The Occupational Pension Schemes (Schemes that were Contracted-out) (No 2) (Amendment) Regulations 2026

Question 1

Introduction

Accepted Answer

This consultation seeks views on the proposed draft regulations that provide for the conversion of Guaranteed Minimum Pensions (GMPs) into other scheme benefits. The changes are intended to help formerly contracted-out occupational pension schemes convert their GMPs as a part of a Guaranteed Minimum Pension (GMP) conversion exercise. These regulations seek to provide certainty around the process and steps schemes must follow. In particular, the regulations are intended to help those pensions schemes which plan to use the conversion methodology to fulfil their obligation to equalise people’s pensions because of the impact of historic GMP rules.

The draft regulations have been designed in close conjunction with the pensions industry.

About this consultation

This consultation is aimed at:

trustees and managers of formerly contracted-out pension schemes
sponsoring employers
pension industry professionals
pension scheme members
member representative organisations
any other interested parties

Purpose of the consultation

This consultation invites comments on the draft regulations. In particular, we are seeking views on regulations which set out how survivor benefits must be treated as a part of a conversion exercise and which define the ‘relevant persons’ whose consent must be sought by a scheme’s trustees prior to GMP conversion being carried out. The regulations also set out a new process which schemes can use to certify that pre and post-conversion benefits are actuarially equivalent when a single individual’s GMP is being converted.

Scope of consultation

This consultation applies to Great Britain. Occupational pensions policy is a devolved matter for Northern Ireland.

Duration of the consultation

The consultation period begins on 3 September 2026 and closes on 29 October 2026. Please ensure your responses reach us by this date as any replies received after that date may not be taken into account.

How to respond to this consultation

Please email your consultation responses to: quarryhouse.gmpconversionregulationsconsultation@DWP.GOV.UK

Government response

We will aim to publish the government response to the consultation on GOV.UK.

Question 2

How we consult

Accepted Answer

Consultation principles

This consultation is being conducted in line with the revised Cabinet Office consultation principles published in March 2018. These principles give clear guidance to government departments on conducting consultations.

Feedback on the consultation process

We value your feedback on how well we consult. If you have any comments about the consultation process (as opposed to comments about the issues which are the subject of the consultation), email them to the Department for Work and Pensions (DWP) Consultation Coordinator. These could include if you feel that the consultation does not adhere to the values expressed in the consultation principles or that the process could be improved.

DWP Consultation Coordinator
2nd Floor
Caxton House
Tothill Street
London
SW1H 9NA

Email: caxtonhouse.legislation@dwp.gov.uk

Freedom of Information

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Question 3

Ministerial foreword

Accepted Answer

Guaranteed Minimum Pensions (GMPs) were introduced in the mid 1970s and some of the rules around these benefits, while well intentioned, are now a product of their time. GMPs are not equal between men and women, reflecting wider historical inequalities of treatment between men and women in employment and in the pensions system. As a result, the legislative requirements for GMPs can result in different amounts of GMPs being paid to men and women with almost identical employment histories.

This has been recognised as unfair since at least the European Court of Justice’s 1990 Barber judgment, which said that occupational pension schemes need to equalise pensions built up from that date, and has been confirmed by subsequent judgments of the UK High Court. The regulations set out in this consultation are the final step in the long journey towards correcting what is a long-standing inequality in the UK’s occupational pension system.

Whilst schemes are required to equalise pensions, there are a number of methods they can select from to achieve this. GMP conversion can be used as an important part of the GMP equalisation process and is one of the methods that schemes can choose.

Whilst GMP conversion is already available to schemes, Government has continued to hear representations about schemes needing greater clarity and wants to be pragmatic. That is why these regulations make clarificatory changes to the requirements around the way schemes can convert GMPs into other scheme benefits. They expand on two provisions in the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 and include a new provision specifically sought by stakeholders. The regulations are intended to provide clarity and certainty to pension schemes so that they can use the conversion methodology with confidence to fulfil their requirement to equalise members’ pensions.

Millions of hard-working people rely on GMPs for part of their income when they retire, and I look forward to schemes ensuring once and for all that none of their members are being treated unequally purely because of their sex.

