GMP conversion after a full buy-in

We helped the trustees equalise for GMPs to enable them to wind up the pension scheme quickly and efficiently whilst managing the pensions tax position for individual members

The background

The trustees of a c£300m scheme had completed a full buy-in before completing GMP equalisation to take advantage of an opportunity the sponsor had to fund the buy-in and subsequent move to buy-out. The sponsor was keen for the trustees to move to buy-out and wind-up quickly.

The insurer involved was not in a position, at that time, to offer a 'dual records' approach to GMP equalisation and so the trustees needed to use GMP conversion to enable them to move to full buyout and wind-up quickly. This introduced a risk that pensions tax issues were triggered for some members (in relation to the Annual Allowance and the Lifetime Allowance).

Our solution

We designed the post-conversion benefits to minimise disturbance to the buy-in policy, to avoid the additional costs which could arise from significant restructure, whilst focussing on reducing the potential for tax issues for members.

We timed the project carefully to maximise certainty in the tax impact, so it could be best managed. Members were triaged to identify those potentially at risk of adverse tax charges and alternative options were provided to minimise the impact. We supported the trustees in designing a communications strategy to ensure that members understood the issues and were able to act to access the alternative options available where appropriate.

The results

Our advice helped the trustees achieve equalisation for GMPs quickly and efficiently without triggering material pensions tax issues for members.

We were also able to reduce pricing risk for the trustees through the design of the post conversion benefits whilst still achieving both equality of value and equality of future payments for members, which the pension scheme lawyers had confirmed was important.

The whole process from inception of the buy-in policy through to buy-out and wind-up was completed within the sponsor’s timescales with the full GMP equalisation project for existing members, including the conversion, completed in less than a year.