Today, the Pensions Minister made a statement on guaranteed minimum pension (GMP) and equal treatment. The context of the statement relates to the current development of the Government's proposals for the Financial Assistance Scheme (FAS), but it will be of interest to all schemes in relation to whom equalisation and the impact of GMPs has been, or may be, an issue.

The background: uncertainties over equalising GMPs

GMPs represent, broadly speaking, the minimum pension which a contracted-out final salary occupational scheme must provide to a member in respect of benefits earned between April 1978 and April 1997. There has long been uncertainty as to what extent, or how, the principle of equalised pension benefits applies to GMPs and the impact of GMPs on a member's total benefits.

Existing provisions of the Pensions Acts 1995 and 2004, including those in relation to Pension Protection Fund (PPF) compensation, deal with the requirements to treat male and female pension scheme members equally for pensionable service after 16 May 1990, following the European Court decision in Barber. These provisions are based on the understanding that Barber applies only where there is a comparator (in other words, where an individual of the opposite sex, who was engaged in comparable work, has been treated more favourably).

However, according to the ministerial statement, the Government has concluded - as a result of its deliberations on the delivery of FAS - that:

"where a scheme member has accrued entitlement to a Guaranteed Minimum Pension (GMP) after May 1990, European law requires that any inequality in scheme rules which results from the legislative provisions governing GMPs should be removed, whether or not a person can show that a comparator exists."

The statement concludes by saying that the Government will be bringing forward amending legislation to reflect this conclusion.

What does this mean for schemes?

Many schemes have either been ignoring GMP equalisation issues altogether or approaching them on the basis that where there is no comparator, there is no breach of the relevant European legislation. While this announcement was in a statement relating to the FAS regulations, the final paragraph of the statement seems to have a wider impact, saying that:

"it is the Government's opinion that, in order to ensure full compliance with European Law, trustees and others should act as if existing domestic legislation requires equalisation in respect of differences resulting from GMPs whether or not real comparators exist."

We hope the Government will provide more detail in due course, but it seems all schemes may now face having to deal with GMPs and equalisation. In the meantime, the statement should be considered carefully not just by schemes involved with FAS but also the wider pensions community, particularly trustees and employers in or considering wind-up, or who are contemplating entry to the PPF.

The minister's statement can be found here (http://tinyurl.com/ydafyur ).

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The original publication date for this article was 28/01/2010.