The first judgment in the case of Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank PLC & Others (HC-2017-001399) (the "Lloyds case"), issued in 2018, made it clear that pension benefits must be equalised for the effect of unequal Guaranteed Minimum Pensions ("GMPs") as between men and women. Although considerably changing the pensions landscape, as discussed in our previous blog, the 2018 judgment didn't address the treatment of past transfers-out which had not been calculated on a basis which equalised for the effect of unequal GMPs and whether there is an obligation for trustees to correct this. The High Court has now ruled on this issue and it is clear that implementing the principles provided by the judge on this most complex of issues will not be a straightforward process.
What does the judgment say?
The lengthy judgment, handed down by Mr Justice Morgan on 16 November 2020 deals with a number of points in considerable detail, however the overall result of the judgment can be summarised as follows:
- Trustees owed a duty to a transferring member to make a transfer payment of a correctly calculated cash equivalent transfer value ("CETV"), which reflected equalised benefits, including GMPs (the "duty");
- Trustees committed a breach of the duty, occurring at the time of transfer, if the transfer payment made was inadequate;
- Liability for breach of the duty cannot be discharged by any statutory provision, rule of the scheme or agreement with the transferring member;
- A transferring member can make a claim, seeking an order from the court requiring the trustee to belatedly perform its duty to pay the correct transfer payment. Such a claim is not time barred, either under the rules of the Scheme or relevant limitation legislation.
The judgment makes clear that members are entitled to a 'top-up payment' if their historic CETV did not reflect the amount they would have been entitled to had GMP equalisation been implemented although it appears that it may be open to the trustees and the member to agree an alternative solution.
The judgment also raises questions as to the effectiveness of discharge forms signed by members transferring out of schemes and whether they will continue to be effective in non-GMP equalisation scenarios where transfers out have been incorrectly calculated.
Does the judgment apply to all historical transfers?
In relation to bulk transfers which have been made in compliance with pensions preservation legislation and the rules of the transferring scheme, trustees are generally discharged from any obligation to pay a 'top-up payment', as transferring members are no longer entitled to benefits under the transferring scheme. It is possible however that the receiving scheme might make a claim against the transferring scheme for a "top-up" payment in respect of any bulk transfers which were not calculated on a basis which equalised for the effect of GMPs. It is important to note that this position on bulk transfers only applies where the benefits in the receiving scheme are 'mirror images' of those in the transferring scheme being given up, leaving open the question of how the bulk transfer of non-mirror image benefits are to be treated.
Based on the judgment, it seems that trustees may also potentially be discharged in the case of individual transfers made under a scheme's rules rather than under the legislation (i.e. non-statutory transfers) as long as "the decision as to the amount of the transfer payment remains a valid and effective decision".
What next in the GMP equalisation journey?
The latest chapter in the GMP equalisation story leaves a number of questions outstanding and it is possible that we will see further rulings stemming from the judgment in future. One thing which is clear is that trustees of defined benefit schemes with GMPs must be proactive in considering the rights and obligations set out by the judge and the remedies available to members. The complexities surrounding the consideration of these issues and the administrative challenge of revisiting historic transfers dating back up to 30 years should not be underestimated.
We will continue to consider the impact of the judgment and provide analysis and commentary on further developments as they arise. If you would like to discuss anything raised in this blog, or any other matters relating to GMP equalisation, please get in touch with your usual contact at Brodies.