The DWP has published draft regulations for consultation which will allow (but not compel) contracted-out occupational pension schemes to convert Guaranteed Minimum Pensions to scheme benefits, probably from 6 April 2009.
Among the requirements which schemes must meet before converting GMPs are the five conversion conditions:
- Condition 1: the post-conversion benefits must be actuarially at least equivalent to the pre-conversion benefits.
- Condition 2: pensions in payment at the conversion date must not be reduced.
- Condition 3: post-conversion benefits must not include any money purchase benefits.
- Condition 4: survivors' benefits must be provided post-conversion in certain prescribed circumstances.
- Condition 5: schemes must comply with certain procedural steps (obtaining employer consent, advance notification to HMRC and the trustees taking all reasonable steps to consult members in advance and to notify members and survivors before, or as soon as reasonably practicable after, the conversion date).
The draft regulations 2009 set out how "actuarial equivalence" is to be determined by the trustees. The trustees must determine the assumptions to be used (on advice from the actuary). The actuary must then calculate and certify the actuarial value of the post-conversion benefits in a prescribed manner (using assumptions chosen by the trustees).
In certain circumstances the post-conversion benefits must contain survivors' benefits equal to at least half the member's entitlement (accrued from 1978 to 1997 for widows and 1988 to 1997 for widowers and surviving civil partners).
Annex C to the consultation paper is a simple guide explaining how the GMP conversion process might work in practice.