We need to address a historical inequality relating to some GMP benefits in the Plan arising from legislation (see question 2).

This follows the outcome of a High Court case which affects members of pension schemes across the UK, including the Plan, that were ‘contracted-out’ of the State Earnings-Related Pension Scheme (SERPS), (this later became the Second State Pension, between 17 May 1990 and 5 April 1997). See ‘Key dates explained’ below.

The historic inequality concerns the way in which equal treatment laws should have applied to GMP benefits since 1990. ‘GMP equalisation’ involves making top-up payments, if necessary, to ensure that both men and women receive the same amount of benefit, at the same age, for service on and after 17 May 1990. Since men and women have different amounts of GMP, this means that (without the top-up payments) women could be entitled to bigger total pensions than men at some ages, but smaller pensions at other ages.

Your Plan pension will not go down as a result of this change, nor will the overall expected value of your benefits. However your pension may be increased slightly and future increases on your Plan pension may differ slightly as a result.

Your Plan pension is made up of different parts, based on when you (or, if you are in receipt of a dependant’s pension, the member) built up your (or their) pension. GMP is one part.

GMP is linked to when there were two parts to the State Pension arrangement – the Basic State Pension and the SERPS, which later became the State Second Pension.

Workplace pension schemes had the option to ‘contract out’ of SERPS (which later became the State Second Pension). This resulted in National Insurance savings for the employer and its members, and most schemes like ours took advantage of this option.

In exchange, the Plan had to promise to pay members at least as much pension as they would have received from SERPS.

This is the part of your Plan pension that is known as GMP.

GMP was earned between 6 April 1978 and 5 April 1997, so if you were building up benefits in the Plan during this time, some of your Plan pension will be GMP. See ‘Key dates explained’ below.

The amount of GMP, and the way it must be increased in payment, is set by legislation.

GMPs are different for most men and women because the State Pension Age used to be different for men and women. As a result, men and women built up GMPs at different rates and GMPs are payable at different ages. Under legislation, GMP is payable at age 60 for women and age 65 for men. This is not linked to your normal retirement age under the Plan or your State Pension Age, which may be different.

This led to the historical inequality which the High Court case (see question 3) has said pension schemes must now seek to address.

Pension benefits have generally had to be equal for men and women since 17 May 1990, following a legal ruling by the European Court of Justice that the right to equal pay for men and women applied to occupational pension plans.

However, legislation governing GMPs was not adjusted in line with this. As a result, GMPs remain unequal in some cases. 

The issue of GMPs has only been addressed recently, following this High Court ruling.

The case, which led to the ruling, related to three members of the Lloyds Banking Group’s pension schemes who claimed discrimination on the basis that their GMPs were not equal to the GMPs of members of the opposite sex. 

In October 2018, the High Court ruled in the members’ favour and held that the trustees of pension schemes with GMPs are under a legal duty to adjust benefits to address the historical inequality between men and women arising from unequal GMPs.

The result of this ruling is that all affected pension schemes are legally required to address this inequality.

Pensions earned between 17 May 1990 and 5 April 1997 must be equalised for the effect of unequal GMPs for that period. This is commonly known in the pensions industry as ‘GMP equalisation’. You may have read about GMP equalisation in the news or in the Trustee’s annual report.

GMPs earned before 17 May 1990 are not covered by the High Court ruling and do not need to be equalised. However, you may be affected by GMP equalisation even if you don’t have any GMP earned after 17 May 1990. This is because we are proposing to use this opportunity to simplify Plan benefits more widely and to replace all GMPs in the Plan with other, equivalent benefits. This is known as ‘GMP conversion’.

Our proposal to use GMP conversion to address the historical inequality between men and women arising from unequal GMPs will ensure the Plan meets its legal obligation to resolve the issue of unequal GMPs earned after 17 May 1990. Additionally, it will allow us to simplify pensions going forwards by converting GMP benefits into non-GMP benefits through a process known as ‘GMP conversion’. Trustees who propose to use GMP conversion are required by GMP conversion laws to consult with those who would be affected.

GMP equalisation

There are different ways of equalising pensions for the impact of unequal GMPs.

Having considered all available options carefully, and with expert guidance from our advisers, we are proposing to apply a one-off calculation to equalise for the impact of unequal GMPs earned between 17 May 1990 and 5 April 1997.

