GMP Equalisation And Historic Transfer Payments

• Published date: 21 January 2021
• Subject Matter: Employment and HR, Retirement, Superannuation & Pensions, Employee Rights/ Labour Relations
• Law Firm: Wrigleys Solicitors
• Author: Mrs Kate Buckham

GMP equalisation - our pensions team look at the outcome of third Lloyds case on transfers and consider some of the practical issues for trustees.

On 20 November 2020, the High Court handed down its long awaited judgment in Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank plc [2020] EWCh 3135 (Ch) providing much needed clarity on a number of unresolved issues arising from its decisions in Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank plc [2018] EWHC 2839 (Ch) and [2018] EWHC 3343 (Ch).

A quick reminder - what are GMPs, why is there an issue and what did the earlier judgments say?

Guaranteed minimum pensions (GMPs) were introduced under the former contracting-out regime which permitted private pension schemes to take over the provision of some state pension benefits. GMPs accrued in accordance with overriding statutory requirements which were inherently discriminatory in so far as they provided for different retirement ages depending on whether the member was male or female.

The discriminatory effect of unequal retirement ages was considered in the 1990 case of Barber, where the European Court of Justice decided that the provision of unequal retirement ages constituted unlawful sex discrimination. However, the judgment did not apply to pension benefits provided by the state. This gave rise to considerable uncertainty regarding the treatment of GMPs, which are provided by private occupational pension schemes but are intended to replace state benefits and are calculated in accordance with legislation. Given this uncertainty, GMPs were excluded from the equalisation exercises of the 1990s.

The first Lloyds decision confirmed what many in the pensions industry had long suspected; there is a legal obligation on trustees to adjust benefits to take account of unequal GMPs (a process referred to as GMP equalisation). Whereas the decision in the first Lloyds case provided a detailed overview of the methods available to schemes to "equalise" benefits, a number of questions were left unanswered including the position relating to transfers of benefits to and from pension scheme.

What does the most recent Lloyds decision say?

The Court considered whether there was an obligation on trustees to top up historic transfer values paid from schemes where no adjustment had been made for unequal GMPs. In answering this question, the Court drew a distinction between the following types of transfer: (1) a statutory transfer pursuant to a member's...