Court confirms GMPs must be equalised: the landmark Lloyds bank case

The court has held that the trustees of three schemes are under a duty to amend them in order to equalise benefits for men and women in relation to the Barber window period.

02 November 2018

This is a major case for the members of the schemes involved and for the pensions industry generally because of the number of schemes that were contracted out. 

The UK government has an interest too. It was represented in court to help inform the arguments and be informed by them should it consider that it needs to take policy action.

Possible appeal

Lloyds could apply to appeal the decision to the Court of Appeal in the hope of overturning it.

On the other hand, a spokesperson for Lloyds has been quoted as saying that the case focused on a complex and longstanding industry-wide issue. The group welcomed the clarity the court had provided and would be working through the details with the trustee in order to implement the court’s decision.

This could be a sign that Lloyds will not seek to appeal.

Method of equalising

The court considered various methods for equalising benefits and the broad cost of each for the Lloyds schemes. 

The main methods were: 

  • Method A: equalise each unequal aspect separately (e.g. revaluation and indexation) – cost £300 million.
  • Method B: provide the better of female and male comparator pensions each year – £135 million.
  • Method C: provide the better of female and male comparator pensions each year subject to accumulated offsetting – £100 million.
  • Method D: complete one-off actuarial equivalence – variable but could be £100 million.

The court also considered variants of the four methods e.g. C1 and D2.

The court’s decision was that a number of methods could achieve equality. In those circumstances, the principle of minimum interference meant the trustee should choose the method that resulted in the minimum interference with the rights of any of the parties. This was method C2.

In practice, the cost of equalisation will need to be considered separately for each scheme that undertakes an equalisation exercise.

Among outstanding legal issues now are:

  • what should be done in relation to benefits transferred into or out of an affected scheme? For transfers- in the parties appear to have agreed that the obligation to equalise applies. But the court did not make a finding on whether the same applies where benefits have been transferred out.
  • the court gave no guidance about dealing with de minimis benefits (that are likely to cost more to calculate and administer than the member receives)
  • nor how to deal with cases of untraceable or deceased beneficiaries?

On the issue of the period for which arrears of pension can be claimed, the judge found that this could vary depending on the rules of each scheme.

Trustees’ point of view

Members may be encouraged by news of a headline equality case being decided in their favour. But even for Lloyds members it is likely to be a considerable time before they know the impact on their pension rights.

Trustees who receive requests to make payments e.g. transfers out or on trivial commutation should consider taking advice before responding.

Scheme sponsors

Sponsors could take stock of how much they know about the best and worst case outcomes for their scheme and consider whether any further preparation is worthwhile at this stage.

Key contact

Richard Knight

Richard Knight Partner

  • Head of Pensions
  • Pensions Services
  • Pensions Legal Advice

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