We would identify whether, over your expected lifetime, the total value of your pension built up between 17 May 1990 and 5 April 1997 is less than the equivalent total value of pension that a member of the opposite sex in the same circumstances would be entitled to.

We would apply an uplift to any member whose benefits are lower in value than they would have been had they been of the opposite sex and reimburse members who have lost out in the past with a one-off top-up payment.

Not everyone will be affected, so only some members will receive an uplift to their pension and/or a one-off lump sum. For most members, we expect any such uplift to be quite small, while no member will be worse off overall as a result of the proposed changes.

To fulfil the equalisation requirement and to simplify pensions, we are proposing to carry out a one-off calculation and convert all members’ GMP into a different form of non-GMP pension.

GMP conversion laws require that if an individual is having their GMP converted, all of their GMP (including any GMPs built up before 17 May 1990 that are not required to be equalised) must be converted. 

We have also decided to convert GMPs for all members who left the Plan before 17 May 1990 and whose GMPs are not required to be equalised. If we did not do this, it would create a significant administrative burden for the Plan.

Note: only GMPs earned between 17 May 1990 and 5 April 1997 need to be equalised. If you did not earn GMP within this period, you will not be affected by GMP equalisation. However, your Plan pension will still be simplified under our proposal for GMP conversion (see below).

GMP conversion

Converting GMP into a different form of non-GMP pension will:

• Remove sex-based inconsistencies arising from GMP between male and female pensions (for pension earned from 17 May 1990 onwards) – providing each member with the more valuable of the two.
• Simplify your Plan pension and the future administration of the Plan, as they will no longer be tied to complex GMP legislation.

Every Plan pensioner and dependant with a GMP (whether or not pension has been changed as a result of GMP equalisation) will have their GMP converted into a different form of non-GMP pension.

If we did not address the GMP equalisation as a one-off calculation for all members with a GMP, the already complex administration of the Plan would become even more complicated.

See question 5 for details of how we are proposing to convert all GMP into a different form of non-GMP pension.

Remember: Equalising and converting GMPs in the Plan as we propose may result in a very small increase in your current pension (where an equalisation uplift is required). In all cases, the current amount and overall expected value of your benefits will not be reduced as a result of GMP conversion.

We propose to make as small a change to benefits as possible whilst ensuring we meet the requirements set out under the GMP conversion laws.

For all pension built up between 6 April 1978 and 5 April 1997, we would remove any adjustments relating to GMP which may otherwise have occurred at age 60 for women or 65 for men (impacting only those who are currently below age 65). These adjustments are sometimes known as ‘step ups’ and occur when the pension otherwise payable at age 60 or 65 is less than the level required by legislation.

Your pension built up between 6 April 1978 and 5 April 1997 is currently made up of the following elements. The pension increases on each element will be unchanged, but the split of GMP and Plan pension built up alongside GMP may need to change to meet applicable legislation.

There will be no changes to the pension increases on each pension element as part of GMP conversion.

• The current annual amount of your Plan pension will likely be unchanged but may increase marginally in some cases. The current annual amount of your Plan pension would not be reduced.
• The split between different elements of Plan pension may be slightly different. This means that future increases to the total annual amount of Plan pension in the future may be marginally different. The overall expected value of your benefits over your lifetime of your benefits would not be reduced.

To ensure that the overall expected value of your benefit is protected, the Plan Actuary is legally required to certify that any change will not reduce the expected value of your benefits (based on the financial assumptions used as part of the calculation process).

There will be no change to any pension you have built up in the Plan after 1997 as a result of GMP conversion.

For most members, the changes as a result of us converting GMP benefits to non-GMP benefits is expected to be small.

However, there are a couple of exceptions where you may see a bigger change in how your Plan pension increases:

• Women currently under age 60 and men under age 65 may see a bigger change to how their Plan pension increases between now and age 60 (for women) and 65 (for men). This is due to the complex way GMPs must increase by law which we are simplifying as part of the conversion process. Instead, your converted GMP benefit would increase in the same way throughout your retirement, rather than this changing at 60 or 65 if you retired before then.
• Pensioner members whose spouse’s (or dependant’s) pension on death is below that required by GMP conversion legislation. In this circumstance, the increases on your Plan pension may change to ensure your spouse’s (or dependant’s) pension on death meets the minimum required by the GMP conversion legislation.

Note: even if any of these apply to you, your current Plan pension and overall expected value of your benefits would not be reduced.