I welcome responses from everyone who wishes to contribute their view on the draft regulations: the pension industry, employers and scheme members.

Torsten Bell MP
Minister for Pensions

Question 4

Chapter 1: Background

Accepted Answer

Guaranteed Minimum Pensions

1. The State Pension used to be made up of two parts, the flat rate basic State Pension and the earnings-related additional State Pension. However, many employees were already members of pension schemes provided by their employer.

2. Therefore, from April 1978 to April 2016, employers sponsoring salary-related occupational pension schemes could contract employees out of the Additional State Pension – the bit of the State Pension that was earnings related.

3. In a salary-related contracted-out scheme, both the employer and the scheme members would pay lower national insurance contributions. Schemes took responsibility for paying members an earnings-related pension – known as a Guaranteed Minimum Penson (GMP) – in place of the additional State Pension. The GMP was intended to be a broadly similar amount in value to the additional State Pension the member would have received had they stayed in the State system. Contracting out continued to operate until April 2016, but GMPs did not build up after April 1997.

Differences in pension values arising from the GMP rules

4. The Pension Schemes Act 1993 requires contracted-out occupational pension schemes to calculate and pay GMPs differently depending on a person’s sex. Although the GMP rules were abolished for contracted-out service after 5 April 1997, past accruals remain subject to these rules.

5. A woman’s GMP accrues at a greater rate than that of a man. This is because, at the time GMPs were being accrued, a woman’s working life for State Pension purposes was five years shorter than a man’s. Women are therefore entitled to receive their GMP at an earlier age (age 60) than men (age 65). This age difference creates differences in the effects of indexation and revaluation on the value of men’s and women’s GMPs.

6. Indexation and revaluation refer to the requirement that GMPs are increased annually to provide some protection against the value of a member’s pension from being eroded by the effects of inflation, when in payment (indexation) or if the member has not yet retired but is no longer an active member of the scheme (revaluation). Indexation and revaluation rates are usually different. Because their GMP ages differ, a woman will be entitled to indexation on a GMP in payment in periods during which a man of the same age is entitled to revaluation on a GMP that has not yet been put into payment.

7. These differences create inequalities in the amount of pension income received by both men and women who have GMPs depending on individuals’ ages and circumstances.

Correcting for these differences

8. The Equality Act 2010 requires equal treatment between men and women for pensions accrued from 17 May 1990 onwards.

9. Affected pension schemes therefore need to equalise the amount of pension their members receive for all pensions accrued from 17 May 1990 onwards to correct for the inequality produced by the GMP rules. In practise, this means any occupational pension scheme that was contracted-out of the additional State Pension on a salary-related basis between 17 May 1990 and 5 April 1997, when GMPs were abolished.

10. It is important to be clear that no one will lose money when their pension is corrected for the effects of the inequality in the rules around GMPs. If someone is found to have less pension than they should, their pension will be increased. However, if someone has a higher entitlement than an equivalent person of the opposite sex, their pension will not be reduced. Pension schemes will only correct for the effects of GMP rules by increasing people’s pension to the higher amount.

GMP conversion as a method for GMP equalisation

11. In November 2016, the DWP consulted on a methodology for equalising pensions for the effect of GMPs. This methodology involved schemes using the existing conversion legislation set out in the Pension Schemes Act 1993 to convert GMPs into other pension benefits that are not bound by the same unequal rules as GMPs. This methodology is referred to as the ‘GMP conversion methodology’.

12. Conversion of GMPs to other scheme benefits must be at least actuarially equivalent at the point of conversion. This means that conversion cannot be used to reduce the total value of a member’s GMP rights.

13. GMP conversion can have other advantages for schemes and sponsoring employers. It allows schemes to simplify their rules, making them easier and less expensive to administer, as well as easier for members to understand. Under GMP rules, members accrue both GMP and other benefits, which must be calculated, recorded and paid differently, while the GMP itself may be subject to different rules depending on whether it was accrued before or after 1988. However, it is important to be clear that, if a scheme’s trustees are contemplating GMP conversion, this is usually as a means of improving the running of the scheme and not to make radical changes to members’ benefits.

