GMP Equalisation

GMP is short for Guaranteed Minimum Pension. This is a minimum level of pension some workplace pension schemes must provide to some of their members. This section includes more information to help you understand GMP and the processes of GMP equalisation and conversion.

There used to be two State pensions – the main one and an additional one. You might see references to the additional one as:

• State Earnings-Related Pension Scheme, or ‘SERPS’
• State Second Pension, or ‘S2P’

State pensions are paid for by taxes and National Insurance contributions.

In the past, people who belonged to a workplace pension scheme could be ‘contracted out’ of the additional State pension. Contracting out meant paying lower National Insurance contributions, but it also meant building up less additional State pension. Instead, their workplace pension scheme had to meet certain requirements. For employment before 6 April 1997, the requirement was that the workplace scheme would pay at least a certain level of pension income, known as a Guaranteed Minimum Pension (GMP). The Scheme was contracted out. 

This is a pension scheme provided by an employer to its employees, like the BASF UK Group Pension Scheme. There are different types of workplace pension; the two most common types are called defined contribution (DC) and defined benefit (DB). Workplace pension schemes are not private pension schemes that individuals may have set up for themselves or their family members.

Because GMPs were intended to substitute part of the additional State pension, they reflected the fact that the State pension was, at that time, calculated differently and payable from different ages for males and females. The calculations are complex and so the equalisation and conversion processes will take time to complete.

Most benefits in workplace pension schemes were made equal for both sexes, including the Scheme’s benefits, with effect from a European court judgment on 17 May 1990. It was unclear whether the judgment applied to GMPs, but a court case in October 2018 (known as ‘the Lloyds judgment’) ruled that it did.

It is the process of reviewing the benefits that people built up when they were ‘contracted out’ between 17 May 1990 and 6 April 1997 and adjusting these benefits where necessary so that both sexes are treated the same.

We’ll look at our records to see if you built up any GMP in the Scheme between 1990 and 1997. If so, we’ll work out how your benefits in the Scheme would’ve been calculated if you were the opposite sex for this period. If you would’ve built up a different amount of benefits, we may need to make some changes to your pension to address this. Remember, your overall pension will only remain the same or be increased. 

One way of adjusting your pension to achieve GMP equalisation requires monitoring two records for 17 May 1990 and 5 April 1997 pension for each member, one for GMP based on the member’s own sex and another reflecting GMP for the opposite sex. UK law does, however, allow the Trustee with the consent of the Company to make a one-off adjustment to benefits, replacing all GMP with other non-GMP benefits in the Scheme. This adjustment can then account for and remove the sex-based inequalities arising as a result of GMP built up between 1990-1997. This process is called ‘GMP conversion’. There are a number of processes and checks that need to be completed before GMP conversion can take place, which are designed to protect members’ interests.

Yes, the Pension Schemes Act 1993 allows for GMP conversion. The 2018 High Court ruling confirmed that achieving GMP equalisation as part of a GMP conversion exercise is lawful. There are also safeguards in the law to ensure the estimated value of your pension is preserved.

Implementing GMP equalisation via GMP conversion requires Company consent, and the Company has confirmed it supports converting GMP into non-GMP pension.

Your Scheme administrator holds data records of the GMP element of your pension. All UK pension schemes need to make sure they understand whether their records agree with the records held by HM Revenue and Customs (HMRC). If they differ, the amount of the GMP may need to be recalculated. For most members, any change will be minimal. This process must be completed before GMP equalisation.

In common with many other pension schemes, the review exercise we have undertaken identified that the HMRC GMP details differed from the Scheme’s data for some members. We decided to accept HMRC’s GMP details for some of these members. This means that pensions for those members need to be recalculated to reflect the change in GMP amounts – this is referred to as GMP recalculation. Any adjustment is likely to be minimal.

Yes it could, if those other schemes were contracted-out of the State Earnings-Related Pension Scheme as explained above. We do not hold any information about your benefits under other pension schemes. If you have been impacted, your other scheme will let you know.

Typically, it’s defined benefit (DB) pension schemes, like the Scheme, that have GMP. In a DB pension scheme, the amount of pension a member might receive generally depends on how long they’ve been a member and their salary at the point they stopped earning benefits in the scheme. Those in a defined contribution (DC) pension scheme might also be affected where there’s an optional minimum level of benefit (known as an underpin) that’s linked to GMP.

