The Government is today publishing its response to the consultation titled ‘Public Service Pensions: Guaranteed Minimum Pension (GMP) indexation consultation’. The consultation, which took place between 7 October and 30 December 2020, considered how the Government will continue to meet past commitments to public service pension members regarding the full indexation of public service pensions, including any GMP element related to membership of a public service pension scheme, beyond 5 April 2021. It considered options to extend the current GMP indexation methodology to 5 April 2024 or to a later date before reconsidering alternative methodologies, namely conversion, or to make the current methodology the permanent solution. The consultation made clear that the Government remains fully committed to the price protection of GMPs for members of public service pension schemes under any solution adopted.
As proposed by the majority of respondents to the consultation, the Government has decided to discount conversion as a long-term policy solution and make full GMP indexation the permanent solution for public service pension schemes. Public service pension schemes will therefore provide full indexation to those public servants with a GMP reaching State Pension age beyond 5 April 2021.
The Government is of the view that this is the most practical solution to GMP indexation. This is because before conversion could be undertaken, schemes would need to ensure that they have accurate reconciled data, along with a finalised methodology to convert those GMP benefits where conversion on a £1:£1 basis would not result in equalisation. This is likely to be resource intensive at a time when public service pension schemes do not have the capacity to undertake conversion until 2024 at the earliest. There also remains a chance that conversion might not be deliverable by then. Furthermore, the benefits of conversion diminish over time as the number of members with a GMP is steadily reducing. It is for these reasons that the Government has decided to make full GMP indexation the permanent solution for public service pension schemes.
The consultation set out the benefits of undertaking conversion, which include a reduction in administrative complexity in the long term regarding those public servants yet to reach State Pension age. In addition, some respondents also highlighted additional benefits of undertaking conversion, some of which were highlighted in the Government’s response to the previous GMP indexation and equalisation consultation in 2016 / 17. However, notwithstanding these arguments, the Government does not consider these benefits to outweigh the benefits of making full indexation the permanent solution.
Public service pension schemes will now provide full indexation to those public servants with a GMP reaching State Pension age from 6 April 2021. The Government’s response to the consultation, has been published online on gov.uk and can be found here: https://www.gov.uk/government/consultations/public-service-pensions-guaranteed-minimum-pension-indexation-consultation
This statement has also been made in the House of Lords