1. Trustees and employers: talk to each other. There is no one-size fits all solution for this particular issue. You need a plan for paying future equal benefits, and a plan for fixing the past. Employers can insist on trustees choosing the solution that costs the least, but working out which one that is will take time and data. The answer will depend on your own scheme’s history, administration and demographics. That means employers and trustees have to run the numbers and talk to each other about the options to agree what works best for each scheme.
2. Trustees: check your scheme rules on payment of arrears. There is no overriding limitation on how far back you need to make up past underpayments, except the original equalisation date of May 17, 1990. However your scheme rules may require, or permit, you, to limit back payments to the last six years-worth. It’s all in the drafting so let us know if you would like us to review your forfeiture clauses.
3. Trustees: assess your data. To deliver accurate equalisation you will need to understand the breakdown of members’ benefits between the various elements of GMP and the excess over the GMP over time. Now would be a good time to commission data-cleansing if you haven’t done so already. The second stage will be working out the appropriate assumptions and methodology to fill in the gaps where data is missing and still deliver legal equalisation.
4. Trustees and insurers: check your buy-outs and buy-ins. For future transactions, make sure the benefit specifications cover fully equalised benefits – this may mean that any current transactions have to be delayed until the scheme’s own equalisation method is selected. For existing buy-outs and buy-ins, it’s a question of looking at the contracts to see who has liability and whether there is any alternative cover for the liability. Again, let us know if you would like us to help with this.
5. Employers and trustees: factor this liability into funding discussions and valuations. Should you hold an out-of-cycle valuation if there is already significant funding strain? Talk to your actuary. The impact on individual schemes will depend on each scheme’s circumstances, and given the length of time it may take to recalculate and reset benefits, you may find your existing valuation timetable is actually still fit for purpose.