The government has launched a consultation on potential methods for equalising the impact of guaranteed minimum pensions (GMP) on men and women.
The GMP is the minimum pension a UK occupational pension scheme that contracted employees out of the additional state pension between 6 April 1978 and 5 April 1997 has to provide to its members.
GMPs are calculated and paid on an unequal basis. A woman’s GMP accrues at a faster rate than a man’s because of the differences in working life expectancies for state pension age purposes. This means that despite having an identical working career, a woman could still have a greater GMP. In addition, women are also entitled to receive the GMP at an earlier age.
Differences in the periods when women and men are entitled to indexation and revaluation can lead to further inequalities. The advantages that a woman or man experiences as a result of these differences can change over time.
The consultation seeks opinions on a new methodology to equalise pensions for the effect of inequalities caused by GMPs.
The suggested method for equalising GMPs involves a one-off calculation and actuarial comparison of the benefits a male and female employee would have, with the greater of the two amounts converted into an ordinary scheme benefit.
The government does not propose placing a requirement on pension schemes to use the new method.
The consultation also seeks views on changes to draft regulations around the administration of formerly contracted-out schemes, as well as secondary legislation.
The consultation will run until 15 January 2017.
Sally Minchella, senior consultant at Willis Towers Watson, said: “This consultation reaffirms the government’s view that GMP equalisation is necessary, although it stops short of legislating to require equalisation itself or a particular method.
“It also notes that its view is based on complying with EU law and does not say whether this is something that it would consider changing following Brexit; the default is that it will continue to hold, at least unless the UK government chooses otherwise.”