14. Schemes are required to equalise members’ pensions for the effect of differences in the GMP rules, but do not have to use the GMP conversion methodology. There are other ways of equalising and it is up to the trustees of an individual pension scheme to decide which approach to take.

Changes to the GMP conversion legislation set out in this consultation

15. The pensions industry has generally welcomed the GMP conversion methodology as a sensible way to equalise for the effect of GMPs. However, the industry has also expressed concerns that certain provisions of the conversion legislation are unclear and should be amended to make them easier to use. This would make it easier for schemes to equalise for the unequal effect of GMPs using the GMP conversion methodology.

16. In particular, the pension industry expressed concern that the conversion legislation:

a. was unclear as to how conversion applies to survivor benefits

b. did not provide for circumstances in which the scheme’s sponsoring employer at the time the GMPs were accrued no longer exists and therefore cannot consent to a proposed conversion exercise

c. required schemes to notify HM Revenue and Customs (HMRC) that they have carried out a conversion exercise

17. The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 therefore amended these provisions in the Pension Schemes Act 1993.

18. The Act:

a. clarifies that the conversion legislation applies to survivors and provides for a power to set out in regulations the conditions that must be met in relation to survivors’ benefits, allowing DWP to clarify in regulations how survivor benefits are to be treated after conversion

b. provides for a power to set out in regulations detail about who must consent to the conversion, allowing DWP to set out in regulations what the scheme must do and who they must ask consent from if the sponsoring employer at the time the GMPs were accrued no longer exists or there are multiple employers

c. removes the requirement to notify HMRC

19. This consultation sets out our thinking about the regulations coming out of the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022. Draft regulations can be found in the Annex. These draft regulations amend The Occupational Pension Schemes (Schemes that were Contracted-out) (No 2) Regulations 2015.

20. The draft regulations cover:

a. the conditions that must be met in relation to survivors’ benefits, discussed in chapter 2

b. who must consent to the conversion, discussed in chapter 3

c. a new option for the certification of actuarial equivalence when the benefits of only one individual member are being converted at a time, discussed in chapter 4

21. It is important to be clear that the intended regulations would only apply to GMP conversions undertaken after the regulations came into effect. The proposed changes to the conversion requirements would not be retrospective and would not call into question the way a scheme may have chosen convert members’ GMPs using the legislation in place at the time. The draft regulations make this clear at regulation 1.

22. Schemes in the process of consulting with members about a GMP conversion exercise when the regulations came into force would continue to be subject to the previous legislation.

Question 5

Chapter 2: Survivors’ pensions

Accepted Answer

1. Survivors’ pensions are pensions which a member’s survivor can receive following the member’s death. Widows, widowers and surviving civil partners of members of occupational pension schemes which were formerly contracted-out on a salary related basis have a statutory entitlement to a pension based on the member’s GMP entitlement.

Current requirements for survivors’ pensions on converted GMPs

2. Legislation sets out the entitlement to survivors’ pensions on the member’s GMP, covering how much is paid, how long it is paid for and in what circumstances it is paid.

3. Under the Pension Schemes Act 1993, schemes are required to pay a woman in a mixed sex marriage a pension equivalent to at least 50% of her late husband’s GMP entitlement accrued between 1978 and 1997. Schemes are required to pay a man in a mixed sex marriage, a surviving civil partner or a surviving same sex spouse a pension of 50% of the late member’s GMP accrued between 1988 and 1997.

4. These differences reflected societal norms at the time. Prior to 1988, it was considered more likely that a surviving widow would need to be dependent on her husband’s pension and less likely to be financially independent herself.  In 1988, it was recognised that widowers of female members should also be entitled to a survivor’s GMP pension.  Following the introduction of civil partnerships and same sex marriages, the law was amended so that the survivors of members who were in civil partnerships or same sex marriages should be entitled to a survivor’s pension on the same basis as widowers (for GMP accrued from 1988).

5. The current legislation on GMP conversion makes it clear that schemes must continue to pay a survivor’s pension after a member’s GMP has been converted.

6. There are conditions that have to be met as part of the conversion process and requirements about the level of survivors’ pensions schemes need to pay if someone’s GMP has been converted. After a GMP conversion has been carried out, a scheme must pay at least half of the value of the member’s pension for the relevant period to the survivor.

