Equalisation of guaranteed minimum pensions (GMPs)
Produced in partnership with Elizabeth Ovey of Radcliffe Chambers
Equalisation of guaranteed minimum pensions (GMPs)

The following Pensions guidance note Produced in partnership with Elizabeth Ovey of Radcliffe Chambers provides comprehensive and up to date legal information covering:

  • Equalisation of guaranteed minimum pensions (GMPs)
  • What are guaranteed minimum pensions?
  • The intrinsic inequality of GMPs and Barber
  • Position taken by the government
  • Legal ruling confirming position on GMP equalisation—the Lloyds case
  • Dealing with the arguments against GMP equalisation
  • Case law developments before the Lloyds case
  • Legislative problems surrounding GMP equalisation
  • The methods of GMP equalisation
  • Government's first attempt at a proposed methodology
  • more

What are guaranteed minimum pensions?

Guaranteed minimum pensions (GMPs) arrived on the pension scene on 6 April 1978, at the same time as the State Earnings-Related Pension (SERPS) was introduced. The relevant legislation (then the Social Security Act 1975 and the Social Security Pensions Act 1975) provided that an employee’s employment could be contracted out of SERPS if certain conditions were satisfied. The conditions were in essence that the employee was a member of a pension scheme which would provide a pension of a guaranteed minimum amount. That guaranteed minimum pension was of course intended to be equal to the pension the employee would have received under SERPS. It was expected that in general the pension payable under the relevant scheme would be higher than the GMP.

The attraction of contracting-out was that since the state would not be obliged to pay SERPS in addition to the member’s basic state pension (unless in any particular case the GMP was less than the SERPS entitlement would have been), a reduced level of national insurance contributions was payable in relation to employees who were members of a contracted-out scheme.

Employees ceased to accrue further benefits by way of GMPs with effect from 6 April 1997. Thereafter, salary-related schemes could be contracted out if they satisfied a ’reference scheme’ test, ie if the pensions