GMP Equalisation - What Is The Problem With GMPs?

• Published date: 10 September 2020
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Retirement, Superannuation & Pensions, Trials & Appeals & Compensation
• Law Firm: Gowling WLG
• Author: Mr Jason Coates and Christopher Stiles

On 26 October 2018, the High Court handed down an important judgment on equalisation of guaranteed minimum pensions (GMPs) in Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank plc and others [2018] EWHC 2839 (Ch) (28 October 2018) (Lloyds).

Since the judgment was handed down, trustees and employers of occupational pension schemes, and their advisers, have had to face the question of how to implement the equalisation of GMPs in practice.

This Insight is the first in our updated series of Insights on GMP equalisation. You can navigate between these Insights using the links below.

1. GMP equalisation - what is the problem with GMPs? This Insight will provide an explanation of what GMPs are, how they work in practice and why they are unequal.
2. What did the Lloyds case say? What did the judgment say about the legal requirement to equalise GMPs and how to do this in practice?
3. What have the DWP and HMRC provided in terms of guidance? Both the DWP and HMRC have produced guidance on GMPs. This Insight provides the key details and assesses what they mean for occupational pension schemes.
4. What should pension schemes be doing now on GMP equalisation? GMP equalisation is a daunting prospect for many. It doesn't need to be, with the full attention of trustees and employers, the right advisers in place and a project plan, each element can broken down.

This insight explains the equalisation problems that are inherent with GMPs. It will be useful for those who are new to this subject or for anyone wanting a refresher on this complicated topic.

Key points on what GMPs are and why they are unequal

Employers were able to 'contract out' in respect of the additional state pension

On 6 April 1978, the government introduced a second tier of state pension provision in addition to the basic state pension. This additional state pension was called the State Earnings Related Pension Scheme (SERPS). It was possible to 'contract out' of the benefits provided by SERPS. The ways to do this have changed from time to time, but for present purposes, we are concerned with the option that existed from 1978 to 1997 for employers to provide occupational pension schemes that included a promise to pay GMPs, in return for being able to contract out of SERPS.

GMPs are intended to replicate certain state benefits

GMPs are intended to replicate members' SERPS benefits to try to ensure that a member would not be worse off as a result of being a member of an occupational pension scheme which was contracted out of SERPS.

Working life for GMP purposes...