GMP equalisation: hearing on past transfer liability for trustees

Earlier this month a third hearing took place in the ongoing case of Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank PLC & Others (HC-2017-001399) (“Lloyds case“). Click here to read our most recent blog on GMP equalisation and the Lloyds case. The focus of the third hearing was whether there’s an obligation for scheme trustees to apply GMP equalisation to historical transfers from the scheme. The judgement will be eagerly anticipated by the many schemes adopting a “wait and see” approach before considering the extent to which they need to revisit past transfers.

The pursuer’s position was that trustees should be exempt in relation to past transfers and have no obligation to provide any subsequent top-up. However, Counsel for the Government Department for Work and Pensions (the “DWP“), one of the defenders in the action, has thrown this into doubt by arguing that this position was contrary to public interest. The DWP outlined the statutory duty of trustees to correctly calculate cash equivalent transfer values and argued that, where that has not been done accurately, the duty to put that right should not be extinguished or discharged following a transfer. Therefore, the DWP’s position was that it must still be the trustees’ obligation to top-up a past transfer if, following assessment, it transpires that it was lower than it would have been had it been equalised.

If the court agrees with the DWP, trustees will be required to assess whether former members that were transferred out are eligible for additional benefits. This raises questions of where the funds to pay out any shortfall would be derived from. Furthermore, the administrative burden relating to such an exercise may cost more than the value of any eventual top-ups.

We will monitor this and provide an update once the judgement is released.

GMP reconciliation

Contracting out ended on 6 April 2016, when the single tier state pension system was introduced. From this point, HM Revenue & Customs (HMRC) stopped tracking contracted out rights and issued data to pension schemes so they could compare their records against data held in scheme records. This exercise is known as GMP reconciliation.

What’s the issue?

Reports in industry publications state that HMRC has acknowledged cases of inconsistency between their online GMP checker and their final data cut figures, which has meant problems for some schemes with their GMP reconciliation projects.

The discrepancy arose due to the accuracy of HMRC’s live online GMP checker which uses an updated calculation, and the comparatively outdated final data cut figures that were sent out to schemes by HMRC. HMRC has confirmed that GMP data provided in a scheme’s final data cut is a “lift” of GMP held at a point in time, whereas the online GMP Checker service provides a “real time” GMP amount calculated at the point of request.

However, HMRC confirmed in its Countdown Bulletin 53 (published 28 May 2020) that the online GMP checker service is accurately providing GMP figures and that these figures will be calculated based on the date selected.

HMRC has advised schemes to perform checks, where there is a discrepancy between the scheme’s data cut and the scheme records, the online GMP checker service should be used. If the GMP output from the online checker does not agree with scheme records this should be queried directly with HMRC as a life event.

If you would like to discuss anything raised in this blog, please get in touch with your usual contact at Brodies.


Jennifer Crawford

Senior Associate