PPF solution to equalising benefits for GMPs

- PPF consults on method of paying equal compensation to men and women which would otherwise be unequal
Solution meets PPF’s legal obligations
- It is specific to schemes in PPF assessment period or which have transferred in
- PPF now seeks industry views
- A way of making sure that men and women who belong to pension schemes being assessed for entry into the Pension Protection Fund (PPF) – or who are already PPF members - receive the same overall compensation was announced today (Monday).

By law, the PPF has to ensure that equal compensation is paid to comparable male and female members of schemes whose employers have gone bust and have transferred into the lifeboat scheme.

It has now developed a PPF-specific solution to make sure men and women receive the same overall compensation where it would otherwise have been unequal due to differences in guaranteed minimum pensions (GMPs). These are primarily brought about by differences in state retirement age.

PPF’s Director of Financial Risk, Martin Clarke, said: “We believe we have come up with a workable solution tailored to pension schemes being assessed for entry into the PPF now and in the future. This is something we have to do by law.

“We are determined to ensure that ours is a pragmatic solution which will minimise the extra burden we know this is likely to place on trustees as they take their schemes through the assessment process. We have strived to strike the right balance between the cost of achieving this solution and ensuring fairness for all our members. We now want to hear people’s views on our proposed way forward.”

The PPF will be consulting on its solution during the next three months before finalising its proposals.

Since 1990, occupational pension schemes have had a legal obligation, similar to that of the PPF, to equalise compensation for men and women. Differences caused by guaranteed minimum pensions are one aspect of this.

Notes to editors

1.Compensation will be equalised for men and women who have transferred in to the PPF, where a comparator exists. A comparator is broadly someone of the opposite sex doing work of equal value.

2.Copies of the document, ‘Consultation on the requirement under section 179 of the Pensions Act 2004 to equalise compensation to allow for differences in the GMP formula’, are available on the PPF website at http://www.pensionprotectionfund.org.uk/index/publications.html. This document has been prepared following legal advice from Andrew Simmonds QC regarding the duties of the PPF Board under section 171 of the Pensions Act 2004. The Board engaged Mercer Ltd to advise on the range of options that would enable the Board to comply with the legal advice received.

3.Example of the impact of equalisation to an individual Pension Protection Fund Member
please refer to the press release on the website - http://www.pensionprotectionfund.org.uk/news-details.htm?id=6540

4.For members of schemes in assessment, compensation will be equalised by the schemes’ trustees either by finding comparator or by amending scheme rules.

5.The phrases ‘Benefit Equalisation for GMPs’, ‘equalise benefits for GMPs’ or ‘equalise compensation for GMPs’ are used to refer to the process of equalising individual scheme members’ benefits, in order to address inequalities created because the formula for calculating GMPs differs for men and women. The pensions industry commonly refers to this concept as “GMP Equalisation”. While we have no difficulty with this shorthand, we have decided not to use this phrase in order to avoid any possible implication that we propose to equalise the GMP element itself. The calculation of GMP itself is set out in legislation and cannot be equalised, except following a change in law.

6.The iss! ue of how to equalise Guaranteed Minimum Pension (GMPs) is not resolved. If a scheme was contracted-out of the State Earnings Related Pension Scheme (SERPS) before 6 April 1997, then part of member benefits would be in respect of a GMP. A GMP is broadly equivalent to the benefit a member would have accrued under SERPS had the member not been contracted-out. Benefits for service on or after 17 May 1990 under occupational pension schemes should be equalised. This means that benefits are paid on equal terms for comparable men and women. Schemes are obliged by law to have equalised benefits. GMPs can cause inequalities, partly because they are payable at different ages for men and women.

7.The Pension Protection Fund was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It has been established to pay compensation to members of eligible defined benefit and hybrid pension schemes when th! ere has been a qualifying insolvency event in relation to the employer , and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.

For further press information contact: Richard Hunt on 0208 633 5931/0789 425 5561 or Ana Moreno on 020 8633 4932/ 07961 957 480