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Government to Allow Conversion of GMPs to Scheme Benefits
by Ian Neale 17/10/2003 Printer-friendly version of this page
The DWP announced today
that contracted-out occupational pension schemes are to be given the option to convert GMPs into their own scheme benefits, on the basis of actuarial equivalence. Any resulting changes must not affect the value of individual accrued rights.
The Government does not propose to require schemes to convert GMPs; merely to give them an option to design a more flexible benefit structure.
The decision follows a restricted consultation last spring, which posed three alternative options for dealing with the formidable barrier to simplification of pension scheme administration which GMPs present, ie
- abolition of the requirement to pay a GMP;
- conversion of GMP to scheme benefits, on the basis of actuarial equivalence; and
- transfer back into the state system.
The DWP press release goes into slightly more detail than did Secretary of State for Work and Pensions Andrew Smith, speaking to the CBI today on a measure which will "save firms an extra £16 million a year". It includes also the text of Baroness Hollis's response to a question in the House of Lords today. None of these sources, however, mention the vexed issue of equalisation of GMPs; nor whether the proposal will cover all GMPs including, for example, those secured by s.32 buyout policies.
Aries comment
The Government appears to have chosen the least problematic of the three options floated previously. However, no details have been given about how the proposed conversion process will work; nor is there any clear indication of how and when it will be introduced. We imagine that it will require amendments to primary legislation. Most likely it will be included in a new Pensions Bill together with other measures towards "simplification", which will surely have to be included in next year's Parliamentary timetable if the DWP's contribution to simplification is to be coordinated with the Revenue proposals - assuming 6 April 2005 is still to be 'A' Day, of course. We might have expected to hear the Government's decision about that in next month's pre-Budget report. Doubt has been cast on this prospect by press reports this week alleging conflict over the £1.4m lifetime limit between the Treasury and No. 10 (lobbied heavily, it is said, by the audience to whom Mr Smith was speaking today).
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