Pension bodies unite to oppose Government regulatory proposals

Seven leading bodies represented on the Occupational Pension Schemes Joint Working Group have written a joint letter to the Pensions Minister opposing the way in which the Governme

Related topics:  Retirement
Millie Dyson
13th April 2012
Retirement
The Department for Work & Pensions consultation takes a court case (Allonby) and legal advice received by the DWP (which it will not publish) on a relatively minor point as the catalyst for an exercise to promulgate the view that there is now a clear need for all pension schemes to equalise for the effects of Guaranteed Minimum Pensions. 

Pensions lawyers believe that doubts remain about the need for equalisation, which would need a court case to clarify.

The DWP approach is based on an assumption that contracted out pension schemes should have equalised the effects of unequal GMPs since the European Court judgement on the Barber case in 1990.  This is notwithstanding the facts that it was Government legislation that perpetuated unequal GMPs until 1997, and that, since then, no practical solutions have been offered by Government.

The great majority of pension schemes equalised their overall benefits in the early 1990s, which in most cases meant bringing scheme pension ages into line with one another.

The reason for schemes setting GMPs to one side, was because trustees and employers did not want to try to tackle legislative requirements without knowing what they needed to do, if indeed there was any legal obligation to do anything at all, rather than because they were trying to evade costs.

In their letter to Steve Webb, the Pensions Minister, the signatory JWG bodies, which include the Association of British Insurers , the Association of Consulting Actuaries, the Association of Pension Lawyers, the Institute of Chartered Accountants in England & Wales, the National Association of Pension Funds, the Pensions Management Institute and the Society of Pension Consultants say:  
 
- we believe that the scope of the draft equality legislation should be reduced, so that it does no more than implement the Allonby case.  

- we strongly believe that the DWP’s proposed possible equalisation method goes far further and is far more complex than the law requires.  

- we recommend removing equalisation guidance (which is proposed at present).  

- overall, we recommend that the Government does not push pension schemes into a GMP equalisation review while major changes are proposed for State pension provision, which may have significant knock-on consequences for GMPs. 

We strongly recommend that the Government identifies the interactions between these two projects before taking any steps that push schemes into a GMP equalisation exercise.

The JWG response notes that DWP has stated that there is no need for the DWP to provide an impact assessment of the proposed new legislation, on the grounds that no new liability is created. 

The JWG bodies disagree and note that:

The JWG response estimates that implementing equalisation programmes for all private sector contracted out schemes on a basis of equalising actuarial values would add in the region of £13 billion to pension scheme liabilities, and could absorb up to £300 million in implementation costs.  To impose costs of this magnitude on UK industry at a time of economic uncertainty is unacceptable.

Both of these figures would be significantly higher if the possible equalisation method set out in the DWP’s consultation document is adopted.  

The costs of the DWP approach are hard to quantify, but the JWG response says these could easily double the figures shown above.  Under the DWP method, it is entirely possible that a male and a female with identical service and earnings history will both receive increases to their unequalised benefits at different points in their lives. 

The DWP method would also require pension schemes to run duplicate records and duplicate calculations for each member, an arrangement which no pension administration system is set up to provide.
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