HMRC published a draft Guaranteed Minimum Pensions (GMP) conversion order for technical consultation on 8 June 2026. In this article we outline what you need to know.
Published: 9 July 2026
Authors: Rhiannon Barnsley-Bloomfield
What is the background?
GMPs are the minimum pensions that schemes are legally required to pay if a scheme chose to contract out of the Additional State Pension between 6 April 1978 and 5 April 1997. The GMP is usually the same as, or more than, the Additional State Pension a member would have received if the scheme had not been contracted out. However, GMPs were historically inherently unequal between men and women due to different payment ages and different accrual rates.
A High Court case in 2018 confirmed that schemes must equalise benefits to correct for the inequality caused by GMPs. The case outlined multiple methods that schemes could choose to address the inequality through a process known as “GMP equalisation” and one of those methods is to convert the GMP into a different scheme benefit. This may be desirable for some trustees as it removes the administrative difficulties associated with GMPs, although it does require employer consent.
What are some of the issues with GMP conversion?
Where trustees use the DWP’s statutory GMP conversion process, it can cause potential tax consequences for deferred members as it can cause them to lose the “deferred member carve out” (DMCO), which means they may become liable for an annual allowance charge. This is a tax charge for exceeding the annual amount that can be saved into a pension scheme while benefitting from tax relief. If the annual allowance is exceeded, tax is payable on all contributions above the annual allowance at the member’s highest marginal tax rate.
The DMCO is a provision in tax law which means the “pension input amount” for annual allowance purposes is set to zero in a tax year for deferred members provided certain conditions are met. As the GMP conversion process can increase the value of pension benefits (and therefore the pension input amount) for annual allowance purposes, if the DMCO protection is lost, a deferred member’s total pension benefits may exceed the annual allowance therefore triggering a tax charge.
It is also currently unclear how GMP conversion legislation applies to survivor benefits, namely the element of a GMP which can be inherited by a member’s widow, widower or surviving civil partner. It is possible that applying the current legislation can result in a more generous survivor pension post-conversion than the one that existed pre-conversion.
What does the draft order cover?
The draft order amends the Finance Act 2004 to ensure that any tax protections that members hold are retained after GMP conversion, regardless of the method used. This is intended to ensure members do not face a worse tax outcome because of the method chosen to equalise their benefits for the effect of GMPs. This is achieved by changing how pension input amounts are calculated for annual allowance charge purposes where a GMP conversion process has occurred. Under the legislation, any increase attributable to the GMP conversion will be disregarded when calculating pension input amounts.
What is not covered?
The 2022 GMP conversion legislation provided for a power to set out in regulations the conditions that must be met by a scheme that has undergone a GMP conversion process in relation to survivor’s benefits. This would address the current uncertainty, but the regulations are still awaited and are not addressed by the draft order.
What is next?
The consultation on the draft order closes at 11:59pm on 13 July 2026. If the legislation takes effect, it will take effect from the start of the 2027/28 tax year. As for the regulations addressing the survivor benefit issues, it is not clear when those will be published.
Key takeaways
Trustees considering using GMP conversion in their scheme may want to consider awaiting the conclusion of the consultation and implementation of the secondary legislation to avoid any potential unwanted tax consequences for deferred members.