Survivors’ pensions provided by schemes

7. Whilst legislation sets out minimum requirements on survivors’ pensions, schemes can choose to pay higher levels of survivors’ pensions, pay them for longer and/or pay them in additional circumstances.

8. Evidence shows that almost all contracted-out defined benefit schemes are more generous than the legal minimum and provide at least 50% of all of the member’s pension as a pension to the survivor where the member dies after they have taken their scheme pension.

9. Data suggests that only a small percentage of people die before reaching their scheme’s pension age. Using a cohort of people who were aged 18 in 1981, DWP found that, of that cohort, around 94% of women would reach the age of 60 years and around 87% of men would reach the age of 65. These are the ages at which GMPs can come into payment for women and men respectively.

Proposed requirements on survivors’ pensions post-conversion

Amount

10. Some stakeholders have questioned whether the current conversion legislation requires a scheme to pay half of the pension the member accrued during the relevant period or just half of the member’s GMP. The legislation will clarify that survivors must receive half of the pension, not just half of the GMP.

11. The draft regulations therefore set out that the minimum level of survivors’ pensions that a scheme must pay post conversion is at least half of the pension accrued by the member during the relevant period.

12. Post-conversion, schemes would therefore be required to pay a woman in a mixed sex marriage a pension equivalent to at least 50% of the late member’s pension accrued between 1978 and 1997. Schemes would be required to pay a man in a mixed sex marriage, a surviving civil partner or a surviving same sex spouse a pension of 50% of the late member’s pension accrued between 1988 and 1997.

13. This is not a change from the current position in legislation.

14. As almost all formerly contracted-out defined benefit occupational pension schemes have chosen to pay survivors’ pensions of at least 50% of the pension accrued by the member where the member dies in retirement, the draft regulations would make no practical difference to the majority of schemes.

15. Paying post-conversion survivors’ pensions of at least 50% of the pension accrued by the member is also simpler and cheaper for schemes to administer than paying survivors’ pensions of 50% of the GMP after conversion.

16. Some schemes may see an uplift in survivors’ pension costs. This would mainly be where schemes currently pay less than 50% of the member’s pension as the survivor’s pension where the member dies before retirement. However, we believe that these costs are likely to be low because of the low probability that a member will die before they reach retirement age.

Question 1:

Do the draft regulations meet our intention to set the minimum level of survivors’ pensions that a scheme must pay post-conversion to at least half of the pension accrued by the member during the relevant period?

Circumstances and periods

17. The current legislation provides the circumstances, with associated periods, in which survivors’ pensions must be paid post-conversion. There are a number of these and some of them are difficult for schemes to administer. They can require schemes to obtain information which may not be readily available and there are overlaps between some of the circumstances.

18. Simplifying the circumstances and their associated periods will make it simpler and cheaper for schemes to administer.

19. As the majority of defined benefit schemes have made the voluntary decision to provide scheme survivors’ pensions, there is an opportunity to simplify and reduce the number of circumstances in which survivors’ pensions have to be paid where a GMP has been converted.

20. It is important that the circumstances in which the survivor is entitled to a survivor’s pension when a member’s GMP has been converted must be at least equal to the circumstances in which a GMP survivor’s pension would have been paid, as the survivor would have received GMP survivor’s pension had the scheme not done conversion.

21. By providing better coverage than in the current legislation, we can ensure that all the pre-conversion circumstances are covered and provide schemes with simpler requirements.

22. To reduce and simplify the circumstances in which survivors’ pensions are paid after conversion and the periods of time for which they are paid, we suggest that survivors’ pensions are paid in four different circumstances. Essentially, in brief, these are:

while the survivor has a child or is getting child benefit
while the survivor is entitled to widowed parent’s allowance or bereaved support payment
for life where the survivor is aged 45 or over when: the member dies, the survivor’s entitlement to widowed parents’ allowance or bereavement support payment ends or the ending of when the survivor has a child or was entitled to child benefit
for life starting from when the survivor reaches State Pension age, where the member died before the survivor reached State Pension age (where the third circumstance does not apply)

23. Please see the regulations for the details on these circumstances. The above are just intended to give a brief summary of the requirements.

