It's been seven years since the 2018 Lloyds judgment clarified the methods available for GMP equalisation, with the key question for trustees being whether they should keep or convert GMPs.
This choice can be significant for a scheme. Keeping GMPs means maintaining a dual record of current sex and opposite sex benefits – this increases the complexity of the benefits, ongoing data recording and calculations. Conversion, by contrast, simplifies benefits by removing GMPs entirely. Initially, limited practical experience made this decision difficult. However, as industry knowledge has grown, schemes still on their journey may now wish to revisit any initial decision on their GMP equalisation method before it is implemented.
Intuitively, there is a strong argument to remove GMPs. GMP conversion means:
The benefits of GMP conversion are clear - so why haven't more schemes opted for this route?
There are four areas where schemes may encounter challenges:
If the goal is solely to equalise benefits, schemes may prefer to limit the project to affected members with GMP accrued between 1990 and 1997 and reduce the amount of reshaping that is needed. However, if the aim is to also keep the scheme and its benefits simple, conversion offers this in addition to addressing equalisation.
Some Trustees have been put off by the concept of conversion – concerned about the level of transformation that would be required to remove GMP. In fact, the projects we have undertaken demonstrate that conversion is possible with only a limited reshaping of benefits, and that this reshaping can result in pension payments in a more sensible and predictable form, without the lumps and bumps caused by the statutory requirements of GMPs under dual records.
Conversion is an investment which involves more initial effort and expense, but these are expected to be offset by future savings as the scheme is then more straightforward to run than with dual records. A number of schemes have introduced a PIE (Pension Increase Exchange) option alongside bulk conversion to further reduce costs (often the PIE savings generated can cover the unavoidable equalisation implementation costs) and to offer members more choice and flexibility. Providing IFA support will help to ensure members make informed decisions, which in turn enhances the member experience. A PIE continues to be a popular option for pensioners, and our 2025 IFA survey reported average engagement and take-up rates of around 40% and 20% for bulk PIE offers, respectively.
Regulatory hurdles have eased over time. The DWP's 2019 guidance and the 2022 conversion legislation, although not yet fully effective, have laid the groundwork for smoother conversions. PASA has also issued helpful guidance to support schemes in implementing GMP conversion in line with the regulations.
The abolition of the Lifetime Allowance (LTA) has removed one major concern, but the Annual Allowance (AA) still applies. HMRC's April 2022 newsletter also provided helpful guidance, easing the path for converting pensioners.
The AA can still be a challenge for converting non-pensioners (see call out box below). However, HMRC have indicated they will complete further work in this area to determine the appropriate outcome and treatment, so hopefully we will see legislative change which removes this remaining barrier.
We hope new legislation will resolve these issues. If done well, this could also make it more straightforward to convert benefits for all deferred pensioners by reducing the amount of reshaping required.
Of course, many schemes have undertaken GMP equalisation calculations now and have - or are in the process of - changing their administration platforms. This is not an easy undertaking. Whilst many trustees will not be excited at the prospect of digging up the groundwork of administration, a lot of the hard work for the equalisation calculations would still hold. So if trustees and their administrators are grappling with dual records, a move to conversion could improve administration as well as future-proof the scheme; for example, we have found the admin transfers - either to another provider or to an insurer - easier when there are no GMPs to deal with.
Aims and costs are scheme-specific, so it's no surprise that both dual records and conversion with a possible PIE option are being used across the industry. Conversion still faces some additional regulatory and tax-related hurdles. However, fully implementing the 2022 legislation and a more flexible AA regime could help further level the playing field, enabling more schemes and their members to take advantage of the long-term benefits that conversion offers.
Given experience of the extra complications of dual records and the ability to limit the reshaping in conversion, we think there are now compelling arguments supporting GMP conversion in many circumstances. Trustees and sponsors may wish to revisit previous decisions to opt for a dual record approach to GMP equalisation to check that this remains the right course of action.
