Our full response
Consultation on indexation and equalisation of GMP in public service pension schemes
08 Feb 2017 - Estimated reading time: 10 minutes
None of the solutions for equalising and indexing GMPs proposed by the Government in this consultation are without drawbacks.
The case-by-case approach fails to fully deliver on the long standing promise of full indexation of GMP and introduces considerable and unwanted further complication into public service pension schemes.
Full indexation of GMPs and converting GMPs into main scheme benefits on a 1:1 basis are more straightforward to administer and the conversion option in particular is desirable as it, once and for all, draws a line under the issue.
Of course, the main argument against full indexation or 1:1 conversion is the additional cost. Our rough figures suggest that for the whole of the LGPS the estimated long-term cost of full pension increases based on current inflation expectations could be as high as £2.5bn, but in higher inflationary environments (say 5% pa) that could increase to around £9bn. We would argue, therefore, that if either of these options is the Government’s favoured one there should be some additional funding made available to LGPS funds to offset the extra liability.