UK: Conversion Of Guaranteed Minimum Pensions

Last Updated: 19 May 2009

Article by the pensions team

Originally Published 29th October 2008


The Pensions Act 2007 ("the 2007 Act") contains provisions permitting contracted-out occupational final salary pension schemes to convert members' Guaranteed Minimum Pensions ("GMPs") into ordinary scheme benefits on the basis of "actuarial equivalence".

The draft Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009 ( "the draft Regulations") were issued on 2 September 2008 as a consultation document by the Department for Work and Pensions ("DWP"). The draft Regulations clarify the conversion conditions which need to be met to achieve "actuarial equivalence" and are intended to come into force on 6 April 2009. The consultation period closed on 28 October 2008.

Procedural Steps

The 2007 Act specifies that the following procedural steps must be complied with before conversion can take place:

  • Although the trustees must initially decide that they want to convert GMPs, the employer must give its prior consent.
  • The trustees must take all reasonable steps to consult the relevant members in advance of the conversion, and give such members the opportunity to make representations to the trustees.
  • The trustees must notify all affected members and survivors before or as soon as reasonably practicable after the conversion date.
  • HMRC must be notified on or before the conversion date.

Actuarial Equivalence

The draft Regulations make the trustees responsible for determining actuarial equivalence. Trustees must obtain advice from the scheme actuary about which assumptions should be used and must then decide, having considered the actuary's advice, which assumptions will be used.

In order to achieve actuarial equivalence, the actuary must compare the actuarial value of members' benefits before and after the proposed conversion using the trustees' chosen assumptions, and must ensure that the value does not decrease as a result of the conversion. In making the actuarial equivalence calculations, the actuary must ignore the value of any:

  • benefits that have been surrendered, commuted or forfeited;
  • amounts that have been paid in respect of any benefits;
  • amounts in respect of any benefits that became due to be paid before the conversion date;
  • discretionary awards that might be awarded in the future.

The actuary must send the trustees a certificate confirming that actuarial equivalence has been achieved.

It should be noted that while conversion will allow schemes to discharge their liability for paying GMPs, the general legislation that governs scheme benefits ( eg revaluation, equality) will apply to converted benefits. Additionally, accrued final salary benefits cannot be changed into money purchase benefits.

Survivors' Benefits

The draft regulations provide that on conversion, the scheme must provide survivors' benefits in the same circumstances and for the same period as currently applies under existing GMP legislation – ie half of all GMP rights accrued from 1978 to 1997 where the member leaves a widow, and half of all GMP rights accrued from 1988 to 1997 where the member leaves a widower or surviving civil partner.

Consultation Guidance

The DWP consultation document gives guidance on how the conversion process might work although it is emphasised that the guidance has no legal force. The guidance picks up the provisions of the 2007 Act, and some of the main points covered are as follows.

Initial Considerations

Having made a decision to proceed with conversion, the trustees need to decide which liabilities will be converted. They could decide - eg - to convert liabilities for deferred members only. In making a decision, anti-discrimination legislation needs to be considered.

The trustees will also need to decide what the GMPs will be converted into and how this will be factored into the scheme rules. The 2007 Act gives trustees power to amend their scheme rules by resolution to achieve conversion, and provides that the subsisting rights provisions of section 67 of the Pensions Act 1995 do not apply to conversion.

Member Consultation

The guidance states that the legislative requirement for the trustees to take "all reasonable steps" to consult affected members is specifically not defined as this will vary depending on the circumstances. In particular, the undefined term is intended to assist schemes which, after making reasonable attempts, are unable to contact some members.

It is suggested that it may be helpful for the consultation to include an estimate of the converted benefits for each member so the effect of conversion is clear.

After the end of the consultation period, the trustees will need to consider any responses and make a decision whether to proceed with conversion or not.

The Conversion Process

To commence conversion, the scheme must establish each affected member's GMP entitlement. The guidance notes that it is assumed that this may involve requesting reconciliation of the scheme records with the information held by the National Insurance Contributions Office ("NICO").

The guidance states that, in preparing the calculations, the actuary may use the same method for conversion as the scheme uses for calculating transfer values. If so, the trustees will need to specify an assumption for when active members will leave pensionable service as this will affect the calculations.

After conversion, it is expected that members will be notified of their new benefit and HMRC notified of the members whose benefits have been converted. The trustees will be discharged of their liability to pay GMPs, provided that the conversion has been done in accordance with the legislation.


Although GMPs are unequal as between men and women, the guidance emphasises that post-conversion benefits must comply with the law relating to equalisation for benefits accrued from 17 May 1990. Conversion may, therefore, provide a solution to outstanding GMP equalisation issues as it is still not clear how schemes should treat GMP equalisation. There will, however, be cost implications which will have to be taken into account.


Members may complain to the Pensions Ombudsman if they do not agree with the way conversion has affected their position – eg because the replacement benefits were incorrectly calculated.

Additionally, the Pensions Regulator has been given the responsibility for overseeing the conversion process and will be able to consider member complaints in particular in respect of:

  • the proper conduct of the consultation process; and
  • the actual conversion on the basis of actuarial equivalence.

The Regulator will be able to prevent the conversion from proceeding while any complaints are investigated, and will also be able to require schemes to rectify any deficiencies and in extreme cases order the trustees to "unpick" the conversion.


Where an individual wishes to transfer his benefits to another arrangement, the legislation will allow conversion of his GMPs on an individual basis if the scheme wishes to offer this option.

Contracted-out Deduction

On conversion, it will still be necessary to make the deduction from the relevant social security benefits in order to prevent double provision. NICO will calculate a notional GMP for members whose benefits have been converted, and will apply the same contracted-out deduction as would have applied if conversion had not taken place.


Although GMP conversion may seem to present an attractive option, the complexity and cost involved may prevent schemes from proceeding with a conversion exercise. In particular, the need to provide equalised benefits postconversion will undoubtedly increase the expense which in the current economic climate may not be viable for the majority of schemes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.