What is happening and why are we talking to you about GMP equalisation?
Work is underway to comply with a High Court ruling in 2018.
The ruling was that all UK pension schemes with GMP related benefits would need to ‘equalise’ their GMP benefits to remove any sex-based differences (and it is important to note that in some cases male members are impacted and in other cases female members are impacted). This is called GMP Equalisation.
The ruling meant that the we have had to check your pension records to see if you built up any Guaranteed Minimum Pension (GMP) between May 1990 and 1997. So if you were in the DB section of the YBS Scheme (and this includes members from Barnsley, Chelsea and N&P) at this time, we are looking at your GMP and comparing it to the GMP you would have built up in the scheme had you been the opposite sex.
The check is expected to be complete in the first half of 2024. If you have an adjustment due to equalisation we’ll write to you then. If there’s no adjustment needed you won’t hear from us.
Rest assured that no one’s benefit is ever reduced as a result of GMP equalisation and if we find that your pension has been underpaid we will pay you the benefit that is due and any back payment will include interest.
Watch this short video which explains this simply
What is a GMP?
The GMP replaced the pension you would have built in the State’s second tier pension – known as State Earnings Related Pension Scheme (SERPS) or the State Second Pension. This was because UK company pension schemes were able to ‘contract out’ of the second tier and instead provide members with equivalent benefits.
As the Scheme was contracted-out, both you and the Society paid reduced National Insurance Contributions and you built up equivalent benefits in the Scheme.
What is a GMP?
Once upon a time, way before the introduction of the Flat Rate State Pension in 2016, workers in the UK could build up both a Basic State Pension and, in some cases, where the worker earned over a certain amount, a second tier state pension. This was originally known as State Earnings Related Pension Scheme (SERPS) and later known as the State Second Pension.
These benefits were paid by National Insurance Contributions.
Members of some occupational pension schemes were able to ‘contract out’ of the State’s second tier pension and in return reduce their National Insurance Contributions.
Members who ‘contracted out’ before 1997 built up what was known as a ‘Guaranteed Minimum Pension’ (GMP) in their work pension scheme. This GMP was intended to replace the State Second Pension.
So, why are you telling me this – surely this is all ancient history?
Well, yes and no. It may be relevant if your pension is partly made up of GMP. If you’re not sure, you can always ask XPS – the DB scheme administrator – if you have a GMP.
A few years ago, HMRC decided that it wasn’t going to keep GMP records for much longer. Instead they asked all pension schemes to reconcile the scheme’s records against their own. This is called GMP Reconciliation.
If the scheme found any discrepancies between the two sets of records, they would need to put this right. This is called GMP Rectification.
YBS Pension Scheme Trustees completed the GMP Reconciliation process in 2021 and have since updated Scheme records to show the reconciled GMP figures and, where necessary, amended any pensions in payment.
Fortunately, only a very small number of members in YBS were receiving an incorrect benefit. Those who were underpaid have been given a lump sum including interest to cover back payments, and their pensions have been put right for the future. All members affected have been contacted by letter. If you haven’t received a letter, your benefit was not impacted.
But there’s more…
Because of the way in which GMPs are earned and paid, they are not equal between men and women. This was challenged in the High Court case (Lloyds Trustees v Lloyds Bank). The result was that all UK pension schemes with GMP related benefits would need to ‘equalise’ their GMP benefits to remove any gender-based differences (and it is important to note that in some cases male members are impacted and in other cases female members are impacted). This is called GMP Equalisation.
Members potentially affected are those who were actively building up benefits in the Scheme between May 1990 and April 1997.
So if you were in the DB section of the YBS Scheme (and this includes members from Barnsley, Chelsea and N&P) at this time, we will be looking at your GMP and comparing it to the GMP you would have built up in the scheme had you been the opposite sex.
Rest assured that no one’s benefit is ever reduced as a result of GMP equalisation and if we find that your pension has been underpaid we will pay you the benefit that is due and any back payment will include interest.
In most cases we anticipate that very few changes will be made to YBS members’ benefits.
If you are affected, we will, of course, get in touch with you.