Rocket or damp squib? Government consults once again on GMP sex equality

20 / 12 / 2016

Having consulted on draft Regulations in 2012, DWP has now issued a further Consultation proposing a new approach and method for GMP equalisation. This article considers whether the new proposals will bring finality. We conclude this is unlikely.

Legal Background

The Government’s position is that schemes are obliged to equalise benefits and that this includes GMP benefits accruing in the period 17 May 1990 to 5 April 1997, after which GMPs cease to accrue.

The draft 2012 Regulations removed the need to identify a comparator member for GMP inequality claims. The accompanying DWP draft guidance proposed GMP sex equalisation would be achieved by comparing, on a year for year basis, the position of male and female members and paying the higher calculated benefit.

Industry almost informally advised this methodology. DWP withdrew the draft Regulations and went back to the drawing board.

November 2016 Proposals (“New Proposals”)

Barebones of the New Proposals:

  • one off conversion of members’ GMP benefits into other scheme benefits plus, where appropriate, an uplift to iron out GMP sex inequality;
  • the entire GMP to be converted, not just the GMP accrued from 1990 to 1997, and the conversion to extend to survivors’ GMP benefits;
  • the conversion process to use the existing ‘conversion’ provisions in Pension Schemes Act 1993;
  • the Consultation includes an annexe containing an 18 page note from the “Industry group”, explaining a ten-stage possible conversion methodology;
  • the Government believes this methodology would be one way of equalising GMPs; and
  • scheme trustees together with the scheme employer will decide whether to implement the conversion and its terms. Obligation to notify members before and after the conversion and no obligation to consult.

Problems with the November 2016 proposals:

Problems include:

  • timing – amending the existing conversion legislation will require new primary legislation; in other words, an Act of Parliament is needed and not merely Regulations. The existing conversion provisions of the 1993 Act apply to the conversion of only members’ GMP rights whereas the New Proposals include survivors’ GMPs.
  • The methodology is far from settled. As the Industry group paper acknowledges, the ten stages are only a “possible” model that might be used by schemes”.

Will the New Proposals be implemented soon?

DWP goes out of its way to emphasise the tentative nature of the New Proposals: the DWP refers to “challenges as to how schemes should equalise GMPs”; and state that the Government is not “placing any obligation on schemes to use this method and the method is not a definitive statement of how equalisation should be effected”.

Besides the need for new primary legislation BREXIT, and the Lloyds Bank members’ action over GMP inequality, further complicate matters:

  • BREXIT – the Consultation “seeks to clarify” the effect of Brexit on the requirement to provide equal pensions. Beyond mentioning that whilst the UK remain a full EU member the Government will continue to “negotiate, implement and apply EU legislation” not much is said in the Consultation about BREXIT.
  • The Lloyds Bank Union’s claim, on behalf of its members, that GMP sex equality is legally required –  the Union confirmed in September it still intends to make an Employment Tribunal Claim. The Claim is a reminder that the fundamental issues of the precise legal requirements re GMP sex equality and, if there is an obligation to equalise GMPs, how this is to be achieved, are still open legal questions. Given BREXIT and the Lloyds Bank Union case, it is hard to see the November 2016 New Proposals making much headway any time soon, even leaving aside the significant work still needed to get the New Proposals up to speed.

The Consultation closes on the 17th January 2017 and the Government will then consider further. We doubt whether much will happen quickly.