Case Study: GMP Equalisation and a Defined Benefit Pension Transfer (When History Complicates Your Options, 2026)

GMP equalisation can increase the pension of someone who built up contracted-out benefits between 1990 and 1997, and it can change their transfer value. But a higher figure does not, by itself, make a transfer more suitable. In this illustrative example, the equalised pension was already reflected in the CETV, and the likely outcome of regulated advice was to keep the defined benefit pension.

Quick summary

• Illustrative example: "Robert", 61, a former manufacturing plant supervisor
• Scenario: A deferred DB pension with a significant Guaranteed Minimum Pension (GMP) element, where GMP equalisation complicates the transfer question
• DB CETV: £218,000 (£10,400 a year from age 65 before equalisation)
• Other assets: SIPP £67,000, ISA £28,000, State Pension forecast £9,800 a year from 67
• Likely outcome of regulated advice: keep the DB pension. The equalisation uplift and the guaranteed, inflation-linked benefits are likely to outweigh the value of extra flexibility.

Imagine Robert. He has a question that puzzles many people who worked in occupational pension schemes before 1997: "What does GMP equalisation mean for my pension transfer value, and does it change whether I should transfer?"

It's a question that sits where four decades of pension legislation, a landmark court ruling and a very personal decision about retirement income all meet. This illustrative example walks through the points a regulated adviser with the pension transfer permission would typically work through for someone in Robert's position.

---

Robert's background

Robert, 61, worked for a large manufacturing company in the West Midlands for 22 years between 1985 and 2007, before moving to a smaller employer with a defined contribution (DC) scheme. He took early redundancy from that role in 2024 and has been working part-time as a consultant since.

His pension picture looks like this:

• Deferred DB pension (former employer scheme): £10,400 a year payable from age 65, his normal retirement date. The scheme was contracted out of SERPS between 1985 and 1997, so it includes a significant Guaranteed Minimum Pension (GMP) element.
• SIPP: £67,000 built up from DC contributions with later employers.
• ISA: £28,000 in a stocks and shares ISA.
• State Pension: forecast at £9,800 a year from 67. That is below the full new State Pension, which is £241.30 a week (about £12,548 a year) in 2026/27, because a contracted-out deduction applies to his record. You can check your own forecast on gov.uk.
• Cash Equivalent Transfer Value (CETV): £218,000.
• Spouse: his wife "Sandra", 59, a teacher with Teachers' Pension Scheme (TPS) benefits.

Key point: Robert's scheme was contracted out of SERPS (the State Earnings-Related Pension Scheme) between 1985 and 1997. During that time the scheme had to provide a Guaranteed Minimum Pension, broadly equivalent to the SERPS pension members would otherwise have built up. This GMP element creates specific complications when anyone considers a transfer. Our guide to the guaranteed minimum pension explains it in more detail.

What is GMP equalisation, and why does it matter?

The Guaranteed Minimum Pension was introduced to let employers "contract out" of SERPS. In exchange for lower National Insurance contributions, the pension scheme promised to pay a minimum pension that replaced the SERPS benefits members would not build up during contracted-out service.

There was a historic inequality, though. Men and women had different GMP accrual rates and different GMP payment ages (60 for women and 65 for men). This reflected the different State Pension ages of the time, but it meant that, for the same service, men and women could receive materially different benefits from the same scheme.

In October 2018, the High Court ruled in Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc that schemes must equalise benefits for the effect of unequal GMPs. In broad terms, this applies to benefits built up between 17 May 1990 and 5 April 1997. A further judgment in November 2020 confirmed that trustees also need to revisit some past transfer values that were calculated without equalisation. Our article on the GMP equalisation ruling covers the background.

Important: GMP equalisation is a legal requirement, not an option. Schemes must apply it to all affected members, whether they are active, deferred or already receiving their pension. For many schemes the work of calculating and applying equalisation has been complex and drawn out, and not every scheme has finished it.

