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HMRC guidance on GMP equalisation and past transfers

HMRC guidance on GMP equalisation and past transfers

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Volume 2022 | Issue 08

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Nearly 18 months after the 3rd Court judgment in the Lloyds case, confirming the need for trustees to consider the impact of GMP equalisation on past transfers, HMRC has finally produced some guidance on the tax treatment of any corrective action on past transfer payments.


The guidance considers the tax treatment of making top-up transfer payments to receiving schemes and cases where a lump sum payment is made to the member, to their estate, or to a dependant. It also looks at specific annual allowance and lifetime allowance protection points.

Supplementary transfer payments

Where, as a result of GMP equalisation, it becomes clear that a previous transfer payment has been underpaid, a top-up transfer may be made. To qualify as an authorised payment, a supplementary transfer would need to meet the recognised transfer conditions at the point the supplementary transfer is made.

  • It needs to be a transfer of sums or assets held for the purpose of a registered pension scheme;
  • The payment must be made in connection with a member of the transferring scheme (who is neither an active or pensioner member of that scheme); and
  • The receiving scheme must be either another UK registered pension scheme or a qualifying recognised overseas pension scheme.

Lump sum payments

As an alternative to paying a further transfer, it may be possible to pay the member (or, following their death, their estate) a lump sum in respect of GMP equalisation. This is authorised provided the lump sum meets the necessary conditions at the point the payment is made.

Three possible lump sums are highlighted by HMRC:

Relevant accretion

An option since 2009, this allows trustees to make payments of up to £10,000, where a member has transferred out and a further entitlement has become available in the transferring scheme, that the trustees weren’t previously aware of.

Such a payment must be made within six months of the trustees establishing the member has an actual entitlement to the relevant accretion, which means when the trustees know the value of the lump sum payable, and the member has provided the necessary information for the payment to be made.

Further HMRC guidance on relevant accretion, detailing the payment conditions, can be found in the Pensions Tax Manual here.

Small lump sum payments

A one-off lump sum of up to £10,000 can be made to members (although it should be noted that a small lump sum cannot be paid within three years of the member transferring their benefits).

Further HMRC guidance on small lump sums, detailing the payment conditions, can be found here. These provisions apply to all occupational pension schemes, with separate conditions applicable to larger schemes, the conditions for which can be found here.

Winding-up lump sums

Finally, for schemes that are in the process of winding up, a specific lump sum of up to £18,000 may be paid, provided it meets the necessary conditions, which can be found here.

For any of the lump sums listed above, tax is due on 75% of the payments, with 25% being tax free if the payment is made to the relevant member or their estate. Payments made to another individual after a member’s death will be fully taxable. Tax is due in the tax year the lump sum is paid, and PAYE should be operated on the lump sum.

Annual allowance

HMRC has previously confirmed its view of the annual allowance implications of making benefit adjustments for GMP equalisation. No further implications should arise as a result of adjusting the benefits of members who have previously transferred out.


Certain members may have previously transferred their benefits with a protected normal minimum pension age, or with a protected tax-free cash sum from pre-6 April 2006 accrual. To maintain these protections, the member must have transferred as part of a block transfer, where all the benefits of at least two members are transferred in a single transaction.

The original transfer will not cease being a block transfer simply because, after that transfer is made, a further benefit entitlement is later identified as a result of GMP equalisation and settled as a recognised transfer or authorised lump sum payment.

However, paying an additional transfer in respect of a member could result in a loss of fixed or enhanced protection if the additional transfer is not a “permitted transfer”.

Buck comment

HMRC appears to have followed the same pragmatic line as its previous GMP equalisation guidance, recognising that members and trustees are not responsible for any adverse effects of GMP equalisation, and so is looking to minimise the tax consequences where possible.

Trustees should note that while lump sum payments may be more preferable to members than a supplementary transfer payment, particularly in cases where a protected pension age or A-day tax-free cash protection applies, legal advice should be considered to ensure that a lump sum payment is permissible under the rules of the scheme in question and doesn’t have any unintended consequences.