GMPe: Selecting Method B

How we helped the trustees of a pension scheme select GMP equalisation 'Method B'.

The background

Different GMP equalisation methods are appropriate for different pension schemes, depending on their circumstances and the priorities of both trustee and sponsor.

For this pension scheme with c5,000 members the inequalities were small. The trustees and sponsor did not have a strong view on which method to adopt. Their key priority was to choose the method that would be best for their scheme in the long-term in terms of cost, risk and member understanding.

Our solution

We helped the trustees choose their equalisation method by explaining the pros and cons of each, focussing on four key elements: benefit cost, ongoing administration cost and risk, member communications and reputational risks.

We used our GMP equaliser tool to calculate past underpayments to members and pensions uplifts robustly but with minimal data requirements to provide sufficient information to help the trustees focus on the impacts for their members – both at an individual level and overall.

This enabled the trustees to decide that Method B was their preferred approach given, in their case, it would not cost materially more in benefit terms than Method C2, but would be simpler to administer, resulting in a lower overall cost, as well as less operational risk. The sponsor agreed with this approach.

We were also able to show how GMP conversion was not proportionate in terms of cost and changes to member benefits given the small uplifts being provided.

The results

The trustees were able to demonstrate an informed case to the sponsor that Method B should be selected and so move quickly to an agreed approach which we could immediately start implementing.

Many members were completely unaffected. Disadvantaged members received the money they were due. No members saw a reduction in their pension (which in this case would have happened for some under Method C2).

GMP equalisation was achieved efficiently using our six-step plan without taking up material time for the trustees and sponsor.