The Government has published a consultation document which includes draft regulations issued under the Pensions Act 2007 (the Regulations) on converting guaranteed minimum pension (GMP) rights into ordinary scheme benefits from 6 April 2009.
The Regulations specify how actuarial equivalence must be determined in order to convert members’ GMPs into scheme benefits and set out conditions under which, and the period for which, survivors’ benefit must be provided post-conversion.
The Regulations also include the following provisions:
- Where a pensioner’s GMP is converted, the pension in payment must not be reduced at the point of conversion.
- Accrued defined benefits cannot be converted into defined contribution benefits.
- Conversion will require employer consent and consultation with affected members.
- Contracted-out deductions will continue to apply post conversion in respect of State benefits.
- The Regulations do not address the issues surrounding GMP equalisation.
The draft regulations place no restrictions on converted benefits if they are later transferred to another scheme, which would be beneficial in bulk transfer situations. The Department for Work and Pensions (DWP)’s consultation paper provides sample calculations of GMP conversions and the Regulations are intended to allow schemes to simplify their benefit structures leading to administrative savings and to make pensions entitlements easier for members to understand.
The consultation period will run until 28 October 2008.
Comment: once these Regulations take effect, schemes will be able to simplify their benefit structure and administration processes by removing all scheme provisions applying to GMPs (except for the existing requirement to pay survivors’ benefits).
View the consultation document and Regulations (184KB)(pdf)