As part of the work the Government is doing on the draft Financial Assistance Schemes (Miscellaneous Amendment) Regulations, the Pensions Minister recently told Parliament that:

“relevant legislation and case law has led the Government to conclude that where a scheme member has accrued entitlement to a guaranteed minimum pension after May 1990, European law requires that any inequality in scheme rules which results from the legislative provisions governing GMPs should be removed, whether or not a person can show that a comparator exists.

The Government intend to bring forward amending legislation when Parliamentary time allows. However, in the meantime, it is the Government's opinion that, in order to ensure full compliance with European law, trustees and others should act as if existing domestic legislation requires equalisation in respect of differences resulting from GMPs whether or not real comparators exist.”

The Government also issued draft guidance on how expected pension data should be provided to ensure Financial Assistance Scheme (FAS) payments are calculated on an equalised basis.

For further information see the Department for Work and Pension's website.

Comment

There has long been uncertainty as to whether there is a requirement to equalise GMPs, and if so, how this should be achieved. The 2001 High Court decision in Marsh & McLennan v Pensions Ombudsman did not fully resolve the issues.

Like the Government, the PPF in April 2008 came to the view that GMPs should also be equalised and its view will directly affect schemes that are in a PPF assessment period. But the PPF’s view does not resolve the uncertainty for ongoing schemes (although the PPF may review its guidance for PPF levy valuations).

Presumably, the Government’s view that schemes should equalise GMP benefits extends to ongoing schemes as well as those transferring assets to the FAS (or carrying out a valuation under the FAS regulations).

However, it is not clear if the intention to “bring forward amending legislation” to provide for equalisation, will extend to ongoing schemes or be limited to schemes carrying out valuations or transferring to the FAS.

If the amending legislation does not apply to ongoing schemes, then the Government’s view will not legally bind trustees of such schemes and they will need to take their own legal advice. As the PPF itself acknowledges: “there is no consensus about what, if any, action pension scheme trustees are obliged to take to remove the effect of differences in treatment that emerge due to the GMP formula.”

Therefore, trustees of ongoing schemes may wish to wait for the expected future amending legislation before taking any action.