GMP equalisation

The High Court judgment on the 23rd November 2020 said defined benefit schemes should revisit historic cash equivalent transfer values and equalise guaranteed minimum pensions (GMP) and top up where necessary.

The judgement does not force organisations to actively correct all pensions transfers, the judgement states that Trustees should “proactively consider this”.

From a risk perspective it may be wise for Trustees to look to do so to avoid legal proceedings from any members affected as Trustees are not discharged from liability of that breach.

In terms of accounting, many schemes have disclosed a potential contingent liability for GMP equalisation costs and this may now need to be revisited.

A contingent liability is defined as either a possible but uncertain obligation or a present obligation that is not probable and/or cannot be reliably determined.

It’s only if the possibility of settling the contingent liability is remote or it is not material to the financial statements then disclosure is not required.

Trustees should therefore be liaising with their actuaries at the scheme year end to understand if this has been quantified and the likely disclosures required in the accounts.

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