GMP equalisation is a complex and costly process, no matter which method is adopted. We have proposed a GMP conversion approach after much consideration and input from our advisers.

The factors that influenced our proposal include:

• the historical complexity in the Plan, and
• the opportunity to simplify the existing benefit structures.

We are satisfied that our proposal is in the interests of the Plan and its members and beneficiaries.

Yes, the GMP conversion legislation and the rules of the Plan allow the Trustee to change the Plan’s benefits in this way with agreement from the Plan’s sponsoring employer, after taking account of any feedback received during the consultation. 

However, certain steps need to be taken first, given that the change we are proposing affects benefits that have already been built up.

We have taken legal and actuarial advice and are following guidance from the Department for Work and Pensions.

Before making any final decision, the Trustee is required to consult with all those who are currently in receipt of a pension from the Plan and who would be affected by the GMP conversion proposal.

The Trustee is legally required to carry out GMP equalisation.

If you receive an uplift to your annual Plan pension or any back-payments by way of a one-off lump sum, these would be taxed in the usual way. As a result, there may be tax implications if GMP conversion leads to a greater increase in the current annual amount of your Plan pension or the receipt of back-payments.

While our proposals for GMP conversion have been designed to minimise any negative tax implications, this can be a material point for some members, and we have set out the details of the potential tax implications below.

Lifetime Allowance

The Lifetime Allowance is a limit on the amount of pension benefit that an individual can receive from all pension schemes (whether lump sums or retirement income) without triggering an extra tax charge known as the Lifetime Allowance Charge. However, the Government announced in its 2023 Spring Budget that the Lifetime Allowance Charge would be abolished. 

If your pension came into payment before 6 April 2006 and you have previously asked us to calculate a notional Benefit Crystallisation Event (BCE) value for your original pension, this may also need to be adjusted. We will provide individual details in due course. 

2023 Spring Budget

As mentioned above, changes to the UK pensions tax regime were announced in the Budget on 15 March 2023. Please refer to the Plan website for more information which includes a document summarising the announcements hprbp.com/pensionbytes/lifetime-allowance-changes-explained

Whilst the Government has abolished the Lifetime Allowance, we still need you to let us know if you have any form of Lifetime Allowance protection. Please contact the Plan administrators.

Annual Allowance

The Annual Allowance is the annual limit on the amount of contributions paid to, or benefits earned in, all private pension plans before the member has to pay tax.

You can read more about this on the Government website at www.gov.uk/tax-on-your-private-pension/annual-allowance.

You might be making pension savings in another pension arrangement and using up some of your Annual Allowance each year. But because you stopped building up benefits in the Plan some time ago, your Plan pension has not used up any of your Annual Allowance in recent years.

Because of the complexity of the rules from HMRC, carrying out GMP conversion when you retire could use up some of your Annual Allowance in that tax year. The Annual Allowance is currently £60,000 for most individuals. If you are concerned that you might use up all of your Annual Allowance in the 2024/25 tax year, then you will be able to let us know.

The actuarial value of your benefits is the present-day value of all expected future payments to be made to you and your dependants through the Plan.

Placing an actuarial value on your benefits requires making a number of assumptions, including assumptions about future inflation and how long members and their dependants will live.

To ensure that the actuarial value of your benefit is protected under the proposed GMP conversion, the Scheme Actuary is legally required to certify that any change will not reduce the expected value of your benefits (based on the financial and demographic assumptions used as part of the calculation process).

Please see question 2 above “What is Guaranteed Minimum Pension”.

Non-GMP benefits are any other pension that is not classified as GMP. Unlike GMP benefits, non- GMP benefits do not increase in a prescribed matter determined by law; rather, non-GMP pension will increase in payment as set out in the Plan Rules.

The exercise to address the historical inequality relating to Guaranteed Minimum Pension (GMP) benefits and the one-off option that is being given to members to re-shape their pension benefits is not connected to the discretion of the Company to (or to decide not to grant) discretionary pension increases. As the Trustee has noted previously, the Trustee has no control over the Company’s decision on whether to award discretionary increases to pensions in payment.

The Plan rules relating to discretionary increases is not changing as part of this exercise; the Company will still be required under the rules to review pensions in payment and decide whether to award discretionary increases, and the Trustee will continue to ensure it does so in accordance with the Plan rules. Whether the Company proposes discretionary increases in any year remains at its discretion, and this is irrespective of whether you choose Pension A or Pension B.