For Robert, this matters in two practical ways:

1. His pension may increase. If his scheme has not yet completed GMP equalisation, his deferred pension of £10,400 a year might be understated. The uplift for a man with Robert's service history (22 years, including 12 contracted-out years between 1985 and 1997) could be meaningful, depending on the method the scheme uses.
2. His CETV may not reflect the equalised amount. If the transfer value was calculated before equalisation was applied, the £218,000 figure could understate the value of his benefits.

How a regulated adviser would analyse the transfer

Once the GMP position is understood, an adviser with the pension transfer permission would carry out the analysis the FCA requires for defined benefit transfer advice. Since 2018 this has been called an appropriate pension transfer analysis (APTA), and it includes a transfer value comparator (TVC) and cash-flow modelling based on the person's own circumstances. Advice is legally required before anyone can transfer safeguarded benefits worth more than £30,000.

The growth rate needed to match the DB pension

Many advisers also look at the investment return the transferred money would need to earn, after charges, to provide benefits equal to those given up. This is sometimes called the critical yield or required rate of return. In this example the assumptions are:

• Inflation: 2.5% a year, in line with the scheme's revaluation and increases.
• Retirement age: 65, Robert's normal retirement date.
• Life expectancy: 87 for Robert and 90 for Sandra, based on average figures, as Robert is in good health.
• Spouse's benefit: a 50% spouse's pension for Sandra if Robert dies first.

On these example assumptions, the required return comes out at 6.8% a year.

Key point: A return of 6.8% a year, every year, after charges, would need a portfolio taking significant investment risk, and there is no guarantee it would be achieved. The DB scheme provides the same income without Robert taking any investment risk at all.

Transfer value comparator

The TVC estimates what it would cost to buy the same benefits with an annuity on the open market. In this example, an inflation-linked annuity paying about £10,400 a year with a 50% spouse's pension is estimated to cost in the region of £290,000 to £320,000 for someone of Robert's age and profile.

That means the CETV of £218,000 is roughly 68p to 75p in the pound of the cost of replacing the income. Put simply, investment growth would need to make up a gap of £72,000 to £102,000 just to match the guaranteed income, before allowing for the uncertainty of how long Robert lives. These figures are illustrative only. Annuity prices move with interest rates and vary from person to person.

Checking the GMP equalisation position

The adviser would ask the scheme trustees to confirm Robert's equalisation status. In this example, the scheme administrator confirms that:

• The scheme has equalised using GMP conversion, one of the approaches the court accepted, which turns GMP rights into ordinary scheme benefits of equivalent actuarial value.
• Equalisation was applied to all deferred members in 2023.
• Robert's pension after equalisation is £10,940 a year, an increase of £540 a year (5.2%).
• The CETV of £218,000 already reflects the equalised pension, because it was recalculated after the exercise.

This is helpful for clarity: Robert's CETV is accurate and he is not being offered a historically understated figure. But even with the uplift included, the required return is still 6.8% a year and the gap against the cost of replacing the income is still significant.

Robert's financial summary

Item	Value / amount
DB pension (age 65, after equalisation)	£10,940 a year
CETV offered	£218,000
Estimated open-market annuity cost for the same income	about £290,000 to £320,000
CETV as a share of replacement cost	about 68% to 75%
Required return (example assumptions)	6.8% a year
SIPP value	£67,000
ISA value	£28,000
State Pension (from 67)	£9,800 a year (forecast)
Sandra's TPS income (from 60)	about £8,500 a year (estimate)

The flexibility argument, and why it may not outweigh the numbers

Robert's main reason for thinking about a transfer is flexibility. He has two specific concerns.

Concern 1: what happens if he dies

Robert worries that if he dies before 65, his 22 years of pension saving will be "lost", with only a modest lump sum and spouse's pension passing to Sandra. In a SIPP, the whole pot could be passed on to Sandra and, eventually, their two adult children.

