The industry must “step up its efforts” to ensure that “guaranteed minimum pensions” are completed in a “timely and economical fashion”, Aon has said. The warning comes after a poll of 300 people conducted by the firm found that 75 per cent had estimated the liability increase caused by GMP, but that only 5 per cent had a full plan for implementation. According to Aon, 50 per cent of schemes now favoured the D2 method of equalisation, while 39 per cent favoured method C, the dual record approach. Aon principal consultant, Tom Yorath, said: “It’s encouraging that schemes are getting to grips with GMP equalisation but there is still much work to be done. “Schemes are rightly waiting for guidance from the likes of the Department for Work and Pensions (DWP) and HMRC before deciding on which method to adopt, but this shouldn't get in the way of planning and preparation. “Setting down a plan, agreeing key objectives and flushing out challenges at an early stage can minimise the risk of setting off down the wrong path and the expense associated with this.” The DWP said it would be issuing guidance shortly. In a separate poll of 140 trustees conducted by Willis Towers Watson (WTW), 78 per cent said they would be looking to convert GMP into other benefits, meaning they would not have to maintain dual records. WTW managing director Rash Bhabra also believes that using the D2 method would make them easier to hedge and less expensive to pass onto an insurer. “More straightforward benefit structures are easier to communicate to members and can provide members with more flexibility. GMPs have historically placed restrictions on options such as early retirement, tax-free cash and turning a small pension into a lump sum,” he added. “Telling members about conversion also provides an opportunity to explain existing options, such as their ability to take a transfer value.” Furthermore, WTW found 57 per cent of trustees thought the bulk of the equalisation will take between one and two years, while 34 per cent expected it to take two to three years. Both firms issued warnings to schemes about have sufficient data to equalise. Yorath said: “All the methods require schemes to address data gaps and to understand their benefit practices, so getting the ball rolling on this now will help ensure that the project is completed in an efficient and timely fashion.”
UK professional services firm Aon has warned pension schemes not to wait for government guidance about the additional costs of guaranteed minimum pensions (GMP) and begin preparing now. In a survey, the firm revealed 75% of respondents had estimated the GMP liability increase, but only 5% had a fully implementable plan. Separately, a Willis Towers Watson study said 78% of firms were looking at converting GMP into other benefits, while 57% of trustees said up to two years was needed for equalisation.