Statement on Equalisation for GMPs AND the application of a ...

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B.1 BackgroundB.1.1 Content of Part BEqualisation for GMPs is a complicated subject. Part B of this document has been writtenwith the intention of providing the majority of PPF stakeholders with very basicinformation on the technical details and legal background underlying the calculations. Ithas initially been split into 2 main sections to address several issues that overlap, namely:Section B.2 - the calculation of benefits accrued before 6 April 1997 (Pre 97) allowing forthe difference in the rates of accrual of GMP between men and women (Modified Method(2)); andSections B.3 – B.5 – consider the additional statutory minimum requirements that resultfrom a member having a GMP applicable to the opposite sex (the Statutory Minimum).Further background along with a summary of our legal advice can be found in our 2011consultation document covering the calculation of PPF compensation and FAS assistance inthe context of equalisation for schemes contracted out on a GMP basis.http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/GMP_consultation_Jan11.pdfB.1.2 Basic Legal RequirementUnder Section 171 of the Pensions Act 2004, PPF compensation must be calculated on abasis that is no more or less favourable for men and women in respect of the period 17May 1990 – 5 April 1997, taking into account differences caused by the calculation ofGMPs. Owing to the fact that GMPs stopped accruing after 5 April 1997, being replaced bythe reference scheme test, no adjustments in scheme benefits and/or PPF compensationreferable to benefits accrued after 5 April 1997 (Post 97) should be made. However, themethod to be applied can lead to changes in any Pre 97 scheme benefits and/or PPFcompensation (including in respect of accrual before 6 April 1978).B.1.3 ComparatorsOn its face, section 171 of the Pensions Act 2004 only requires the PPF to equalise forGMPs where a comparator exists 2 . However, a number of statements have been issuedby Ministers of State for Pensions, which have indicated their view that European lawrequires that any inequality in scheme rules which results from the legislative provisionsgoverning GMPs should be removed, whether or not a person can show that a comparatorexists. Additionally, the government intends to bring forward legislation (amongst otherthings) to amend s171.For all schemes in (or which enter) a PPF assessment period, the exercise should thereforebe carried out (by the trustees or the PPF, as applicable) for all members, includingmembers of schemes (or sections of schemes) that only have male (or only have female)members.B.1.4 Equalisation before and after the Assessment DateSection 171 requires the PPF to equalise PPF compensation for GMPs. However, section166 also requires the PPF to redress underpayments in scheme benefits which occurredbefore the Assessment Period. For this reason, the PPF needs to consider how schemesmight effect equalisation for GMPs.2 Broadly, a comparator is a member of the opposite sex doing the same work or work of equivalent value.13
B.2 Equalisation of accrual – Modified Method (2)Following a consultation in April 2008 (where the PPF set out 4 possible methods ofequalisation for GMPs) the PPF approved “Method (2)” as being the most suitable methodof equalisation for GMPs for the PPF.“Method (2)” requires a comparison of the total pension that would be payable in respectof service periods between 17 May 1990 and 6 April 1997 in respect of two individualswho are equal in every respect except one is a male and the other is a female member.The comparison should be made when the pension comes into payment, and annually (ormore frequently) once that pension is in payment. The higher pension amount is thenpaid.Modified Method (2) is a partial application of method (2). It is similar to method (2)but allows for the special circumstances applicable to the PPF; namely that PPFcompensation treats all pensions after the Assessment Date in the same way and does notdifferentiate between GMP and excess pension. The PPF approved this method as beingthe most suitable for PPF compensation payments following the 2008 consultation.The PPF is therefore in the fortunate position that equalisation for GMP when calculatingPPF Compensation only needs to be carried out at a single date - the Relevant Time(the day before the Assessment Date).Changes to the calculation of PPF compensation after the Relevant Time in accordancewith this Modified Method (2) should be applied as the first step. The PPF has establishedconversion factors (see section D.1) to calculate opposite sex GMP which can be used toapply Modified Method (2). Alternatively NISPI has a Dual GMP calculation service.However, this only deals with the inequality in the accrual rates of GMP. In particular itdoes not recognise the right of a female to receive GMP at age 60.The next sections (B.3-B.5) look at the other statutory obligations for schemes that werecontracted-out by providing GMPs.14
Page 5 and 6: If you have any questions regarding
Page 8 and 9: A.4 Section 143 valuation requireme
Page 10 and 11: Combining information from several
Page 12 and 13: A.6 Schemes not included in the pil
Page 16 and 17: B.3 Statutory requirements for cont
Page 18 and 19: B.5 Interaction of the statutory re
Page 20 and 21: greater, no further adjustment is r
Page 22 and 23: For actives, the application of the
Page 24 and 25: B.7.4 Typically male deferred pensi
Page 26 and 27: B.8.3 Back-paymentsWhere pensioner
Page 28 and 29: B.10 Back-paymentsB.10.1 Back payme
Page 30 and 31: (c) New Pensioners between the RT a
Page 32 and 33: C.1 Data requirementsFor members of
Page 34 and 35: C.3 AssumptionsThis section contain
Page 36 and 37: females joining the scheme after ag
Page 38 and 39: C.4 PPF Standard FormsThese forms c
Page 40 and 41: Form 1 - Active members at the Rele
Page 42 and 43: Generalised formula for male deferr
Page 44 and 45: Generalised formula for female defe
Page 46 and 47: 1 MGMP 65 = 0 if the member is aged
Page 48 and 49: Pensioner Form 3(b) - GMP only case
Page 50 and 51: GMP pensioners - use this section i
Page 52 and 53: Age at DOR = DOR - DOB (years and m
Page 54 and 55: PLUS applicable to pensioners who h
Page 56 and 57: Calculation of Accumulated Back-pay
Page 58 and 59: Calculation of uplift at Relevant T
Page 60 and 61: Uplift in Pension at Date of Retire
Page 62 and 63: C.5 Examples of theoretical calcula
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Active Example 1. Male active membe
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Form 1 - Active members at the Rele
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Statutory minimum test for NPA 60 t
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Deferred pensioner examplesThe exam
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Modified Method (2): Opposite sex c
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Adjustment to Pension revalued to t
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Generalised formula for male deferr
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The revised NPA 65 tranche = total
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Adjustment to Pension revalued to t
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Generalised formula for female defe
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Factors used in the form 2(a) for E
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eing a late retirement pensioner fo
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Pensioner NPA 60 trancheThe member
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Factors used in the Pensioner Form
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1 MGMP 65 = 0 if the member is aged
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Factors used in the Male Deferred P
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Example 5 - Member with tranches of
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Pre 97 Pension at Date retired from
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Back-paymentsThe member is entitled
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Pensioner Form 3(a) - not GMP only
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PLUS applicable to pensioners who h
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Pre 97 PPF compensation at Relevant
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Age at DOR = DOR - DOB (years and m
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Calculation of Accumulated Back-pay
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Pre 97 Pension at Date of LeavingPr
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2.8% and 3% are UK Guaranteed Minim
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Factors used in the Form 3(a) for E
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Factors used in the Form 3(a) for E
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Pensioner Example 6. Male pensioner
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Factors used in the Form 3(b) for E
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May use instead of standard calcula
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Back-payments Form 4(b) - GMP only
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Uplift at Relevant Time (before app
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Calculation of Accumulated Back-pay
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D.1 Factors for calculating opposit
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D.2 Questionnaire to gather scheme
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Early retirement information15. Did
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Late retirement from either active
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NPAFGMP DOLFemale Deferred Pensione
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e.g. 65 MGMP DOL = male GMP at date
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65 to RTEnter 1 if pension does not
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