Atkin trustees, actuaries, consultants & administrators

GMP Equalisation - The widening impact

As a result of the Government’s announcement on GMP equalisation, Prudential has ceased work on completing existing ‘buy-out’ deals and assigning benefits for schemes in wind-up. 

 In light of Angela Eagle’s statement, Prudential have stated, “ We believe that this statement could have a significant impact on schemes with post-May 1990 GMP benefits currently in wind up; with the potential to delay progress and invalidate previous work completed.    In light of the uncertainty created by this announcement Prudential are, in the short term, suspending the issue of policy documentation for any schemes containing members with post-May 1990 GMP, irrespective of whether a previous equalisation exercise has been performed or not. We are currently seeking clarification on this matter and will review our stance as soon as possible.”

 The statement highlights the uncertainty created by the Government’s announcement and also gives some indication of the financial impact this may have.  Obviously, there will be a cost to pension schemes and sponsoring employers, not only in terms of the actual recalculation exercise but also in respect of the effect on scheme funding and the impact on the PPF levy.   To this list we can add ‘taxpayers’, who will be picking up the bill for FAS cases as well as public sector schemes and insurance companies who, like Prudential, may be concerned about taking a hit for equalizing GMPs for completed buy-out deals. 

 For a number of years, Prudential and Legal & General were the biggest players (and for some time the only players) in this market.  Both must fear the commercial impact of GMP equalisation for schemes where wind-up has been completed and the liabilities now rest squarely on their books.

Prudential’s stance is understandable but it will also cause further headaches for schemes where wind-up has been a painfully protracted exercise and where tPR’s goal of completion in 2 years seems like a pipe-dream. 

First published: 18.02.2010

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