GMP equalisation is a thorny issue and for some schemes it can be about choosing the least bad option. But what if it doesn’t have to be that way? As highlighted by Aon’s 2022 Member Options Survey, there has been a consistent upward trend since 2018 in schemes providing members with more support with their retirement decisions. And increasingly, schemes are turning the equalisation headache into an opportunity to improve the overall member experience with additional support – tackling two scheme objectives in one fell swoop.
Regardless of the method, implementing GMP equalisation can be complicated. It involves a change to members’ benefits, careful communication of the changes, and updates to your retirement processes. But GMP equalisation gives schemes an opportunity — while the bonnet is already open on this retirement process — to combine actions to provide support and choice to members to improve their overall retirement journey. This opportunity exists regardless of whether a scheme is going down the GMP conversion or dual records route.
One way of impacting a member’s experience, which often goes hand in hand with increased engagement and additional support, is by improving options within the pension scheme itself. Most schemes going down the conversion route are using this as an opportunity to increase the options available to members1. For pensioner members, the most common option to offer is a Pension Increase Exchange (PIE) option. For deferred members, a PIE can be offered or there is an additional option to consider, called a Bridging Pension Option (BPO).
PIE — this is where the member is given the option to exchange some of their pension increases for a higher pension today but with lower pension increases in future.
BPO — this is where a member has a higher starting pension which reduces at State Pension Age to provide a smooth total income when combined with the state pension.
For members, both of these options give additional choice on how to access their scheme benefits.
Is adding additional options going to make things more complicated for members? Do members want these options in the current high inflation environment? Will members make informed decisions?
Our experience is that it has been a simple choice for members to choose between the converted pension (Pension A) or the higher BPO/PIE pension (Pension B), and schemes are implementing additional support alongside the options to ensure members make informed decisions. For members it ultimately comes down to what option best suits their lifestyle requirements, with no need to consider the technicalities of GMP.
The exercises to date demonstrate that members welcome this choice. Electricity North West was our first completed conversion and PIE exercise in 2021, with 64% of members engaging to find out more about the option and 41% of members choosing to take the option. This trend has continued for exercises in progress in 2022, but against the high inflation background. Good quality advice from independent financial advisers (IFA) is crucial and they are reporting that members are asking detailed questions about inflation in advice meetings. This probably means that members taking up a PIE option in the current environment are doing so having considered inflation in more detail than members when inflation was lower. Given that current levels of inflation are reflected in the calculations, for some members in particular, this opportunity is welcomed to support them through the current cost of living issues.
Even where schemes are equalising using dual records, there are still opportunities to increase member support and there can be significant efficiencies from combining this into a single project — for example, combining actions to complete benefit specifications or update member communications for IFA support at the same time as for the GMP project.
We haven’t seen a noticeable change in levels of member interest in PIE over recent months, despite high inflation. In fact, if anything it’s encouraging members to want to understand the option more. Every member will have different circumstances, which is why we get to know them and help them decide if PIE is the right option for them in the current time — and certainly for some it is exactly what they need.
David Fishlock, IFA, Chase de Vere
Member experience is often the driver for making these changes to the retirement process, and it is genuinely seen as a positive for all parties involved in the scheme. Along with the increased member choice and support, the extra options can also reduce liabilities and risk in the scheme – and often the exercises are covering the unavoidable cost of GMP equalisation. So, with an increased trend for schemes to provide support to members, and while you are already doing a deep dive on your retirement process, consider using GMP equalisation as an opportunity to enhance that member experience.
If you are interested in exploring this further, you can contact one of our GMP equalisation experts by emailing us at [email protected].
1 Source: Aon’s 2022 Member Options SurveyDiscover more in our Member Options Insight Hub
Our fifth annual Member Options Survey collated the views of over 300 pension schemes. Building on the results of previous years, it continues to focus on the level of support available to members at retirement and the changes schemes plan to make over the next year.
Colin Ross from Electricity North West discusses their success story in combining GMP Equalisation and PIE during this short video.