If you were a DB member who became a DC member when the DC section was set up between 1998 and 2000, your DB benefits were transferred to the DC section including your GMP which acts as an underpin in relation to your pre-97 pot. If this affects you, conversion of your GMP will take place later than conversion of GMPs held in the DB section of the Scheme.

No. GMP equalisation is all focused on complying with the recent High Court Judgment to ensure that affected pensions are treated the same for male and female members. Both male and female members may have the value of their benefits adjusted as a result of GMP equalisation.

You’ll only be affected by GMP equalisation if you have GMP benefits in the Scheme which you earned between 17 May 1990 and 5 April 1997. All members with GMP will be affected by GMP conversion. The equalisation and conversion processes will apply whether you’ve started to receive a pension income or not.

You might be. We’ll review the relevant part of your pension and let you know if you’re affected.

We’ll review your benefits, make any adjustments needed and send you confirmation when this has been completed and how you’re affected. At the point you retire, the benefits you receive will reflect that GMP equalisation and conversion has been completed. If you decide to take your benefits before the process has finished, we’ll let you know at the time how you’ll be affected.

Any previous calculations of the value of your benefits will not have included adjustments for GMP equalisation or conversion and may need to be revised if your pension includes GMP. Please contact us using the details at the end of this document if you have any questions about this.

No, it won’t be a case of all women benefitting or all men benefitting. The outcomes will be influenced by when you earned your benefits, when you retired (if you have), your age, as well as if you are male or female.

You may find in online articles and the news that the terms ‘gender’ and ‘sex’ are used inter-changeably when it comes to talking about GMP equalisation. GMP equalisation compares the pension you would have received had you been the opposite sex, using the biologically defined terms: male and female. It’s not an issue of the gender with which you may identify.

A 2018 High Court ruling requires GMP benefits built up between 17 May 1990 and 5 April 1997 (inclusive) to be treated the same for male and female members. This is to bring it into line with other existing requirements for equality in workplace pension schemes.

From 17 May 1990, a European Court of Justice ruling made it compulsory for all workplace pension scheme benefits to be treated the same for male and female members. However, at the time it wasn’t clear if that ruling applied to GMPs too.

This was clarified in 2018 with another legal ruling; this time through the High Court, involving the Lloyds Banking Group pension schemes. Now schemes like ours must adjust or equalise for the effects of the GMP part of members’ benefits built up between 17 May 1990 and 5 April 1997 (when GMP ended).

The Scheme has already equalised benefits other than GMP for the period above.

Since that judgment in 2018, the Department for Work and Pensions, HMRC and an industry working group have been producing guidance on how GMP equalisation will work in practice. It’s possible that there may be further legal developments. As a result, it’s likely that the process of GMP equalisation will take some time.

In most cases, we’re only looking at a relatively small part of members’ pensions built up over a relatively short time period. This means that, for most members, any impact is likely to be small in comparison to their total pension. If you’re affected, we’ll send you a personalised statement to confirm any changes to your pension benefits.

It is possible that the change in your pension as a result of GMP conversion could impact the amount of pension savings you can make elsewhere in the same tax year as conversion (known as the Annual Allowance). The number of members affected is expected to be small and any impact will be communicated to you once the calculations are complete in order to try to avoid any adverse tax impact to you. In the meantime, you do not need to do anything.

The pension we expect you will be entitled to at Normal Pension Age will not reduce as a result of GMP equalisation and conversion, but it could increase. The proposals may affect the way your pre-1997 pension increases in the future, both before and after you retire. Other benefits, such as your post 5 April 1997 pension and the proportion of your pension that gets paid to your dependant when you die, won’t change.

Yes. Once GMP conversion has been completed, any GMP benefits you had in the Scheme will be converted into non-GMP pension. This means that parts of your pension may increase differently in the future. If you are affected by GMP conversion, we’ll send you a statement that shows you how the different parts of your pension have been adjusted and how they’ll increase in the future compared to how they increased before GMP conversion.

The pension your spouse/civil partner and/or dependants receive will be based on your pension. If GMP equalisation changes your pension, it will change theirs too.

