HMRC has issued further guidance on the tax implications of implementing GMP equalisation. The guidance is helpful and pragmatic. It outlines several options for making a top-up payment to correct historic transfer values. It also helps clarify the impact of GMP conversion for annual and lifetime allowance purposes for pensioners. However, it does not resolve the issues that can arise in relation to deferred members whose GMPs are converted.


HMRC has previously issued two guidance notes, in February 2020 and July 2020, in which it set out its views on the tax issues associated with implementing GMP equalisation. The latest guidance builds on these and sets out HMRC’s views on a number of the outstanding tax issues that arise in the context of topping-up historic transfer values and when implementing GMP conversion.

Top-up payments

The guidance confirms that, in most instances, where a top-up payment is made to the original receiving scheme to correct an undervalued transfer payment (or to an alternative registered pension scheme or qualifying recognised overseas scheme) it should be possible to pay this as an authorised payment for tax purposes in the form of a “recognised transfer”.

HMRC has also confirmed that, where a top-up is £10,000 or less, it will be possible to pay it directly to a member as an authorised member payment, where it meets the other conditions to be treated as:

  • a small lump sum (although this option is only available where a member is over normal minimum pension age, which for most members is age 55), or
  • a lump sum payment following a “relevant accretion” (this may be available where trustees only became aware of an additional entitlement under their scheme in respect of a member following a recognised transfer).

Where a scheme is being wound-up a top-up payment could also be paid as a winding-up lump sum where it is £18,000 or less and the other statutory conditions are met.

Tax treatment

Where a top-up payment is paid to the member (or following a member’s death, to the member’s estate) tax is due on 75% of the lump sum but not on the remaining 25%. Tax is due in the tax year in which the lump sum is paid, and PAYE should be operated on the lump sum in the same way as it is for other taxable lump sum payments.

No annual allowance implications arise where action is taken to reflect a member’s adjusted benefits in cases where a top-up payment is made or a lump sum is paid to extinguish the right to a top-up payment.

However, the guidance warns there might be cases where a top-up transfer payment results in an individual losing the benefit of fixed and enhanced protection in respect of the lifetime allowance charge. This will be the case where the transfer is not a “permitted transfer” for tax purposes. While this risk is likely to only arise on rare occasions, it is something that will need to be considered before top-up payments are made by way of a further transfer payment.

The guidance does not distinguish between statutory and non-statutory transfers. Instead it relates to cases where it has been determined that a former member has a right to a top-up transfer payment. If a top-up is paid in circumstances where it has not been determined that such a right exists, this could have adverse tax consequences for the former member and the scheme making the payment.

GMP conversion

Unlike HMRC’s previous guidance, its latest guidance addresses some of the tax issues associated with implementing GMP conversion, particularly in relation to pensioner members.

The guidance only applies where conversion:

  • is done “on an actuarial equivalence basis only” (i.e. where the post-conversion benefits have “the same or virtually the same actuarial value” as the pre-conversion benefits), and
  • is being done for the purpose of implementing GMP equalisation, which as far as HMRC is concerned means that “the conversion is on the basis of seeking to achieve both equality of present value on the conversion date and equality of benefit payments thereafter between men and women for benefits earned from 17 May 1990”.

Therefore, if conversion is being done for any reason other than GMP equalisation, or if it applies to GMPs accrued pre-17 May 1990 or in a way that means a member’s post-conversion benefits will have an enhanced actuarial value, the outcomes from a tax perspective may differ from those set out in this guidance.


However, where the guidance applies, HMRC makes clear that conversion of a pensioner’s benefits (at any time after retirement):

  • does not constitute benefit accrual for annual allowance purposes
  • would not trigger the loss of fixed protection, provided all benefits under the arrangement have been crystallised, and
  • could result in a BCE3 (benefit crystallisation event) which needs to be tested against the lifetime allowance (in accordance with the methodology set out in the guidance).

In addition, where conversion takes place after a member has retired, albeit in the same tax year, this does not affect the application of the deferred member carve out where this applied in the relevant tax year in the period up to retirement.

Deferred members

In relation to deferred members who left a scheme on or after 6 April 2006, HMRC recognises that GMP conversion:

  • is likely to impact the treatment of their annual allowance in the tax year of conversion and in all subsequent tax years up to and including retirement – this includes the prospect of a member losing the benefit of the deferred member carve out resulting in a pension input amount for annual allowance purposes for that, and future, tax years, and
  • may cause the loss of fixed protection against the lifetime allowance tax charge, if a member’s benefits increase by more than the permitted amount.

HMRC has indicated it is undertaking further work on these issues with the Industry Working Group and is considering the potential for any legislative change. In the meantime, these are issues that will need to be addressed as part of any GMP conversion exercise.

For deferred pensioners who left a scheme before 6 April 2006, who are usually outside the annual allowance regime, HMRC has confirmed that they should still remain outside of that regime in relation to the relevant arrangement following conversion, provided a member’s post-conversion benefit has the same actuarial value as the pre-conversion benefit.


HMRC’s latest guidance will be welcomed by trustees as it offers pragmatic solutions to some of the outstanding tax issues associated with implementing GMP equalisation and conversion. However, the trickiest issues that arise in the context of GMP conversion remain unresolved.

Many schemes have already ruled out GMP conversion on the basis of the up-front costs involved (relative to implementing a dual records approach) as well as the uncertainties that existed around a number of tax issues. Although this latest guidance clarifies the tax implications of conversion for pensioners it does not resolve the tax risks for post-6 April 2006 deferred members. While there are ways to mitigate these risks, it seems likely we will continue to see the majority of schemes adopting a dual records approach, unless there are compelling reasons to go down the conversion route.