A regulated adviser would set out what Robert's scheme actually provides:

• If Robert dies before 65, the scheme pays Sandra a 50% spouse's pension of £5,470 a year, increasing with inflation, for life.
• Many schemes also pay a lump sum on death before retirement. The amount depends on the scheme rules, so Robert would need to check his scheme booklet or ask the administrator.
• From 6 April 2027, unused pension funds and most pension death benefits are due to come into the scope of inheritance tax. That weakens one of the arguments often made for moving DB benefits into a SIPP, namely that an untouched pot could pass on outside the estate. Our article on the 2027 pension IHT changes explains the background.

Important: the 2027 IHT changes. The government has legislated to bring most unused pension funds and death benefits into inheritance tax from April 2027. Exactly how much tax, if any, would be due depends on the size of the whole estate, who inherits and the final rules, so anyone weighing this up should check the latest position on gov.uk and take advice. The point for Robert is simply that the death-benefit case for a transfer is weaker than it used to be.

Concern 2: early access and drawdown

Robert is working part-time and would like to draw some income before 65. He has heard that the normal minimum pension age is rising from 55 to 57 on 6 April 2028. At 61 that change does not affect him, as he is already over 57, but it is worth knowing for anyone younger.

A regulated adviser would also point out that:

• Robert's DB scheme allows a reduced early retirement pension from age 62. In this example the reduction is about 4% for each year before 65, so taking the pension at 62 would give roughly £9,150 a year rather than £10,940 at 65, a reduction of about 16%.
• His SIPP (£67,000) and ISA (£28,000) can already be drawn flexibly without touching the DB pension. Together they could provide a meaningful income bridge from 61 to 65 or beyond.
• The case for transferring the DB pension specifically to gain flexibility is weaker once it's clear that Robert already has flexible money to draw on.

A possible income plan: keep the DB pension, use the flexible assets first

Rather than transferring, an adviser might model an income plan that uses Robert's flexible assets first, then layers the guaranteed incomes on top. Here is how that could look in this example.

Phase 1 (ages 61 to 64): bridge with flexible assets

• Draw about £12,000 a year from a mix of ISA withdrawals and SIPP drawdown.
• This lets Robert keep working part-time without drawing the DB pension early.
• ISA withdrawals are tax-free and don't use up his personal allowance.
• SIPP withdrawals could be planned to stay within the £12,570 personal allowance, alongside his other income, to keep tax low.

Phase 2 (age 65): the DB pension starts

• DB pension: £10,940 a year, increasing with inflation under the scheme rules.
• SIPP drawdown continues: flexible amounts on top.
• Total income before State Pension: about £16,000 to £19,000 a year, depending on drawdown.
• Sandra's TPS pension (estimated at £8,500 a year) is also in payment by now. Her normal pension age depends on when she joined the scheme.

Phase 3 (age 67 onwards): State Pensions start

• Robert's State Pension: about £9,800 a year (forecast).
• Sandra's State Pension: she expects the full new State Pension, about £12,548 a year at 2026/27 rates.
• Household pension income from 67: DB (£10,940) + Robert's State Pension (£9,800) + Sandra's TPS (about £8,500) + Sandra's State Pension (about £12,548) = roughly £41,800 a year, before any SIPP drawdown and before future increases.
• The remaining SIPP (perhaps £40,000 to £50,000 by then, depending on how much has been drawn) stays as a flexible reserve.

Key point: Keeping Robert's DB pension gives the household roughly £41,800 a year of secure income from 67, before any SIPP drawdown. To replace that, a transferred fund of £218,000 would need to earn around 6.8% a year for 25 years or more. When both people in a household have DB pensions and State Pensions, that guaranteed base is very valuable.

The State Pension and the contracted-out deduction

One point is worth highlighting for anyone in Robert's position. Because his scheme was contracted out of SERPS between 1985 and 1997, a contracted-out deduction was applied when his new State Pension was worked out.

When the new State Pension started in April 2016, each person's "starting amount" was calculated under both the old and new rules, and the higher figure was used. The contracted-out deduction reduces that starting amount, which is why Robert's forecast is £9,800 a year rather than the full rate.

