The DWP has published the government response to its consultation on converting GMPs to scheme benefits (see Pensions Update September 2008).

The consultation included draft regulations under s14 Pensions Act 2007 to allow (but not compel) trustees of defined benefit contracted-out occupational pension schemes to convert their GMP liabilities into ordinary scheme benefits of at least equal actuarial value. The proposed legislation would also permit conversion of an individual's GMP on transfer out of the scheme, with the individual's consent. The final regulations are not yet available but are expected to come into force in April or May 2009.

The thorny issue of sex equalisation remains outside the scope of the proposed legislation: the government’s stated position is that schemes should have already equalised their benefits post-Barber, including GMP, which “is not a separate pension…and thus does not have to be separately equalised”; and the method of equalisation will be scheme-specific and will therefore not be laid down in the regulations. Unsurprisingly, numerous respondents cited the uncertainty associated with sex equalisation as a deterrent in using GMP conversion, but the government believes that schemes may take advantage of this option in the longer term (!) and reiterates that there are no current plans to make conversion of GMPs compulsory.

The main points from the consultation response are set out below.

  • Requirement to provide survivor benefits post-conversion: the government’s view is that removal of the requirement could give rise to a challenge in the European Court of Human Rights by survivors, who would not be compensated for the loss of their GMP "rights". NB: the government adds a warning that trustees who are considering bringing the converted benefits into line with post-1997 benefits should bear in mind that the circumstances in which a survivor benefit has to be paid from the post-conversion benefits are wider than those which are applicable under the reference scheme test.
  • GMP conversion date: the government has concluded that the conversion date need not be more specifically defined, as s24A(d) Pension Schemes Act 1993 (PSA) adequately defines it as “the date on which that amendment takes effect”.
  • Restrictions on onward transfers: given the unanimous response that no additional restrictions should be put on onward transfers from schemes which have converted their GMP liabilities, there are no plans to introduce such restrictions. When a scheme has converted GMPs, it will be for the trustees to decide whether to accept a GMP transfer into the scheme or whether to convert the GMP on entry into the scheme.
  • Section 67: whether GMP conversion should be approached in the same way as for s67 transfer valuations (i.e. deemed leaving of pensionable service immediately on conversion) will be for trustees to decide; the choice of conversion date could have a significant effect on the calculations.
  • The Pensions Regulator will not be adopting a clearance role for GMP conversions: the provision of actuarial advice is outside its remit.
  • Consultation with members being converted - extent of duty: under s24E PSA trustees must take all reasonable steps to consult the earner in advance of conversion. An example of a reasonable step for deferred members could be to write to the last known address. Where a scheme offers the GMP conversion facility it would be reasonable to let members know it is an available option where, for example, the member is seeking to transfer his GMP.