We’ve started a long process of reviewing data and running complex calculations to work out if, and by how much, your pension might change.

There could be some potential tax implications for you if the amount of pension you receive changes. If we think this affects you, we will write to you with more information once we have carried out our calculations. If you haven’t retired, see the next question.

If you have any questions about your personal tax situation, you may wish to speak with an impartial financial adviser. You can find an adviser online at moneyhelper.org.uk or you can call MoneyHelper on 0800 011 3797.

More about how pension back payments are taxed can be found on the GOV.UK website.

Your Scheme member status will change from deferred to pensioner and, at the point you retire, we will confirm how your benefits will be treated and whether there will be any future changes to your pension if equalisation and conversion have not been completed for you.

The LTA is the maximum amount of pension savings that an individual can benefit from over the course of their lifetime (across all registered pension arrangements) before a tax charge known as the Lifetime Allowance charge (LTA charge) applies. Most individuals are subject to the standard LTA. However, when the LTA was introduced, and each time it has been reduced by Government, protections have been offered to safeguard individuals who had already built-up significant pension savings on the expectation of a certain level of LTA. LTA protections can be lost in certain circumstances, such as conversion.

At the March 2023 Budget, the Chancellor announced that LTA tax charges will be abolished from 6 April 2023, with benefits over the LTA taxed as pension going forward (and therefore LTA charges are not currently expected to arise in relation to tax years after this date). However, there are other consequences of LTA protection and tax is a complex area so, just to be sure, we are still requesting that you inform us of any LTA protections you may have.

LTA protection is something you would have requested from HMRC yourself or via your financial adviser. HMRC would have provided you with a certificate. If you’re not sure if you have it or not you can check via your online HMRC account or contact HMRC. There’s more information on the Government website.

The abolition of LTA tax charges will not change the rules applicable for assessing tax that might be due for events taking place in tax years before 6 April 2023. Following GMP equalisation, in rare cases, an increase to a member’s starting pension could result in a new or increased LTA charge (in respect of a previous tax year). We won’t know which members are affected by this until after the calculations have been carried out, but we will inform you if you are affected.

You don’t need to do anything in relation to GMP equalisation and conversion (unless you have any LTA protection in which case you should tell us about that). We’ll keep you updated as the process progresses.

It’s going to take time to work out if and how members are affected – the calculations are very technical and we’re working through with our advisors what needs to be done. Currently, it’s likely to be spring 2024 when the first group of members go through the process, although timings may change.

We would let you know if we do not proceed with our proposed plans for GMP equalisation and conversion.

Any spouse/civil partner or dependants’ pension will be based on the pension you would have received following GMP equalisation and conversion. If that means there should be an increase to the amount we should have paid you, or your dependants, we’ll also pay any back payments.

It’s likely that the process of GMP equalisation will take some time due to the complex nature of the calculations. If you’re affected, we’ll write to you.

There’s a dedicated area of our Pension Website which includes:

• Consultation Guide – more details about what we plan to do and when.
  
• These FAQs – about GMP equalisation and our plans. We’ll keep these updated throughout the consultation period, based on any feedback we receive.
• Video – 2 minute explanation of what GMP equalisation is and why we have to do it.
• Feedback form – if you have anything you want the Trustee to consider or have a question about our plans.
• LTA form – use this to tell us if you have Lifetime Allowance protection from HMRC.
• Consultation close notice – at the end of our consultation we’ll publish confirmation of our plans.

Please use the Feedback form on the Pension Website if you have a question about our plans. We won’t be able to respond to members individually but will update these FAQs on the Pension Website with any common questions.

If you have a question about your Scheme benefits, please contact Buck, the Administrator of the BASF UK Group Pension Scheme by phone, or email. Please make sure you have your National Insurance number to hand for security identification purposes.

Tel: 0330 123 0647        Email: BASF@buck.com

Post: Buck, PO Box 319, Mitcheldean, Gloucestershire GL14 9BF

Please make sure you refer to the BASF UK Group Pension Scheme in any correspondence.

MoneyHelper provides free, general pension information and details on how to access pension guidance through Pension Wise.

Tel: 0800 011 3797        Website: moneyhelper.org.uk

You can find a regulated financial adviser in your area by visiting www.unbiased.co.uk.