Qualifying years added after April 2016 can increase a starting amount that is below the full rate, up to the full new State Pension. Robert is still working part-time, so further years may add to his forecast. Whether paying voluntary National Insurance contributions would help depends on each person's record, so the sensible step is to get a forecast and, if there are gaps, contact the Future Pension Centre. MoneyHelper explains how this works.

GMP equalisation: what deferred members can ask their scheme

Robert's situation highlights the questions any deferred DB member with pre-1997 contracted-out service could ask their scheme trustees or administrator:

1. Has GMP equalisation been completed for my benefits? Some schemes are still working through it. If it isn't finished, your pension may be understated.
2. Which equalisation method has the scheme used? The court accepted several methods, including comparing male and female benefits year by year and converting GMPs into ordinary scheme benefits. The method affects when and how any uplift applies.
3. Does my CETV reflect the equalised pension? If equalisation has been done but transfer values have not been updated, your CETV may be based on a lower pension than you are entitled to. Ask for confirmation before relying on a figure.
4. How is my GMP revalued until it is paid? GMPs for people who have left service are increased either at a fixed rate set by legislation, which depends on when you left, or in line with national average earnings. This affects the GMP's value at retirement.
5. When is my GMP payable, and how will it be paid after equalisation? GMP was payable from 65 for men and 60 for women. After equalisation, the scheme's arrangements for paying it may have changed.

Likely outcome of regulated advice

In a case like Robert's, the likely outcome of regulated advice would be clear: keep the defined benefit pension.

The main reasons an adviser would typically weigh up:

• A required return of 6.8% a year is high and would need significant investment risk.
• The CETV is only about 68p to 75p in the pound of the cost of replacing the income on the open market.
• GMP equalisation has been completed and the CETV already reflects the uplift, so there is no "hidden value" to unlock by transferring.
• Robert and Sandra together have two DB pensions, two State Pensions and existing DC and ISA savings, so the household already has a strong base of secure income.
• The 2027 inheritance tax changes weaken the death-benefit argument for moving to a SIPP.
• Early access can be achieved with the SIPP and ISA without touching the DB pension.

An adviser might also suggest some practical steps within Robert's existing arrangements:

• Look at older personal pensions. In this example, Robert has two small legacy pensions (£19,000 and £11,000) with annual charges of 1.4% and 1.2%. An adviser might look at whether combining them with his main SIPP would cut costs, after checking for exit charges or valuable guarantees.
• Review how the SIPP is invested. With four years before the DB pension starts, and the DB pension providing a secure base, the investment approach should match when and how Robert plans to draw the money.
• Update the expression of wishes. Robert has not reviewed his DB scheme nomination for over a decade, so updating it to reflect his current wishes would make sense.
• Ask for early retirement factors. Having the scheme's reduction factors for retiring at 62 rather than 65 means Robert has the numbers if his circumstances change.

Seven lessons from Robert's example

1. GMP equalisation may still be under way, so check your status. If you were in a contracted-out scheme before 1997, ask your trustees whether equalisation has been completed and reflected in your CETV. Don't assume.
2. A higher CETV doesn't automatically mean a stronger case for transferring. Robert's CETV had been increased by equalisation, but the required return still made a transfer unattractive. What matters is how the CETV compares with the guaranteed benefits you would give up.
3. Contracted-out service affects your State Pension. It's worth understanding the contracted-out deduction, and checking whether later qualifying years can still increase your forecast, when planning total retirement income.
4. Two DB pensions in a household changes the picture. When both partners have guaranteed income from DB schemes and the State Pension, the arguments for transferring one DB pension for flexibility are much weaker.
5. Flexible savings reduce the need to transfer. If you already have SIPPs and ISAs that can provide income early, you may not need to transfer a DB pension to get flexibility. Using flexible assets first and keeping the guaranteed income is a common approach.
6. The 2027 IHT changes reshape the death-benefit argument. Unused pension funds are due to come into inheritance tax from April 2027. If your reason for considering a transfer is to leave a pot to your children, that argument is weaker than it was. Specialist estate planning advice can help.
7. Expressions of wish are easy to forget but important. Keeping them up to date on every pension helps trustees follow your wishes when they pay death benefits. Review them every few years or after a major life change.