24. We consider that these four circumstances cover all of the current situations and that they are more generous than the current provisions, simpler to administer and remove some unnecessary detail.

25. It is important to be clear that we have not removed anyone’s entitlement to survivors’ pensions; rather, the simplified requirements are intended to include all the existing circumstances in which survivors’ pensions must be paid following GMP conversion.

Question 2:

Do the draft regulations achieve our intention of simplifying the requirements around entitlement to GMP survivors’ pensions while ensuring none of the current entitlement categories are missed?

If you think there are any survivors who would have been covered by the current legislation who are not covered by the draft regulations, please explain who these are.

Question 6

Chapter 3: Relevant persons

Accepted Answer

1. The Pension Schemes Act 1993 requires a scheme’s employer(s) to consent to the GMP conversion before it can be carried out by the scheme’s trustee. The Act defines an employer as ‘in the case of an employed earner employed under a contract of service, his employer’.

2. For most schemes, it is relatively straightforward for the trustees to identify ‘the employer(s)’ and obtain their consent, as they will be the employer sponsoring the pension scheme.

3. In other schemes, however, identifying ‘the employer’ may be more difficult. For example, large non-associated multi-employer schemes can have hundreds of sponsoring employers, but some of these employers may no longer employ scheme members; while if a business has experienced a corporate merger and/or restructuring, the identity of the members’ employer may have changed.

4. The trustees can therefore find themselves struggling to meet the consent requirements because they are uncertain about whom they need to obtain consent from.

5. We do not want the need to obtain employer consent to be an obstacle to a scheme converting GMPs. The 2022 Act therefore removed the reference to ‘the employer’ and replaced it with the term ‘relevant person’, with a power to make regulations defining this term.

Defining ‘relevant persons’

6. We have decided that ‘relevant persons’ is best understood as referring to those persons who have a financial responsibility to the scheme at the time that the conversion takes place. In practice, this will mean the scheme’s statutory employers for the purposes of the scheme funding requirements in Part 3 of the Pensions Act 2004.

7. This will ensure that the scheme must consult and obtain consent from those employers with an active financial interest in the scheme at the time of the conversion but will exclude employers who no longer have a connection with the scheme.

8. The draft regulations therefore define a ‘relevant person’ as a person who is an employer for the purposes of Part 3 of the Pensions Act 2004. This is defined in section 318 of that Act as ‘an employer’ as ‘the employer of persons in the description of employment to which the scheme in question relates.’ The definition of ‘employer’ in the Pensions Act 2004 and the regulations made under it is widely used in the pensions industry to identify those persons who have a financial liability to the scheme.

Question 3:

Does the definition of a ‘relevant person’ as a person who is an employer within the meaning of Part 3 of the Pensions Act 2004 better help schemes identify the parties they need to consult, compared to the existing legislation?

Collective agreement by multiple employers

9. Some large multi-employer schemes can have hundreds of sponsoring employers. Even if the consent requirement is limited to those employers who have an ongoing financial responsibility to the scheme at the time of conversion, the scheme could still be required to obtain consent from several hundred employers. We are aware that in some cases a scheme’s trustees can struggle to get every employer in their scheme fully engaged.

10. Large multi-employer schemes resolve this problem in other areas of pension legislation by allowing an appointed representative to give consent on behalf of the employers as a whole. The draft regulations therefore give a scheme’s employers the ability to nominate a single employer to act on their behalf. Under the draft regulations, the nominated employer becomes the sole ‘relevant person’ for the purposes of the consent requirements.

11. The draft regulations make it clear that the nominated employer can only act on behalf of the employers as a group if all the employers agree to this arrangement.

Question 4:

Do the draft regulations achieve the aim of allowing a single employer to act on behalf of the employers as a whole?

Question 7

Chapter 4: Proposed new certification process for individual GMP conversions

Accepted Answer

1. When a member’s GMP is converted into other scheme benefits, the conversion must be actuarially equivalent at the point of conversion. That is, the value of a person’s GMP and the value of the same benefits after they have been converted must be equal. This is sometimes described as changing the ‘shape’ of the benefits but not the overall value. The post-conversion benefits can have a higher total value than the pre-conversion GMP but cannot have a lower total value.

