The Department for Work and Pensions (DWP) has launched a consultation on draft regulations intended to provide greater certainty for formerly contracted-out pension schemes undertaking guaranteed minimum pension (GMP) conversion exercises.

The consultation seeks views on proposed changes to the regulations governing the conversion of GMPs into other scheme benefits, with the reforms aiming to clarify the process and steps that schemes must follow.

In particular, the changes are designed to support schemes using GMP conversion as a means of meeting their obligation to equalise pensions to account for the effects of historic differences in GMP rules.

The draft amendments would amend the existing 2015 regulations and have been developed in consultation with the pensions industry.

One of the key changes would be to introduce a new process for establishing actuarial equivalence when a GMP conversion relates to a single individual.

Under the proposals, trustees would be required to obtain and consider actuarial advice on the basis to be used for calculating post-conversion benefits.

The actuary would also be required to provide a certificate confirming that, if the advice is followed, the post-conversion benefits would be at least actuarially equivalent to the member's pre-conversion benefits. The certificate would remain valid for 12 months.

The regulations would also revise the requirements relating to survivor benefits following GMP conversion.

Schemes would be required to provide a pension to a member's widow, widower or surviving civil partner, with the regulations setting out both the minimum level of that pension and the minimum period for which it must be paid.

In addition, the draft regulations clarify which employer should be treated as the “relevant person” whose consent is required for the conversion process.

Where a scheme has one employer, that employer would be the relevant person. For multi-employer schemes, all employers would be treated as relevant persons unless they nominate one employer to act on their behalf.

The explanatory note accompanying the regulations said the amendments were intended to introduce the new actuarial equivalence certification process for individual GMP conversions, update survivor benefit requirements and clarify the relevant employer for conversion purposes.

The consultation is aimed at trustees and managers of formerly contracted-out pension schemes, sponsoring employers, pensions professionals, scheme members, member representative organisations and other interested parties.

The government said the proposals are intended to give schemes greater certainty when undertaking GMP conversion, particularly where conversion is being used as the method for addressing GMP equalisation.

“In 2022 I worked closely with Margaret Ferrier MP to help her bring forward her Private Members Bill to clarify, simplify and streamline the process of using GMP conversion to deliver sex equality for members," said LCP partner and head of GMP equalisation, Alasdair Mayes.

"It successfully became an act but that wasn’t the end of the journey. It’s good news that Torsten Bell has launched this consultation today on regulations to bring the measures on the conversion of GMPs.

"The legislation should be really helpful in making the process of equalising benefits simpler, faster and, for those applying GMP conversion at retirement, cheaper.

“HMRC consulted earlier in the summer on regulations to remove the pensions tax hurdles associated with using GMP conversion for non-pensioners. Taken together these two sets of regulations will be really helpful.

"It’s been a long journey, but the end is finally in sight. One drawback is that it is proposed those that have already consulted with members on using GMP conversion but haven’t yet applied conversion will need to re-consult to use the new regime. That hurdle I hope can be removed in the final regulations.”

---