Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill
This Bill has nearly completed its passage through Parliament and, when in force, will:
- Provide that after GMP conversion survivors will have to be given benefits which meet “prescribed conditions”. Currently, the requirement is for survivors to be given benefits of 50% of the member’s pension – which exceeds the statutory minimum required for survivors’ pre-conversion benefits;
- Replace the requirement for employer consent with a requirement for the consent of each “relevant person” (to be defined in regulations); and
- Remove the current requirement to notify HMRC of GMP conversion.
Clearly, how useful these changes are will depend on the wording of the regulations made under the Bill. However, the government’s support for the Bill is encouraging.
HMRC GMP equalisation newsletter April 2022
HMRC has issued a further newsletter to clarify some tax issues arising from GMP equalisation where the member has previously transferred out, or where equalisation of future benefits is carried out via GMP conversion.
In relation to transfers out, HMRC has confirmed that:
- if GMP equalisation is achieved by making a top up transfer payment, the top up payment must meet the conditions for a recognised transfer at the time the top up is made. In other words, the top up may only be made to a scheme which is a registered pension scheme (or a qualifying recognised overseas pension scheme (QROPS)) at the time of the top up.
- A lump sum payment made instead of a top up transfer payment may be paid as a “relevant accretion” for tax purposes. The original transfer must have been a recognised transfer and, unhelpfully, HMRC has said that a transfer made before 6 April 2006 would not be a recognised transfer for this purpose. However, a lump sum paid in lieu of a transfer top up may instead count as a “small lump-sum payment” or a “winding up lump sum payment” (and therefore be an authorised payment), depending on the circumstances.
In relation to GMP conversion, the newsletter considers the impact of conversion on the annual allowance and on lifetime allowance protection for pre-retirement members, pensioners and those retiring in the year of conversion. For more information on the deferred member carve-out (DMCO) and how to avoid loss of the DMCO when converting a deferred member’s benefits, please see our briefing note.
PASA GMP equalisation FAQs
The Pensions Administration Standards Association (PASA)’s GMP Equalisation Working Group has issued Frequently Asked Questions concerning GMPs, including the practicalities of equalising death benefits and the impact of GMP equalisation on commutation.
Authored by the Pensions Team.