Her Majesty’s Revenue and Customs (HMRC) has published a first instalment of guidance on the tax issues arising from equalisation of pension rights for the discriminatory effects of guaranteed minimum pensions (‘GMP equalisation’). Equalisation-driven increases will not be treated as ‘accrual’, and so will not need to be tested for annual allowance purposes, or cause loss of lifetime allowance protections. Nevertheless, there are complications to be managed, and issues - most glaringly concerning GMP conversion - that are yet to be addressed.

Read our full sixty second summary where we explore:

• HMRC’s general approach
• Annual allowance
• Lifetime allowance, including protections and benefit crystallization events (BCEs)
• What's still awaited

Download the full summary here

HMRC's general position on GMP equalisation increases is sensible and reflects the legal view that members have been entitled to equalized benefits for service since 17 May 1990. It appears that there should be no adverse annual-allowance consequences or invalidation of lifetime allowance protections. However, the administrative demands of revisiting BCEs and ensuring that the correct tax has been paid should not be underestimated. Note that there is no suggestion of the possibility of members applying to be discharged of their lifetime allowance charge liabilities, where these arise or are increased.

You should also note that this newsletter deals only with cases in which a ‘year-on-year’ (‘dual-records’) approach to equalisation is taken. Many schemes are leaning instead toward using GMP conversion to resolve the issue. Her Majesty’s Revenue and Customs has yet to advise on the tax repercussions of that route.

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