By common consent Guaranteed Minimum Pensions (GMPs), built up by members of contracted-out salary-related schemes (COSRs) during the period 6 April 1978 to 5 April 1997, represent a formidable barrier to simplification of pension scheme administration. GMPs are costly in other ways as well, not least the cost of providing fixed rate revaluation (8.5% compound, for deferred pensioners who left before 6 April 1988). Then of course there is the unresolved question of whether GMPs need to be equalised.

The DWP has recognised these problems simply cannot be left in the 'too difficult' tray and issued a new consultation paper (distributed to industry bodies but not available on the web). This addresses three options (which it says have not yet been considered by Ministers):

• 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.

Political difficulties attach to all of these, as the number of members who would lose to some extent is never insignificant.

In considering the merits and demerits of each option, issues which need to be borne in mind include

1. should this cover all GMPs?
   ie (i) GMPs secured by s.32 buyouts, as well as COSR scheme liabilities?
   (ii) actives, deferreds, pensioners, widows and widowers?
2. should the solution be simple and compulsory, or to some degree voluntary (and therefore more complex)?

With both abolition and conversion, the main drawback is that the reduced protection against inflation (eg. lower revaluation and loss of indexation in payment for the period 6.4.88 to 5.4.97) would disproportionately affect low earners, for whom a GMP represents a more significant part of the total pension. The greater protection presently afforded to GMPs under the winding-up priority rules would also be lost.

The third option, in effect extension of the principle of paying a state scheme premium, might be the most problematic in view of the differences between GMPs and SERPS. SERPS might produce a lower amount. For some women, SERPS will only become payable at a later date than age 60 (at which a GMP is accessible). Other potential ways in which this option could disadvantage some people include the fact that SERPS is subject to hospital down-rating, and (in common with the basic state pension) is frozen if a recipient emigrates to certain countries, such as Australia. On the other hand, transfer back into the state system would have the immediate advantage of reducing schemes' total liabilities, provided a one-off payment to the National Insurance Fund could be afforded.