Thank you Madam Deputy Speaker.
Today I welcome the Honourable Member for Rutherglen and Hamilton West’s Private Member’s Bill.
On 29th May 1970 The Equal Pay Act gained Royal Assent, and, with its passing, this House took an important and laudable step towards ensuring the equal treatment of both men and women in the workplace and our society more generally.
Since the Act’s passing and its later commencement in 1975, even greater strides – both de facto and de jure - have been taken towards gender equality but, as my colleagues across the House will know, much work remains to be done to this end.
We all have the responsibility as law makers to continuously strive towards it through pieces of legislation – substantial, modest, or otherwise – and this Bill can rightly be seen as a means to do this. Specifically, it will help right a historical oversight by making important clarifications in relation to pension schemes and Guaranteed Minimum Pensions (GMPs) Equalisation.
The historical oversight has its roots in the State Earnings Related Pension Scheme that was introduced in April 1978, as well as the Pension Schemes Act of 1993 which required GMPs to effectively be calculated on an unequal and unfair basis. It ultimately meant that the age at which GMPs could be calculated and rate at which benefits built up were different for both men and women.
It is far from clear which sex received the greater total benefit as a result of this discrepancy, primarily as related advantages fluctuate over time, but whether it is men or women who benefit such inequality cannot be considered just.
On 17th May 1990 the Court of Justice of the European Union ruled that occupational pensions were deferred pay and, as such, pension schemes here in the United Kingdom had to treat men and women equally – this ruling has become known as ‘the Barber Judgement’.
The judgement, which applies solely to rights built up from the ruling’s date, meant that where a scheme’s rule would result in a member of one sex being treated less favourably than one of the opposite sex, it must be read as though it does not.
Later, the Government of the time subsequently and rightly took the view that the Barber Judgement required schemes to equalise GMPs.
This, in turn, led to a consultation and proposal in 2012 about how equalisation should be achieved, and it is worth highlighting that the Government then stated it was “aware that a degree of uncertainty exists as to how schemes should amend their benefits in order to equalise where a GMP entitlement exists. It wants to offer as much help to pension schemes as is possible and is therefore putting forward one possible method of equalising pensions that schemes could choose to use.”
The Government’s newly proposed method flowing from the aforementioned consultation involved a key calculation for benefits accumulated from 17th May 1990 to 5th April 1997 to compare what a member would get under scheme rules and the relevant legislation if they were treated as being a person of the opposite sex.
This calculation was proposed to be made via related questions that scheme providers should consider, the first set of which included the following:
- What age do I [the scheme provider] need to start paying this member a pension under the rules that apply to them?
- What age would I [the scheme provider] need to start paying a pension to this member’s opposite sex notional comparator under the rules that would be applicable to them?
If it was deemed that the opposite sex notional comparator could be entitled to a pension earlier than applicable to the member under the rules, the pension due to the opposite sex notional comparator must be put into payment at that earlier age to ensure fairness.
The set of questions to be asked at each payment date thereafter would be as follows:
- What is the amount of the overall pension this member would be paid under the applicable rules (that is the unequalised calculation)?
- What is the amount of the overall pension the member would be paid under the applicable rules if they had been a member of the opposite sex (that is the opposite sex notional comparator calculation)? The the higher of the two should then be paid as the relevant member’s due entitlement.
Whilst, at face value, such proposals and methodology would have brought much needed clarity to the longstanding GMP issue ensuring equal treatment, the industry as a whole was concerned that the approach would be – to a too great extent – onerous to implement leading to the draft regulations being withdrawn in 2013 leaving the matter unresolved.
Following this withdrawal, and after an additional consultation, in 2016-17 a new, alternative methodology was proposed which I think is worth quoting verbatim here for the sake of clarity:
“The method put forward by the group is one which compares the value of the future expected cash flows for the member in the period that need to be adjusted for GMP inequalities (i.e., during the period from 17th May 1990 to 5th April 1997) with that for the opposite sex comparator, allowing for contingent benefits. If the opposite sex comparator has the greater discounted value of expected cash flow, then that greater value is delivered. (Schemes will have to consider whether it is appropriate to use the cash equivalent transfer value method, or whether another method would be more appropriate.”
The proposal continues, “in order to avoid having to then comply with the unequal requirements of the GMP legislation, the GMP is also converted into a benefit that is not subject to the requirements of the GMP legislation. Because of the benefits that simplification will provide, it is likely that all the GMP will be converted; not just that which accrued between 1990 and 1997. The pension that accrued alongside the GMP that is to be converted may also be put through the conversion process. All of this is achieved through the GMP conversion legislation set out in sections 24A to 24H of the Pension Schemes Act 1993.”
Compared to the 2012 consultation and methodology, the Dept. for Work and Pensions itself stated there was broad agreement this newer method was a distinct improvement and offered a relatively simple way to convert GMPs into ordinary scheme benefits, thus ensuring equality across the board and assisting the industry to deliver this without policies being excessively onerous on them.
Whilst this, of course, was a much welcome development on the issue ensuring greater equality of outcome, concerns have continued to be raised by the industry that existing legislation is unclear in some areas, and such concerns are worth exploring in slightly more detail.
Specifically, continued concerns include:
- That it remains unclear how conversion applies to survivor benefits, that is to mean the element of a GMP which can be inherited by the member’s widow, widower or surviving civil partner.
- That it fails to provide for circumstances in which the scheme’s sponsoring employer no longer exists and therefore cannot consent to a proposed conversion exercise as per the methodology.
- That it requires schemes to notify Her Majesty’s Revenue & Customs that they have carried out a conversion exercise, despite the fact that the introduction of the new State Pension means that HMRC does not need to be informed about changes to GMPs.
For the full benefits of the 2016-17 proposal and methodology to be secured in the relevant regulations, including the positive results it has for equality of outcome for the sexes, these concerns must be properly addressed in legislation and that is what this Pensions Schemes (Conversion of Guaranteed Minimum Bill) seeks to do.
It will, as I understand it, do the following:
- Clarify that the legislation applies to survivors as well as earners.
- Provide for a power to set out in regulations the conditions that must be met in relation to survivors’ benefits.
- Provide for a power to set out in regulations detail about who must consent to the GMP conversion.
- Remove the requirement to notify and inform HMRC.
This Bill has been welcomed by industry leaders such as at Lane Clark and Peacock as covering key areas where clarification is most needed and which will, in turn, make the important process of equalising benefits using GMP conversion easier.
With this positive impact on industry in mind and given the broader message it sends that the equality of the sexes is important in all legislative matters both significant and modest, I welcome this Bill which is worthy of support from across this House.