2. This is a very basic safeguard to ensure that no one loses accrued pension value as a result of their GMP being converted into other scheme benefits.

3. It is therefore extremely important that the conversion calculation is done properly, and that the result is correct. The Occupational Pension Schemes (Schemes that were Contracted-out) (No 2) Regulations 2015 (“the 2015 Regulations”) set out a process which schemes must follow. The process was designed to ensure that the conversion is demonstrably actuarially equivalent.

4. The trustees are responsible for determining that a conversion is actuarially equivalent and are required to take advice from the scheme actuary, who will advise on the assumptions upon which the conversion calculation is based.

Certifying the conversion

5. The 2015 regulations require the scheme actuary to certify that the post-conversion benefits are actuarially at least equivalent to the pre-conversion benefits.

6. The certificate is currently issued by the actuary after the conversion has been carried out. It must state that the calculations to convert the GMP into other benefits have been completed, and that the post-conversion benefits are at least actuarially equivalent to the pre-conversion GMP. It must then be sent to the trustees within three months of the conversion calculation having been carried out.

7. This provision enforces a safeguard for members and forms a crucial part of the conversion process. The conversion will not be legally valid if a certificate has not been obtained.

Certification of bulk conversions

8. The certification process works well when a scheme is converting multiple members’ GMP rights at once - what is sometimes referred to as ‘bulk conversion’. If a bulk GMP conversion is carried out, the actuary will issue one certificate of actuarial equivalence in respect of all the members whose GMPs have been converted.

9. We do not propose to change the current requirements for bulk conversions.

Certification of individual conversions

10. The pensions industry has made the case that the current certification process can be cumbersome and overly expensive when it is applied to individual GMP conversions. The need to make regulations under the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 provides an opportunity to look at the way the actuarial equivalence certification requirements work for individual GMP conversions.

11. Individual GMP conversions are typically carried out just before the member starts taking their pension. The advantage of an individual calculation being carried out at this point is that the scheme will have more accurate information on the different factors which are used in the conversion calculation.

12. However, the current regulations mean that the actuary has to certify that each individual GMP conversion is actuarially equivalent pre and post-conversion. A large scheme with hundreds of members retiring each year will need to repeatedly engage an actuary to sign off each individual conversion calculation. This can result in significant administrative costs to schemes.

A new certification process for individual at retirement conversion calculations

13. We are therefore proposing a new, more streamlined process which schemes can use to certify GMP conversions when they are carried out on an individual basis. This process is intended to reduce the need for schemes to repeatedly re-engage an actuary to certify individual GMP conversion calculations as they fall due. Instead, we propose that the actuary could certify that the methodology used to make the calculation will deliver a result that is at least actuarially equivalent to the pre-conversion GMP for conversions within the certification period.

14. In simple terms, the actuary would certify the process rather than the individual outcomes. If the information used to calculate the conversion and the calculation methodology itself have been certified to result in a post-conversion value that is at least actuarially equivalent to the pre-conversion value, all parties can be assured that the post-conversion value will be actuarially equivalent.

15. A wide range of economic and other factors need to be taken into account as a part of the GMP conversion calculation. If any of these assumptions underpin the conversion change, the pre- and post-conversion benefits may no longer be actuarially equivalent in value. Under the proposed process, therefore, the actuarial certificate will be required to be reviewed and updated at least annually. This is an important safeguard to ensure that the conversion method and assumptions remain up to date.

How the process will work for individual conversions in practice

16. The scheme trustees, with advice from actuaries and lawyers, will agree the scope and design principles of the individual conversion process. The actuary will prepare and test the model for completing the conversion calculations on an individual basis. The actuary will include instructions on how to use the model, which members are within scope of the model, and which cases are not. It is likely those instructions would require that more complex cases should be referred to the actuary for either a review or an individual calculation.

17. The actuary will be required to provide instructions for how the model is to be updated for changes in market conditions.

