Most defined benefit (DB) pension schemes in the UK are required to equalise for the unequal effect of guaranteed minimum pensions (GMPs) on men and women. Existing legislation permits GMPs to be converted into other scheme benefits so that they no longer have to be provided in accordance with GMP rules. One approach to equalising for unequal GMPs involves using conversion. GMP conversion raises potential tax problems for deferred members by causing them to fall outside the “deferred member carve-out” (DMCO). Deferred members who fall outside the DMCO risk becoming liable to an annual allowance tax charge.
In this briefing, we explain how the DMCO tax issue could arise and our approach to dealing with this. The effect of our solution is that deferred members will not become liable to pay an annual allowance tax charge upon GMP conversion – making it a more attractive method of equalisation.
Authored by the pension team.
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