Taking a strategic approach to GMP equalisation will be crucial to planning an efficient project where risks are managed appropriately, and decision-making is clear and documented well. The key for success will be the ability to be flexible and to make informed decisions. Based on knowledge of the scheme structure and how you plan to equalise, a strategy to handle equalisation can be set up front and this shapes the corresponding data strategy.

Despite its inherent complexity, there is scope for pragmatism, especially as it relates to member data. Your data does not need to be perfect. By understanding the gaps and the materiality of any data issues, you will have far more certainty about how much time and effort the subsequent calculations will take. You’ll also maximise the number of members that you can successfully process at one time. In this article we explore the key calculation stages and their data considerations based on our experience so far. For some schemes, the cost of implementing this exercise may be higher than anticipated, while the impact on liabilities may be limited. However, the ultimate driver for this project should be to pay members the right benefits. We expect future scrutiny of these projects from members and financial advisers, given the changes to members’ benefits. This feeds into the importance of building up a robust audit trail of the decisions that have been taken, the methodology agreed and the reasoning behind it.

There is a careful balance to be found in relation to pragmatism; it is possible to be prematurely and overly practical but also expend efforts on issues which will have minimal impact. The foundation of any pragmatism surrounding data or calculations should be informed decisions, made collaboratively across the trustees and their advisers.

Looking at the GMP equalisation project as a whole, which in time will include members covered under the Lloyd’s Second Judgment, it will consist of some key calculation stages.

1. Benefit construction

What is it?

GMP equalisation requires schemes to create data that most do not already hold, in particular the tranches of GMP and excess benefits for the period between 17 May 1990 and 5 April 1997, together with the opposite sex equivalents. Many equalisation calculation approaches will start with date of leaving benefits because the discrimination points along the equalisation journey start to come in from that point onward.

What are the data considerations?

The Pensions Administration Standards Association (PASA) released guidance to assist schemes in completing this element and provided a spectrum of different methods; the choice of which works for you will depend heavily on what membership data you have available and its quality.

What we have found is that one size does not fit all members within a scheme. Adopting a flexible approach is very important. Starting from a typical legal premise of being accurate where the data is available to be accurate, and it is cost effective to do so, you will inevitably vary your choice of method for different groups of members when you look at things like complexity of benefits (particularly individual promises), the knowledge about historic administration practices for recording events and the quality of each member’s data. Workarounds are possible and it is important to distinguish, before the number crunching starts, between cases where you can be reasonably accurate and those where you are being more approximate, and ensure you document suitable justification for the latter group. 

One common example of pragmatism being applied relates to gaps in service dates. While service periods are a key component in identifying the members in scope for equalisation, having some gaps in those pensionable service dates doesn’t need to be a showstopper. Targeted cleanse work, looking at the use of proxies where alternative fields might be available, can often minimise time consuming manual file reviews.

2. Equalisation and back payments

What is it?

These date of leaving pension amounts will then need to be tracked through life events such as retirement, GMP payment age, and deaths. Your chosen equalisation method will be applied to those constructed tranches for pensioners and dependants, to calculate the back payments due to each member.

What are the data considerations?

Many of the member data decisions, and much of the cleanse work, will have been resolved to run through the benefit construction stage, leaving the subsequent calculations to be more

influenced by scheme data. Missing scheme data will require assumptions and testing the impact of these assumptions on member benefits i.e. using the latest available early retirement factors if those at the member’s date of retirement are not available. These decisions should be documented and approved by trustees and their legal advisers. Legal advice is imperative when reviewing the GMP equalisation approach and methodology as some decisions may need to be made which will lead to an approximate or assumed value.

3. Conversion (if applicable)

What is it?

Unless you have chosen to apply a ‘dual record keeping’ approach, the equalised benefits will ultimately need to be converted in line with your chosen conversion method.

What are the data considerations?

The decision whether to convert may be influenced by whether you’re looking to fundamentally change the structure of your benefits or run a post-equalisation PIE exercise, for example.

Conversion involves a wider group of members than those in scope for equalisation as the target membership will expand to all those with GMP benefits. The data requirements will be heavily influenced by the calculation design and may be more extensive than you needed for construction and back payments.

Getting the governance right

There are numerous decision points for the trustees throughout the project, so planning some touchpoints outside of the standard cycle of trustee meetings will allow those decisions to be made without delay and enable progress. We recommend setting up a working party to move this along if you haven’t already done so, with representation from all your providers. This should include whomever is responsible for the member communications. By creating this governance framework, everyone can understand their roles and responsibilities and map out the interdependencies. Other ongoing projects, where there is a dependency with GMP equalisation, should also be factored into these considerations.

Data preparation

As we have set out, these three calculation stages all have different data requirements. You will be reliant on the combined historic knowledge of your advisers, together with trustee record keeping, to understand what scheme and member data you have available going back through the years, and this will form the foundations of your data strategy for construction, back payments and conversion. Your providers should be able to inform you where there are gaps, i.e. from business as usual administration or known issues. Once you have your approach agreed and understand the state of your data – both presence and accuracy – you can begin to understand where you may need to make reasonable assumptions and decisions. This is crucial to balancing risk. In our early experience, if you jump too quickly into swift and uniform approaches, it might often mean that you know some of your figures are incorrect, but you don’t know how incorrect and for whom, which does not leave a helpful audit trail for the record.

Making informed decisions is supported by a check of the current data at an early stage, often in the form of a data audit for most schemes. We have seen that a lot of administration systems do not hold key data in just one place. An assessment of the member data should include an element of looking away from the expected and adding in a review of the other places it may be held. By undertaking this step up front, it can save time-consuming cleanse work later.

Conclusion

This is not an exercise you will want to revisit, so this needs to be done right first time. There is scope for flexibility and tactical, proportionate approaches which may smooth the path of the exercise. However, it is possible that GMP equalisation decisions will be subject to future scrutiny and investigation by members or financial advisers. Therefore, the project should be overlaid with quality governance and a robust audit trail of decisions.

Although GMP equalisation can seem like a mountain to climb now, it can be managed. If you can spend the right time and effort on planning at an early stage, and coordinate providers who are handling vast numbers of clients, it is possible to see a path through GMP equalisation alongside all your other competing priorities.