The cross industry GMP Equalisation Working Group (EWG) has published its latest guidance paper on the common data issues associated with implementing GMP equalisation. Whilst the guidance offers potential solutions to a variety of common data issues that schemes may face, as it acknowledges, the solutions described are not exhaustive and trustees will ultimately need to work with their advisers to identify the most appropriate solutions in the context of their scheme.
As member data plays such a critical part in schemes being able to accurately implement GMP equalisation, this guidance is welcome and it is intended to complement the EWG’s other guidance, including its Methodology guidance.
The data guidance is not necessarily intended to be read in full. The introduction sets out an overview of the key issues covered. The technical sections are intended to used by trustees who have identified particular issues with their scheme, to guide them in discussions with their advisers. The guidance also contains a helpful list of the data which may be needed as part of a GMP equalisation project and a summary of the minimum data that is likely to be required (at Appendix 1).
Data required and data availability
The EWG’s data guidance recognises that in most, if not all cases, schemes will not have all of the data that they need to accurately determine whether every member is entitled to a GMP equalisation adjustment and to calculate the exact adjustment that should be made in all cases (including the payment of arrears). In some cases, data may be inaccessible or the effort and expense required to obtain it may seem disproportionately high in the context of the benefit adjustments that are likely to be due to some members.
In light of this, the guidance suggests that early on in their GMP equalisation projects, trustees should work with their scheme’s administrator and actuary to assess:
- What data will be required to determine whether each member with a GMP is entitled to a GMP equalisation adjustment and, if so, what the value of that is?
- Which elements of this data is readily available (and the quality and accuracy of such data)?
- What data is missing, unreliable or incomplete?
- The options for obtaining any missing or incomplete data from other sources (such as HMRC records or from members themselves) and the potential cost of doing so.
- What data no longer exists or might be impossible or impracticable to obtain?
- The scope for making assumptions where data is missing or incomplete and the risks associated with doing so.
Where data is missing, the guidance recommends that trustees should ask the scheme actuary to determine whether any missing or incomplete data will impact the calculation of any adjustment that may need to be made to individual members benefits and, if so, to what extent. This may reveal that some elements of the missing or incomplete data does not impact the GMP equalisation calculations or that it only impacts the adjustments that may be payable to certain members.
Data not readily available
Where data is not readily available (for example, it is not held in electronic format), the guidance suggests that trustees may need to consider:
- Whether members can be grouped or filtered so any additional data work required is targeted on those members for whom the additional data will or may make a difference?
- The level of work involved in retrieving essential data from physical media such as paper member files, fiche or roll film affected members and how cost-effective this is.
- The extent to which any historical data can be audited as safe to use.
- Whether the contracting out data validated during the GMP reconciliation project is readily available.
- The scope for contacting members or past holders of member data such as administrators to ask them if they are able to provide missing data.
- The need for any address tracing, for example, if converting.
Section B of the guidance introduces the concept of ‘Calculation Solutions’, which are used to determine the amount of the pension that would be payable to an opposite sex comparator at the current date.
There are different ways to obtain this for a pensioner or dependent. The guidance describes four approaches. These are not intended to be exhausted, but they are (in order of decreasing data demands):
- Reconstruction – this involves reconstructing the original administration calculations from when the individual left pensionable service using a full suite of data. This is then repeated using the comparator’s opposite sex GMP and non-GMP pensions for the relevant period. This is described as reconstruction because the existing true sex pension is recreated in order to verify the data and current pension – and thereby avoids working from erroneous figures. There are variations on how this approach can be used and, in particular, whether schemes carry out a full or partial reconstruction to determine the correct amount of the relevant benefits.
- Rollback – The member’s current pension in payment and the associated GMP is rolled back, potentially in a number of stages, to when the individual left pensionable service, whether on retirement, or earlier, in order to estimate their pension elements at date of leaving. That pension is then re-split using the comparator’s opposite sex GMP and then projected forward to the current date, again potentially in a number of stages. Once again, there are variations of this solution.
- Formulaic – Discrete formulae are used to calculate directly the adjustment to a pension allowing for the effect of opposite sex GMP. Like rollback, the starting point is the current pension in payment. This solution relies largely on contracting out data for the majority of members. It requires a number of assumptions which may not be appropriate in some situations in which case reconstruction may be necessary for those specific cases.
- Broad-brush – Where data is insufficient to use any of the above solutions, the EWG suggests that a broad-brush adjustment based on the GMP equalisation adjustments known to apply to an equivalent population could be the only Calculation Solution which can be used. The guidance acknowledges that this solution is likely to lead to materially incorrect outcomes for members compared to more accurate solutions. It is therefore described as an approach of last resort where no other alternative is possible and it has been included in the guidance for completeness.
Trustees will need to consider with their actuarial and legal advisers which approach is most suitable in the context of their scheme. The guidance suggests several questions trustees should consider with their advisers when choosing between Calculation Solutions, these include:
- Could a simpler Calculation Solution produce the same member outcomes as reconstruction but at lower cost?
- How does the scheme benefit structure and the actual administration practices in relation to GMPs impact on GMP related equalities and therefore the choice of Calculation Solution
- Could the preferred Calculation Solution increase any GMP inequalities, or systematically favour one sex over the other?
- Are there any groups of members where more detailed data work will have a material impact on member outcomes?
- What differences in member outcomes due to the choice of Calculation Solution can be reasonably justified on practical cost grounds?
Other issues and solutions
In the final section, the guidance:
- considers various potential data issues that schemes may face and possible workarounds relating to member data and obtaining true and opposite sex post 90 GMP
- sets out three approaches that can be used to calculate the opposite sex comparator’s post 90 GMP, and
- deals with calculation and anti-franking related pitfalls with possible workarounds that schemes could consider.
The EWG’s latest guidance will help trustees in understanding and identifying the essential data required to implement GMP equalisation. The guidance sets out potential solutions to some of the common data issues that schemes may encounter. It also identifies the steps that trustees can take to make progress in analysing the reliability, availability and quality of the data that they will need to implement GMP equalisation.
Whilst the guidance sets out a range of approaches that could be adopted to verify and calculate the GMP and pensions in payment payable to affected members and dependents and the relevant opposite sex comparator, from a legal perspective, the starting point should be for trustees to calculate each member’s GMP equalisation adjustment as accurately as possible and any assumptions or approximations that are made will need to be justified, and cost alone may not be a sufficient justification in most instances.
If you have any queries about implementing GMP equalisation in the context of your scheme, contact your usual HSF adviser or speak to a member of our pensions team.