18. Actuarial advice on the assumptions will include: how often the financial assumptions are to be updated for changes in market conditions (for example, quarterly or annually); how that linkage to changes in market conditions will work (for example, updates might be taken from the yield curves published quarterly by the Bank of England); and the circumstances in which a wider review of the assumptions is conducted. These special circumstances requiring a review of the assumptions might be mechanical (for example, if yields should move by more than 1% per annum) and/or subjective (for example, if the actuary recommends a review). The trustees will be required to carry out an ad hoc review of the model if and when the actuary recommends that this is done.

19. The actuary will then provide a certificate to the trustees confirming that, if the model is used in accordance with the instructions, the pre- and post-conversion benefits calculated using the model will be actuarially equivalent. The actuary will also be able to specify any circumstances (which may relate to individual earner’s circumstances or to wider factors) which are out of scope of the certificate (because in those cases the conversion may not result in actuarial equivalence).

20. This certificate will apply for all calculations using the model over the next twelve months that are within scope of the certificate. The trustees will then instruct the actuary to review the model and assumptions at least annually, providing a new certificate on completion of each review.

21. It is important to be clear that this new process will be an option that schemes can use if they choose. We would only expect a scheme to use this new option if it would result in a financial saving to the scheme. If a scheme chooses not to use the new process, the existing process must be followed in the usual way.

22. Draft regulations providing for this option are set out in the Annex.

Question 5:

Do the draft regulations achieve the aim of streamlining the certification process for individual conversions?

Question 6:

We want to make sure the trustees will review the model before the end of the 12-month period if the assumptions are no longer appropriate. We would welcome views on whether this is incorporated into the regulations and, if so, how it is framed.

Safeguards

23. We are aware that having two separate processes for ensuring that a member’s post-conversion benefits are actuarially at least equivalent to their pre-conversion GMP benefits could lead to concerns that the member might receive a materially different outcome depending on the process adopted by the trustees.

24. Having spoken to a number of actuaries, we are confident that this is unlikely to happen in practice. The risk of differences in assumptions arising over time that would lead to different outcomes would be mitigated by the requirement to review and recertify the individual at retirement process every 12 months. The assumptions underpinning an individual member’s GMP conversion calculation using the proposed new process could not ‘drift’ too far as they would have to be revisited and, if necessary, changed at least annually. The actuary is professionally obliged to indicate how sensitive the outcomes are likely to be to changes in assumptions, and the trustees will need to have regard for this advice.

Question 7:

Do the draft regulations sufficiently safeguard members from the risk of differences in assumptions arising over time between the certificate being issued and its being renewed?

Question 8:

Is there any other risk of gamification created by having two different options for ensuring actuarial equivalence between pre and post-conversion benefits?

Question 8

Chapter 5: Transitional regulations

Accepted Answer

Transitional provisions

1. We know that some schemes have already used the conversion methodology as a way to meet their obligation to equalise members’ benefits for the unequal effect of the GMP rules. The changes that we are making to the GMP conversion requirements will only apply going forwards and will not have any implications for schemes which have already completed an equalisation and conversion exercise. We are aware that any suggestion an equalisation and conversion exercise would need to be reopened would be extremely disruptive and expensive for schemes. We therefore want to make it clear that the proposed regulations would have no implications where a scheme has already completed a GMP conversion exercise when the regulations come into force.

2. However, some schemes may currently be undertaking or planning to undertake a GMP conversation exercise and could be uncertain as to whether they need to recalculate the conversion under the new provisions.

3. We are therefore proposing transitional provisions that will clarify how these regulations will apply to schemes which are in the process of a conversion exercise when the regulations come into force.

4. We propose that:

those schemes that start GMP conversion after the regulations have come into force should be required to use the amended legislation
those schemes that have started the process of consulting their members regarding GMP conversion at the time the regulations come into force would continue using the current legislation unless they choose to reconsult with their members, in which case the amended legislation would apply

Question 9:

Do the draft regulations have the intended effect of providing clarity for schemes currently undertaking or planning to undertake a GMP conversation exercise?

Consequential regulations

5. GMPs were a key element of the UK’s occupational pension system between 1978 and 1997. The GMP conversion legislation itself is set out in the Pension Schemes Act 1993 and the Occupational Pension Schemes (Schemes that were Contracted-out) (No 2) Regulations 2015. However, it is possible that other legislation contains references that may need to be amended to ensure that they are aligned with the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 and with regulations being consulted on here.

