What’s GMP equalisation?
‘Guaranteed Minimum Pension (GMP) equalisation’ refers to a court ruling in October 2018 that pension schemes need to ‘equalise’ the GMP benefits of men and women, which are currently linked to the old State Pension ages of 60 (for women) and 65 (for men).
What’s GMP?
If you were a member of your employer’s contracted-out pension scheme (such as the LGPS) between 6 April 1978 and 5 April 1997, you would’ve paid reduced National Insurance contributions. This meant you didn’t build up any Additional Pension (AP) in the State Earnings Related Pension Scheme (SERPS) for that period.
GMP is roughly the amount of AP that you would’ve built up in SERPS between 6 April 1978 and 5 April 1997, had you not been a member of your employer’s contracted-out pension scheme. However, the scheme had to guarantee that they’d provide a minimum pension that was at least equivalent to the AP you would’ve built up under SERPS; this ‘guaranteed minimum pension’ is known as the GMP.
Why are GMPs ‘unequal’?
Although GMPs are payable from the old State Pension ages of 60 for women and 65 for men (their ‘GMP age’), they’re not paid in addition to your pension as it’s already included within the make-up of your pension. However, the different starting points for men and women can, for some schemes, create an inequality.
For most private sector pension schemes, the GMP is held separately to the rest of your pension and attracts a different rate of increase. In addition, once your pension is in payment and you’ve reached your GMP age, the GMP built up between 1978 and 1988 is no longer increased, whereas the GMP built up between 1988 and 1997 is increased in line with the rest of your pension (capped at 3%).
However, for public service pension schemes like the LGPS, the GMP is not separated out of the scheme pension until the member retires, so the GMP is treated in the same way as the scheme pension. In fact, when you reach your State Pension age:
- After 5 April 2016 – public service pension schemes are required to increase your GMP in line with the rest of your pension; therefore, the GMP is treated no differently to the rest of your scheme pension and is, essentially, equalised.
- Before 6 April 2016 – the increases applied to your GMP are split between the Government and the pension scheme; this means the only real difference between this method and that used for people reaching State Pension age after 5 April 2016 is that the increase is paid by two bodies, rather than one. Therefore, as all parts of the pension receive full increases, the scheme pension is, once again, equalised.
If the LGPS currently equalises GMPs, why does GMP equalisation still matter?
In addition to the October 2018 ruling, another ruling was made in November 2020 confirming that historic GMPs also need to be equalised. This could potentially affect members of the LGPS, mainly those members with a GMP who transferred out of the pension scheme after 1990. The Government are currently considering if this judgment to equalise historic GMPs applies to all historic transfers made by all public service pension schemes (including the LGPS). Consequently, we need to wait for the Government’s decision before we can take any action.
We’ll keep you informed when we hear more about any updates on the Government’s decision.