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contracted-out, but does not mention GMPs at all. It says that if the employer pays the cost of
providing increases, pensions will be increased in line with the retail prices index; but it does
not differentiate GMPs from excess over GMP.
What has happened in practice
I gather from Mercer that, in practice, all pre-1997 pension has been increased in line with
the retail prices index with no cap, and GMP increases have not been differentiated. Bill
Bowman's benefit summaries since 2009 (at the latest) have been drafted on the basis that
that is what the scheme pays.
That is the basis on which the Scheme’s liabilities have been assessed for the purpose of
previous valuations, and the valuation which has just been completed. As a consequence:
1.
If you were to conclude that the 1988 amendment was intended to reduce the increases
attaching to GMPs, the Scheme has overpaid increases in the past, and has been funded
for the future with an allowance for pension increases which are not in fact due. In
other words, there is a small unrecognised surplus (or a smaller deficit).
2.
If you were to conclude that the 1988 amendment was not intended to reduce pension
increases, then the Scheme has paid increases at the correct rate and the valuations have
neither under- nor over-estimated the Scheme’s liabilities.
Steps that need to be taken
Unless there is some evidence that the 1988 amendment was intended to reduce pension
increases, I think you should assume that it was not and that the practice of the Scheme
actuary in previous years is consistent with what the trustees and the employer intended in
1988. Previous members’ booklets might provide evidence to the contrary, but I should be
surprised if it is possible to locate a copy of any edition going back to 1988 (or the early
1990s).
You should outline the issue to the two employers to find out whether they are content to take
the same view as you.
In any event, the current booklet should be updated to reflect the way in which pensions are
increased, also taking into account the abolition of contracting out in April 2016. I attach an
amended version. This draft assumes that the whole pension will be increased in line with the
original rules and the amendments that were made in 2015 (see Section 11); but GMP
increases are not differentiated from the increases made to the excess over GMP.