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The government’s proposals to equalise guaranteed minimum pensions (GMPs) would create massive costs and administrative burdens, pensions experts warned.

The National Association of Pension Funds (NAPF) argued that new legislation being proposed by the Department for Work and Pensions (DWP) would cost pension schemes billions of pounds in extra liabilities and administration and could also affect public sector pensions.

In its response to the DWP consultation on GMP equalisation, the NAPF urged the government to scrap its proposed new regulations. It also questioned whether there is any legal requirement for equalisation and it has asked the government to publish the legal advice on which it is basing its policymaking.

The NAPF also warned that, instead of clarifying the situation, the planned regulations would create more uncertainty for pension scheme trustees, who would not know whether or not they would have to equalise GMPs.

GMPs are sums of money built up by occupational pension scheme members who have contracted out of the state earnings related pension schemes. The government claims that it has to legislate to put the UK in line with EU law.

Darren Philp, NAPF policy director, said:  "The government should abandon its plans to equalise GMPs. There is no clear indication of an obligation to equalise GMPs under EU law."

The Association of Consulting Actuaries (ACA) estimates that, on average, pension amounts will increase by only about 2% due to such an exercise: the effect is thus small for most individual members, but would increase employers’ costs by about £13bn in total, or about £3.25m per scheme. The ACA estimates total implementation costs of about £75,000 per scheme. 

"To impose these costs on employers at a time when the government is championing a reduction in red tape seems inconsistent," said ACA chairman, Stuart Southall. 

www.dwp.gov.uk