GMP could cost schemes less than 1% of liabilities

The cost of GMP equalisation could be less than 1 per cent of total scheme liabilities for more than half of all pension schemes, XPS has found.

According to a survey of 90 clients with a 31 December year end, 57 per cent said they believed the total cost of equalisation was going to be less than 1 per cent.

Despite this, a number of schemes who have already estimated the cost of GMP’s have put it in the region of 1-2.7 per cent.

Compass Group estimated that is would cost them between 1-2 per cent, while Haynes Group has been advised that the total impact could be in the range of 2-3.3 per cent of liabilities.

XPS Pensions Group head of transactions, Wayne Segers, said: “It appears to confirm a worry that the industry may now incur significant cost and administrative complexity with little real benefit for members.

“Given that, it is important schemes use the work needed on GMPs to drive improvements. Increasing data quality, streamlining benefits and removing GMPs for good can all help reduce cost and risk for employers, and help drive better options and outcomes for members.”

Furthermore, XPS said that schemes with a March year end will benefit from a more "robust estimate", meaning they can prevent charging any more than is needed in their accounts.

Schemes are still awaiting guidance from the Department for Work and Pensions on how best to approach the issue, which last week it said it would be delivering “shortly”.

A new industry group has been formed to aid pension schemes navigation of the High Court’s ruling on GMP equalisation.

The group will focus on promoting “best practice” on issues arising from the ruling on issues including missing data, transfer requests and rectifying underpayments.

It has also been suggested that the industry could be facing a capacity crunch, once schemes fully understand the process.

The sheer amount of work that equalisation will place on administrators, legal firms and actuaries, could create a “drag” on capacity, meaning for some schemes the practice could take well over three years.

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