On 3 April 2006 HMRC advised in an update to NISPI Pensions Newsletter Issue 22 [PDF] that the proposed change to contracting-out legislation to allow GMP rights to be commuted on the grounds of serious ill health (as defined in FA 2004 Sch 29 para 4) would be introduced through the Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2006. HMRC has announced this SI will shortly be laid before Parliament and anticipates that the amendment will come into effect in mid June (the original plan was for May).

The announcement goes on to say "Schemes may wish to process any applications arising in the meantime so that they are in a position to pay a lump sum to a seriously ill member as soon as the amendment is in force." In line with similar legislation governing commutation of protected rights and section 9 (2B) rights, if the member is married or has a civil partner the scheme must keep back a sum sufficient to pay a survivor's pension. There is no need to notify NISPI of commutation of a member’s GMP (or section 9(2B) rights) on the grounds of serious ill health.

Aries Comment

This issue has some history. It is practically the last of the Pensions Act measures to be legislated via regulations. Back in September 2004 we noted that although Clause 272 (1) - (2) of the Pensions Bill (which eventually became s.284 (1) - (2) of the Pensions Act 2004) provided for regs permitting commutation of GMPs, the DWP was feeling hesitant about the whole issue of reforming GMP legislation. There has been no further development, for example, of the proposal announced by the Government on 17 October 2003 to allow schemes to convert GMPs to scheme benefits on the basis of "actuarial equivalence".

Update 24 May 2006