Government proposals to equalise Guaranteed Minimum Pensions (GMPs) would create massive costs and administrative burdens, increasing pressure on pension funds at a time when they are struggling with a tough economic environment, pensions experts warned.

The National Association of Pension Funds (NAPF) argued that new legislation being proposed by the Department for Work and Pensions (DWP) would cost pension funds billions of pounds in extra liabilities and administration, and could also affect public sector pensions. In its response to the DWP consultation on GMP equalisation, the NAPF urged the Government to scrap its proposed new regulations. It also questioned whether there is any legal requirement for equalisation, and it has asked the Government to publish the legal advice on which it is basing its policy-making.

The pensions body also warned that, instead of clarifying the situation, the planned regulations would create more uncertainty for pension fund trustees, who would not know whether or not they would have to equalise GMPs. GMPs are sums of money built up by members of occupational pension schemes who have contracted out of the State Earnings-Related Pension Schemes (SERPS). The Government claims that it has to legislate to put the UK in line with EU law.

Darren Philp, NAPF Policy Director, said: The Government should abandon its plans to equalise GMPs. There is no clear indication that an obligation to equalise GMPs exists under EU law. On top of this, pension schemes are already dealing with a tough economic environment and significant change brought about by changes in Government legislation.

GMP equalisation would create huge and unnecessary administrative costs for pension schemes. Pension fund trustees would find themselves in a difficult position, uncertain whether to equalise or not, and if so, how.

By introducing this unnecessary new regulation, the Government would undermine the potential benefits of its drive to cut red tape and unnecessary laws for pensions. Instead of focusing on GMP equalisation, the Government would be better devoting all its energies to reinvigorating workplace pensions and getting state pension reform right. The NAPF also signed a letter with members of the pensions industry arguing against the Government’s plans. The letter, which was sent to the Pensions Minister Steve Webb, argued that implementing equalisation for all private sector contracted out schemes would add about £13 billion to pension scheme liabilities, and could lead up to 300 million in implementation costs.