On the go: Pension schemes that have paid bulk transfer values have been told to seek specific advice on how the Lloyds 2020 guaranteed minimum pension judgment affects those payments.
The Pensions Administration Standards Association has released a GMP equalisation checklist on June 27 that focuses on the administrative aspects of past transfers out.
The Lloyds 2020 judgment ruled that contracted-out, salary-related schemes, which paid statutory cash equivalent transfer values during the GMP equalisation period, could be required to top up those payments. The ruling also specified that trustees must be proactive in addressing historical transfer values.
In the specific case of bulk transfers, which can occur as part of a company disposal, PASA warned that some members may require special calculations and communications, and that administrators should be aware of any bespoke arrangements for members that were part of transfers out.
Other individuals, meanwhile, may not be due top-up payments because of the transferring scheme’s benefit structure, the way historic transfer values were calculated or the member’s accrual cessation date. These members can be excluded from the exercise, PASA said.
The standards body also suggested that trustees discuss implementing a de minimis policy with their advisers in order to cap the number of past transfers that can be reviewed.
Schemes that elect to make top-up payments as a cash lump sum will need to consider tax treatment, PASA said.
Pension tax rules permit small lump sum payments to be paid out to former members as authorised payments, with some conditions. The industry body said that these conditions may not always be met and “strongly recommended” that schemes take legal advice before deciding on whether to directly make top-up payments to members.
Geraldine Brassett, chair of PASA’s GMP Equalisation Working Group, said: “Before planning how to implement equalising past transfers out for the effects of GMP, trustees will need to make a number of decisions.
“These options will influence both the scope of the project and the number of former members where a top-up payment is due. Some of the decisions will also have the potential to impact the administration aspects of the project.”
