What Did The Lloyds Cases Say?

• 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, the pensions industry has been grappling with how to implement the equalisation of GMPs in practice.

Our experts have distilled this lengthy judgment and bring you a key point summary, a plain English explanation of the issues and suggestions on next steps for employers and trustees.

This Insight is the second 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 what the judgment in Lloyds actually said and what this means for pension scheme trustees and employers.

SEVEN KEY POINTS FROM LLOYDS

1. Trustees have a duty to equalise GMPs

Trustees of pension schemes with GMPs are under a legal duty to adjust benefits to address the current inequality between men and women which is inherent in the GMP.

2. Methods to equalise - various methods are lawful, but some are not

There is more than one method of adjustment that is permissible. In addition, there are some methods that are not permissible. Schemes and employers will need legal and actuarial advice in order to decide what method should be adopted.

3. Arrears will need to be paid with interest

For pensions that are already in payment, arrears need to be paid, with interest, to make good the past underpayments.

4. Forfeiture clauses may limit the duty to pay arrears

No statutory limitation period applies to such arrears, but forfeiture clauses in scheme rules may limit the duty to pay arrears. This will vary from scheme to scheme and bespoke legal advice will be needed.

5. The forfeiture point has a wider application to underpayments generally

The point on forfeiture clauses limiting the duty to pay arrears has relevance to underpayments generally: it extends beyond the issue of GMP equalisation.

6. Certain legal issues remain unresolved

Certain legal issues remain unresolved following Lloyds. In particular, there remains the questions of what duties trustees have in respect of GMPs that accrued in their schemes but have been transferred out and whether a different method can be adopted where the costs of implementing one of the methods considered is greater than the additional benefits that would be conferred as a result.

7. Employers and trustees face practical issues in implementing equalisation

Whilst Lloyds has removed some of the legal uncertainty, it leaves a number of practical issues for employers and trustees to consider. These include the quality of member data, dealing with death cases, the impact on cash equivalent transfer value (CETV) calculations and ongoing valuation discussions.

In this Insight, we set out:

• what Lloyds decided on the need to equalise GMPs;
• what Lloyds said about how to equalise GMPs, i.e. the possible methods and payment of...