On the go: The Pensions Administration and Standards Association has launched guidance tacking frequently asked questions around guaranteed minimum pension equalisation, including tax implications, death benefits, commutation, and the ‘look-back’ approach for crossover members.
The document, published by PASA’s GMPE Working Group, begins by tackling the ‘look-back’ question with respect to crossover members, those whose benefits are initially either advantageous or disadvantageous compared to an opposite-sex member but that switch at a time after retirement.
There are three conversion methods under which this could become relevant: method B, where an annual comparison between the benefits of male and female pensions is made and the higher amount paid; method C1, where an annual pension is paid that it equal to whichever is highest of the unequalised benefits payable to a male or female member; and method C2, the same approach but allowing for interest.
The new guidance explains that, for method B, a crossover only occurs “when the true sex or opposite sex pension in payment is revised”, while for methods C1 and C2, they can happen “between revision points”.
This means that crossovers can only be identified retrospectively, up to a year before the current revision point, meaning trustees must look back to identify a crossover and then act accordingly.
PASA concluded that this approach is appropriate “for most scheme members and structures”, not least because crossovers are rare, tend to happen just once per member (where they happen at all), and the amounts at stake tend to be small.
It acknowledged, however, that all schemes are different, and recommended that administrators “consider ways to help trustees who want to consider a different approach”.
“One method could be to create reports allowing crossover events in the next 12 months to be estimated, based on current interest rates. Where a member is identified as having a potential crossover, the administrator could put in place a process to review them at this time,” it suggested.
Regarding the taxation of interest and arrears arising from GMP equalisation, PASA recommended that trustees communicating with members in bulk about any arrears they are due may wish to consider providing the total amount of the arrears due, with interest identified separately, rather than providing a detailed breakdown.
There will, however, be specific members for whom a more detailed breakdown would be appropriate.
On death benefits, it stressed the importance to due diligence of agreeing an approach with scheme trustees that is triggered when a member dies, not least because the settlement of arrears due to a deceased member can pose problems.
The guidance also recommended a “pragmatic approach” to checking whether the payment of arrears causes a member to exceed the lifetime allowance, while for commutation, factors including scheme rules, precedents and individual circumstances will determine the approach taken.
Geraldine Brassett, chair of PASA's GMP Equalisation Working Group, said: “This guidance includes initial FAQs, which will be updated and added to over time as the implementation of GMP equalisation projects progress and different approaches and solutions emerge.”
