Lack of clarity from HMRC no excuse for stalling on implementation
LONDON (20 November, 2019) –Aon, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that although schemes recognise that they are likely to finish GMP equalisation projects later than expected, they still have a significant amount of data work that should be started in the meantime.
As part of its efforts to track progress on the industry-wide GMP equalisation project, Aon has held its third webinar since last year’s High Court judgment, polling the responses of 150 participants. Results showed that a lack of clarity from HMRC on the ability to implement, especially for high earners, is currently the biggest factor holding schemes back from starting the process. It was also made clear that there is now an even split between the main chosen methods for conducting the process.
These findings reflected those in Aon’s Global Pension Risk Survey 2019 which found that the time taken and the cost of implementing GMP equalisation was the most pressing concern for 50% of small, medium and large schemes, and featured in the top three concerns for 82% of respondents overall. The other most commonly-selected main concerns were the process itself not being carried out correctly (13%), the financial impact on a scheme (8%) and the availability of required data (7%).
Tom Yorath, partner and head of GMP equalisation at Aon, said: “It’s a positive sign that schemes are not underestimating the time it would take to implement GMP equalisation, given the scale of the project. However, waiting for clarity from HMRC is no excuse for halting planning and preparation. Early movers who have started to tackle this task have consistently found issues with data - what takes time and involves cost is getting the data right. Schemes can start identifying and addressing data quality issues now, even if they haven’t made a final decision on how to equalise.”
The estimated timescales for completing the process have changed since Aon’s previous webinar in February of this year. Schemes have recognised they are unlikely to finish in 2020 (falling from 28% to 2%) although they still generally hope to finish by the end of 2023, with only 15% expecting to take longer. This means that 2020 to 2022 will be the busy years for the industry to achieve this - another reason for schemes to get started with the process now.
Tom Yorath said:
“The finite amount of relevant expertise both within in-house teams and in the industry as a whole, is another reason for schemes to begin the process early and to ensure they are at the front of the queue for getting the external support they will need. Where it’s possible, it’s important to grasp the nettle now – understand what GMP equalisation may look like for your scheme and where you stand with data.”
In terms of the preferred method of tackling the process, schemes were evenly split between adopting the ‘Cumulative’ C2 method (49%) and the ‘Conversion’ D2 method (50%). This compares to 39% and 50% respectively in the last webinar in February. Cumulative is essentially an administration solution that continues to compare the member and the equivalent member of the opposite sex over time, whereas Conversion, converts the benefit into a new form to deliver the value of an equalised benefit.
Aon’s Global Pension Risk Survey 2019 found that in deciding which method to use, respondents’ most important considerations were the ongoing funding or accounting cost to the scheme (36%) and the additional administration costs (32%).
Tom Yorath said:
“It’s no surprise that for schemes delivering newly equalised benefit, the main concerns are to ensure smooth and efficient administration, while also mitigating the accounting cost. But these objectives could go against each other. The approach that might minimise future administration costs is Conversion, yet it is also the approach that potentially has the biggest accounting impact on schemes. Companies and trustees will therefore have to work together to strike the right balance to reach their objectives.”
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Notes to editors
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
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