Industry wide GMP equalisation to cost much lower than first feared
22 Mar 2019
The true cost of GMP equalisation to UK businesses is likely to be around £8bn* according to analysis by Hymans Robertson, the leading pensions and risk consultancy. This is about half the £15bn cost originally predicted by the industry.
Commenting on the implication to UK businesses and pension schemes from the findings of the analysis, Matt Davis, Head of GMP Equalisation, Hymans Robertson says:
“At the time of the judgment, the overall cost to UK businesses of providing extra benefits for GMP equalisation was widely estimated across the industry to be in the region £15bn. It is really encouraging news for UK business that our more detailed analysis indicates that it will be closer to half that amount. This suggests that most companies will not see significant disruption to their long term funding strategies.
“While many FDs will be relieved that the impact is not as bad as first feared, we‘ve seen noticeable differences from scheme to scheme. This means it is important to complete a thorough assessment, especially as this extra cost normally flows through ‘profit and loss’ in company accounts.
“Looking beyond the overall financial impact, GMP equalisation remains one of the largest industry-wide challenges. Twenty eight years of pension records will need to be re-analysed for millions of pension scheme members.”
Matt continues by explaining what Hymans Robertson’s analysis has revealed in terms of who benefits:
“The overall amount of the GMP uplift for a scheme depends on the total GMP pension that needs to be equalised for the scheme as a whole. This pension will typically have been built up between 1990 and 1997. However after allowing for differences in total GMP pension, we’ve also seen clear differences in uplift costs due to specific scheme features.
More generous schemes i.e. those where members can get their full pension around age 60 with inflationary pension increases provided year on year on non-GMP pension, are likely to see a relatively low increase to pension liabilities due to GMP equalisation. For these schemes, it tends to be females who will see the majority of the uplifts.
In contrast, schemes with higher increases to pension liabilities due to GMP equalisation, tend to have retirement ages of 65 with no pension increases provided on non-GMP pension. For these schemes males will see the majority of any uplifts.”
*Hymans Robertson’s analysis was based on a £30bn sample of UK pension schemes.