NEWS   |    December 2, 2020

High Court forces pension schemes to look at GMP payments

On the 19th of November, the High Court handed down its latest judgment in Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank plc, clarifying some (but not all) of the issues that were left outstanding by the first judgment in this case, back in 2018.

Guaranteed Minimum Pensions (GMPs) were the mechanism by which employers would pay their employees a pension that was at least equivalent to the state pension. GMPs were unequal because the state pension ages were different for men and women. In October 2018, the High Court decided that all trustees of defined benefit (DB) pension schemes had a legal obligation to adjust their scheme’s benefits to correct for the unequal GMPs and ensure equality for men and women. However, that judgment did not address what trustees had to do when a member who had not had their benefits equalised had already transferred to another pension scheme by the time the equalisation was done.

As a result of this latest judgment, all trustees of DB pension schemes now have legal responsibility for prior transfers of members into and out of their pension schemes regarding equalisation of benefits. If the amount paid by the transferring scheme to the receiving scheme at the time of the transfer was not equalised for GMPs, the trustees are now liable for this. This means that, as well as the trustees of the receiving scheme already having to equalise GMPs as a result of the earlier judgment, the transferring scheme’s trustees are now also liable. The trustees of the transferring scheme can correct this by providing a ‘top up transfer payment’ to supplement the original figure.

However, unlike in the original 2018 judgment, the court did not decide that the transferring trustees needed to necessarily be proactive about correcting these transfers. As they have acted in breach by transferring out without having equalised for GMPs, transferring trustees will now be left open to successful claims being made by members that they failed to transfer correctly. The trustees of DB pension schemes will now have to decide whether to act in response to the potential liability from member claims. They could review all transfers and correct them via top up payments, but many may choose not to pay the costs associated with this process.

Read Danyal’s article in Employee Benefits.


The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.

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