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Accounting for GMP equalisation

What are the next steps?

Shona Harvie, Partner, Pension Funds Group
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The recent High Court judgement on the equalisation of Guaranteed Minimum Pensions (GMPs) for the Lloyds Banking Group has accounting implications for all defined benefit pension schemes with unequal GMPs for members who were contracted out between 17 May 1990 and 5 April 1997. As a result, there is a legal obligation to equalise GMPs through other scheme benefits. This includes adjusting past benefit payments and paying interest and under the SORP this obligation needs to be recognised as a liability in scheme accounts, if it is material. Early liaison between Trustees, auditors, actuary and the employer is key.

The Pensions Research Accountants Group (PRAG) is developing guidance in this area, and it should be available through the PRAG website in February 2019.

What we know

Following the Lloyds judgement on 26 October 2018, Trustees are under a duty to equalise GMPs accrued between 17 May 1990 and 5 April 1997. The case clarified that a range of methodologies could be used in calculating the amount payable. The judgement applies to any scheme that was contracted out between those dates and provided GMPs. It applies to past and future benefits and therefore will impact on scheme and employer accounts and actuarial valuations. Equalisation is required to GMPs through scheme benefits and interest is payable at 1% above base. There has been no decision on whether a de-minimis can be set for payments or the extent to which benefits need to be equalised for transfers out, consequently further hearings are expected in 2019.

Scheme accounts

Adjustment are required to scheme accounts for these costs if the amounts are material to the scheme. The date of the obligation is deemed to be the date of the Lloyds judgement (26 October 2018) as it provides clarity on the measurement methods. For year ended prior to 26 October 2018, which are not signed until after this date, there is a non-adjusting post balance sheet event requiring disclosure. Subsequent year ends require adjustments to the accounts.

Steps in estimating the obligation

  1. Seek professional/legal advice on the implications of judgement for the scheme. Decide on which equalisation method will be applicable and the likely estimated costs.
  2. Determine time limit on back-payments - potentially to 17 May 1990, although this will depend on the rules (in the Lloyds case, members are entitled to arrears for six years before their claim). Assess if the impact is likely to be material to the scheme.
  3. Consider the treatment of former members (members who died without a spouse and who transferred out) and members being paid through an insurance or buy in contract (depending on the terms of the contract).
  4. Liaise with the employer to understand their approach, and whether there is any information that could be used by the Trustees in quantifying the adjustment for the scheme accounts.
  5. Quantify the accounts provision in conjunction with the actuary. The estimate should be the best estimate, although it is recognised that there may be some uncertainty regarding the final amount. Ensure the cost of rectification is accrued. Monitor further developments in 2019 which may change the estimate.


The estimate should be disclosed in the notes for benefit payments however, if the amount is significant the Trustees may wish to disclose the amount on the face of the Primary Statements. A note to the accounts should explain the nature of the amount and the approach in determining the estimated cost. Disclosure should be made of any uncertainties in the estimate. Any subsequent adjustments to estimates need to be accounted for in the period that they arise. Adjustment may also be required as a result of future Court hearings.

The Trustee Report should disclose information about the Lloyd’s ruling, its overall impact on the scheme, the total estimated costs of equalisation and the future funding of the costs of equalisation.

How Crowe can help

If Trustees have any concerns regarding the implications of GMP equalisation, then seeking specialist advice is essential. You can talk to your usual Crowe contact.

Contact us

Shona Harvie
Shona Harvie
Partner, Pension Funds Group