you have a fiduciary objective planned.
Our data consultants and GMPe application are the perfect partnership to help you prepare your data for GMP conversion.
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