The pensions industry could be facing a “capacity crunch” once schemes fully understand the process of equalising guaranteed minimum pensions (GMP), it has been suggested.
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.
Following the High Court ruling in October, schemes have been quick to assess the effect equalisation will have of their overall liabilities, but are yet unable to fully understand the impact it will have on their scheme.
Pensions Administration Standards Association (PASA) board member and chair of the GMP working group, Geraldine Brassett, said: “It’s just the sheer amount of work this is going to put on the industry.
“Until we actually understand what equalisation means, we are going to have an awful lot of pension schemes going through it at the same time. So being as prepared as you can is a really good thing. We need to think about how we up skill people if we need to. There could be a shortage and we need to think about that now.”
Sackers partner, Faith Dickson, agreed that there could well be a “capacity crunch” when it comes to resources, but that in general the skills are there.
“Schemes will spend the next six months on what approach they are going to take, even once they have decided how they are going to equalise, I think it could even take one to two years after that … depending on the size and complexity of the scheme.
“It’s easily a one to two-year job from the point in time you have decided what you are going to do. A lot of schemes are still struggling with finalising reconciliation as well … and until they have done that they can’t start the equalisation process.”
“If you think about the capacity crunch, if all schemes are going to take a year to do it, we could as an industry see it dragging on and trustees will start to get very uneasy if they are not in the process of equalising in the next 12 months or so. There will be a challenge of keeping up with the day to day activities as well.”
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”.
Last week, PASA announced a new industry group, aimed at aiding pension schemes navigation of the ruling, through best practice guidelines.
Taylor Wimpey estimated that the equalisation process will increase its DB pension scheme liabilities by £15-20m.
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