GMP Equalisation – the Lloyds Bank judgment – some greater clarity and certainty?

Posted by Adrian Lamb, 1st November 2018
If you are a trustee or sponsor of a pension scheme that was contracted out of the state-earnings related scheme before 6 April 1997 this affects you.

There was a significant ruling in the High Court last week on the main outstanding equalisation issue for contracted out occupational pension schemes (since 17 May 1990, following what is known as the Barber case, it has been a requirement to provide equal benefits for men and women under an occupational pension scheme).

The case relates to the Lloyds Banking Group, but has cost (both in terms of liabilities and extra administration) implications for any defined benefit occupational pension scheme that was contracted-out before 6 April 1997 (and for any schemes which have accepted transfers from such schemes).

It is worth noting that the DWP and the Treasury (at their request) were joined as parties to the proceedings as the Treasury had stated that the issues on the case “had significant implications for public service pension policy [because most if not all of the public sector pension schemes were contracted out and therefore have GMPs] and public spending [because equalisation would increase public sector pension liabilities but also add a significant extra administration cost]”.

The High Court ruled that the benefits provided by pension schemes must be equalised for the effect of guaranteed minimum pensions (GMPs) accrued between 17 May 1990 and 5 April 1997. The issue arises because GMPs are unequal between men and women – in simple terms the GMP accrued more quickly for a woman and is payable, by law, from age 60 rather than 65 for a man.

The ruling is very detailed and complicated and will take some time to digest, but it does give schemes and employers confirmation that this issue has to be addressed and also some more clarity on how this can be achieved.

First it is worth clarifying one point. What schemes will have to do is more accurately described as equalising overall benefits between men and women to offset unequal GMPs – but GMP equalisation is the shortened version of this.

In line with previous precedents on equalisation this will mean increasing the benefits for the disadvantaged, i.e. levelling up. Therefore it will almost certainly increase pension scheme liabilities and will have a direct impact on scheme funding and the payment of cash equivalent transfer values (CETVs), and also affect the employer’s recognition of a pension scheme in its financial statements.

It will potentially affect all members of contracted-out schemes with service before 6 April 1997, including pensions already in payment.

Giving effect to the ruling will require careful planning and effective communication to affected members. It is also likely to be some time before all the questions around GMP equalisation are fully addressed and answered.

Actions to be Taken

We will be writing to our clients in the near future with our views on GMP equalisation and the issues to be considered by both Trustees and Employers but it is likely that action to address this issue, is likely to take a long time to complete.

In the meantime, it is advisable for Trustees to consider the impact on transfer values and whether these should be reviewed and possibly delayed for short period while this review takes place. The associated communications may also need to be considered.

The key points from this case are as follows:

Do GMPs have to be equalised?

The judge confirmed that Trustees are under a duty to equalise to compensate for the effect of unequal GMPs for the period between 17 May 1990 and 5 April 1997, since the benefits are pay for the purposes of article 157 of the Treaty for the Functioning of the EU). So the short answer, and one that most advisers and commentators have known for a long time, is YES.

How can this be achieved?

The Court considered a number of different methods and options. In essence there were 3 broad options considered but with (at least) 2 sub-options within each one. Note that the impact on different schemes and members will vary according to a number of factors.

The first method would have involved annual checks on each member to compare this with the amount that would have been paid if they were of the opposite sex.

The second method  follows a similar approach but would allow for clawback so that no member ends up with a benefit that is more valuable overall than the benefit they would have received if they were of the opposite sex.

The third method uses a comparison of the actuarial value of the unequalised benefits of the member with the unequalised benefits if the member was of the opposite sex, with an adjustment paid if the value of the opposite sex comparator is higher. The law already provides for GMP conversion although there are some doubts about whether the legislation as currently drafted is satisfactory.

Which method should be used?

Any of the 3 approaches above are likely to be acceptable but Schemes will also need specific advice on which options are available since some of them are dependent on the provisions within each scheme.

DWP have stated that they will be issuing further guidance on the value method “in the near future”.

A one off value/conversion exercise may be the most attractive for many schemes but it is not yet clear how that will work – and the further guidance from DWP will be important.

What about arrears?

Given the length of time since the original Barber judgment it will be obvious that corrective action may be needed in relation to pensions that have been in payment for years if not decades. The judge confirmed that in this case there was no relevant statutory limitation period so that the period over which back payments could be claimed was governed by the Scheme rules. All schemes are therefore likely to need legal advice on this.

Allowing for the extra liabilities

If they have not already done so, Trustees may want to allow for these extra liabilities in their actuarial valuations. Employers will need to consider whether there is a possible impact on company accounts.


Finally, a lack of appropriate data may hamper some of the attempts to deal with this, particularly for pensions that have been in payment for a number of years.

Should you have any queries on this matter please speak to your normal contact in the Blake Morgan pensions and benefits team in the first instance.

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