Getting regulated advice and help

GMP equalisation adds a layer of technical complexity to any defined benefit transfer analysis. Getting the numbers right, and knowing whether your CETV reflects your full entitlement, needs knowledge of pension law and of the actuarial methods schemes use.

The FCA's starting assumption is that a transfer is unlikely to be suitable for most people. If your safeguarded benefits are worth more than £30,000, the law requires you to take advice from an FCA-authorised adviser with the pension transfer permission before you can transfer. Transferring a pension that provides guaranteed benefits a SIPP would struggle to match can be very costly, and the decision is usually irreversible.

Free, impartial guidance is available from MoneyHelper, and if you're 50 or over you can book a Pension Wise appointment about your DC pensions. Be wary of anyone who contacts you out of the blue about your pension, and check the FCA's ScamSmart pages first.

I don't give pension transfer advice. If it would help, you can book a free, no-obligation chat about how DB transfers and the advice process work. It's general information, not advice. If you then want regulated advice, I can introduce you to an FCA-authorised firm that holds the pension transfer permission. Arthur Browns may receive a fee from the firm we introduce you to if you become their client. Introductions are for UK residents with a transfer value of £50,000 or more. Below that, MoneyHelper is a good place to start.

Frequently asked questions

What is GMP equalisation and how does it affect my pension transfer value?

GMP equalisation is a legal requirement that followed the 2018 Lloyds High Court ruling. Schemes must correct the effect of unequal male and female GMPs on benefits built up between May 1990 and April 1997. For deferred members, this can increase the pension, and the CETV should reflect the equalised pension. If your scheme has not yet completed equalisation, your CETV may be understated, so it's worth confirming the position with your trustees before relying on a figure.

Can I transfer my DB pension if it includes a GMP?

In many cases, yes. The receiving arrangement must be able to accept the benefits, and some schemes convert GMPs into ordinary benefits as part of the process. The scheme administrators deal with the technical side. The more important question is whether a transfer is suitable at all, because GMP benefits are guaranteed and partly inflation-linked, which is often hard to replicate through investment. If your safeguarded benefits are worth more than £30,000, you must take regulated advice from an adviser with the pension transfer permission first.

Does the contracted-out deduction reduce my State Pension permanently?

The contracted-out deduction reduces the starting amount used to work out your new State Pension, because your employer's scheme rather than the State was providing part of your pension during those years. Qualifying years built up after April 2016 can increase a starting amount that is below the full rate, up to the full new State Pension. Whether extra years or voluntary contributions would help depends on your record, so get a forecast on gov.uk.

What questions should I ask my pension scheme about GMP equalisation?

Useful questions include: has GMP equalisation been completed for my benefits? Which method has the scheme used? Has my CETV been recalculated to reflect the equalised pension? How is my GMP revalued until it is paid? And when and how will my GMP be paid under the scheme's arrangements after equalisation? Clear answers to these will help before you make any decision about your pension.

How do the 2027 pension IHT changes affect the case for a DB transfer?

Unused pension funds and most pension death benefits are due to come into the scope of inheritance tax from 6 April 2027. Previously, unused funds in a SIPP could usually pass on outside the estate, which was sometimes given as a reason to transfer a DB pension. Under the new rules that advantage is much smaller. Any regulated advice on a transfer from now on would need to take the changes into account, based on the final legislation.

---

This is an illustrative example. Robert and Sandra are hypothetical, and all figures are examples only, based on assumptions that may not apply to you. Nothing in this article is advice or a recommendation to transfer or keep any pension. Please read our important information.