The Pensions Administration Standards Association (Pasa) has launched guidance on guaranteed minimum pension (GMP) conversion for pension schemes.

The guidance, produced by members of the GMP Conversion Sub-Group of the GMP Equalisation Working Group, aims to help trustees and actuaries equalise GMPs through conversion in a “proportionate and pragmatic way” by providing examples of how conversion has been used by early adopters.

It details which schemes could use GMP conversion to achieve GMP equality and sets outs examples of the processes that have been used to achieve this.

Pasa also outlines the key dates trustees and actuaries have been considering when converting GMPs, including some that must come in a certain order to comply with statutory requirements.

It considers what schemes would most likely consider when discussing GMP conversion with the sponsoring employer, including which benefits are to be included for which members, the nature of the member consultation and the likely timescales.

The guidance also details the scope and nature of GMP conversion, the nature of change in benefits and outlines how schemes have removed some of the complications of GMPs.

As HMRC stated in October 2020 that it was “not currently in a position” to provide any supplementary guidance on conversion, the guidance seeks to explain the ‘main’ pensions tax issues that have been raised in the context of using GMP conversion to achieve GMP equality and demonstrate how schemes have sought to address these issues.

“Particular areas of concern are in relation to the Annual Allowance and Fixed Protection (and Enhanced Protection),” it stated.

“In practice these are resulting in constraints on the way in which GMP conversion is being applied, to whom it’s applied and how it’s applied.

“It’s essential in the absence of detailed guidance from HMRC for trustees to obtain specialist advice on this topic.”

The guidance goes on to provide examples of the application of GMP conversion to equalise GMPs.

Commenting on the launch, LCP partner and GMP Conversion Sub-Group chair, Alasdair Mayes, said: “GMP equalisation is a major undertaking.

“The conversion guidance addresses another significant step, enabling trustees and their advisers to better navigate their equalisation journey.

“Lots of schemes are keen to use GMP conversion but are aware they need to consider the impact on members and address pensions tax and procedural issues from current legislation. This guidance and the examples provided will help them achieve this.”

The Pensions Regulator executive director for regulatory policy, analysis and advice, David Fairs, added: “GMP equalisation is a hugely complex area, and this is a valuable addition to the portfolio of guidance provided by the industry working group.

“This guidance will help trustees understand which approaches are being taken in industry to deliver conversion, and the factors they need to consider.”

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