Run from GMP
3rd July, 2019
For those of you who follow rock bands formed by pension companies (you know who you are), you will know that RUN GMP was the name of our house band.
With the band currently enjoying a hiatus due to members departing, I wonder if a future iteration may be “RUN FROM GMP”, a reflection of the temptation that many Trustees must be feeling.
However, I sense that will not be an option. So … what do we, as Trustees, need to do?
Point A – figure out how big the problem is. Remember, sticking a finger in the air and picking a number between 0% and 5% is unlikely to be accurate. As a prime example of this not being a good idea, perhaps having adopted this approach, and after further analysis, BT have just amended their estimate from £100 million to £26 million.
Point B – try and cap the issue by amending administration practice (in relation to CETVs, Trivial Commutations mainly).
Point C – figure out what method of equalisation you plan to use.
Point D – get it done.
Simple! End of blog.
Well, not quite. Trustees will find a lot of conflicting views on how we should arrive at and answer Point C. Before we can do this, we should remember that there are a number of legal arguments that have not quite run their course. The key one being how long do we have to look back? The DWP has issued guidance on conversion which the legal community is not convinced gives us all we need.
The Trustee has a fiduciary responsibility to the members, and must work to get this done. With any major project I always favour good planning and ensuring that all facts are available. There are no prizes for being first in this instance; early adopters in the pension world can often find themselves in a place that does not work. We tip our hat to those trail blazers but this is project management 101. Understand the problem, identify the risks, issues and dependencies, develop the solution and work to a sensible timescale to implement. The members are not winners if you get it wrong.
I think conversion will start to become the preferred route. So you may actually be able to RUN FROM GMP! The GMP element is unnecessarily complicated and members can favour higher starting pensions (as evidenced in PIE exercises). The majority of schemes will at some stage look to insurance companies to secure liabilities and this simplicity can bring real benefit in pricing. It also takes away blockers for members retiring early and makes everything far more simple to explain (not something we are often accused of).
However, like the ever changing band members in RUN GMP, I think we have some unexpected twists yet to come before we see the final, glorious, iteration.