Question 10:

Are there any consequential amendments missing from our draft regulations?

Question 9

Chapter 6: Costs and savings for schemes

Accepted Answer

1. These regulations were developed following discussion with representatives from the pensions industry and are intended to make the GMP conversion legislation clearer and easier for schemes to use, either as a way to fulfil the requirement to equalise pensions for the unequal effect of the GMP rules, or for other reasons such as benefit simplification.

2. Any cost and benefits are likely to be different across schemes, but overall, we anticipate these changes to the GMP conversion legislation will result in an administrative saving for schemes. Evidence suggests simplifying schemes administrative requirements can produce tangible savings for schemes.

3. Our analysis suggests some of the proposed changes, especially the changes to the post-conversion survivors’ pensions requirements, could lead to slight increases in benefit costs to some schemes. However, our analysis also suggests that for the majority of schemes these costs would be small and would be outweighed by the related administrative savings.

4. It is also important to be clear that schemes do not have to use the GMP conversion methodology as a way to fulfil the requirement to equalise pensions for the unequal effect of the GMP rules. If a scheme is concerned that the proposed survivors’ pension changes would result in significantly higher costs, it should seek actuarial advice as to whether GMP conversion would be appropriate.

5. We have carried out preliminary analysis and modelling of the proposed changes. However, we would welcome any insights from schemes, actuaries and scheme administrators on any further evidence or potential estimated costs/benefits from the proposals to develop a greater understanding of the impacts on schemes.

6. The key areas where we have identified costs and savings are the survivors’ pension changes, relevant persons and certification of actuarial equivalence.

7. The proposed changes to survivors’ pension requirements may increase costs for some schemes. For example, if a scheme currently pays a lower level to survivors where the member dies before retirement, the scheme’s survivors pension costs would increase under the proposed changes. However, most schemes are unlikely to be affected by the proposal to remove schemes’ ability to stop paying survivors’ pensions on remarriage, as this is rarely used.^{[footnote 1]} The reforms are primarily intended to improve clarity and simplify requirements, which may deliver small administrative savings for some schemes.

8. The proposed regulations maintain the level of survivors’ pensions set out in the current legislation on conversion. The circumstances in which survivors’ pensions are to be paid are more generous than the current conversion provisions; but less generous than most schemes have set out in their rules. It is important to be clear that the proposed changes would only result in survivors’ pensions staying the same or increasing - no one would see a drop in the value of the survivor pension to which they are entitled once the proposed changes come into effect.

9. The available information is challenging, but data suggests very few schemes currently provide less than 50% of the member’s pre-commutation pension. Given this, the increase in total costs across all schemes is expected to be relatively low; less than £1 million a year, on average, over a ten-year period.

10. The proposed change to employer consent requirements aims to provide greater clarity for trustees but is not expected to create additional costs for employers. Schemes should already hold the necessary information to identify and contact relevant persons, as these employers typically have an ongoing financial relationship with the scheme. While some schemes may occasionally need legal advice to identify statutory employers, this need is unlikely to arise solely from GMP conversion requirements. Overall, the change is not expected to deliver material savings, although minor administrative or legal savings may arise where clearer rules make it easier to identify and engage the correct parties.

11. The new individual conversion certification process aims to reduce the need for schemes to repeatedly seek actuarial certification for each GMP conversion, simplifying administration and potentially lowering costs. However, schemes will face upfront costs to create the model, though this is scheme dependent and could vary significantly. The extent of savings will depend on scheme size and frequency of conversions. Smaller schemes with infrequent conversions may see limited or no benefit. Larger schemes may be able to significantly reduce their costs. This is estimated to generate savings in the region of £5 million to £25 million across all schemes a year. However, the process is voluntary, with schemes expected to adopt it only where they anticipate it resulting in administrative savings.

Question 11:

Do you agree with our assessment of the costs and savings? Do you have any evidence on costs and savings for your scheme in relation to the new processes/ requirements?

Question 10

Chapter 7: List of questions

Accepted Answer

Question 1