The Society of Pension Professionals has urged HMRC to amend draft legislation designed to protect pension savers from unintended annual allowance tax charges following Guaranteed Minimum Pension conversion.
This conversion is a legal process that allows a defined benefit pension scheme to replace a member’s GMP with a defined contribution scheme pension of equal actuarial value.
HMRC has proposed technical tax changes designed to ensure that members are not unfairly affected by the pension tax rules. This includes protecting the deferred member carve out, a provision in the tax rules that prevents deferred members of DB schemes from inadvertently using up their annual allowance because their preserved pension is revalued while they are no longer building up benefits.
While supporting the policy intent behind the draft legislation, the SPP warns that the definition of GMP conversion is too narrow and would exclude most real-world GMP conversion exercises from the proposed deferred member carve-out.
The SPP is recommending a broader definition that captures all amendments made under section 24G of the Pension Schemes Act 1993.
The SPP also recommends that HMRC updates the explanatory notes to reflect how GMP conversion operates in practice and that they should publish practical guidance with worked examples to help schemes apply the new rules consistently.
SPP Council member Faye Jarvis says: “We welcome the Government’s intention to ensure members are not disadvantaged by annual allowance rules following GMP conversion.
“However, as drafted, the legislation is unlikely to achieve that aim for most GMP conversion exercises. A small change to the definition would make the legislation work as intended while providing greater certainty for schemes and members – a genuine win-win solution.”
GMP equalisation is helping deliver fairer pensions but more needs to be done to address the gender pensions gap, claims Mark Williams, principal and head of GMP equalisation at Gallagher.