- Private Wealth
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On 26 October, the High Court delivered its landmark decision in the Lloyds Bank case, ruling that Guaranteed Minimum Pensions (GMPs) must be equalised between men and women and that past underpayments must be corrected.
GMPs are payable at state pension age which, throughout the period during which GMPs accrued (6 April 1978 to 5 April 1997), was 65 for men and 60 for women. As a result, GMPs accrue at different rates for men and women and are revalued over different periods. It is this inherent inequality of GMPs that led to their abandonment in 1997.
Whether or not GMPs need to be equalised between male and female members, and more contentiously just what steps are necessary to remove inequality, have been recurring topics since the European Court of Justice’s ruling in Barber in 1990.
In its judgment in the Lloyds Bank case, the High Court held that it is unlawful to pay unequal benefits to men and women and, therefore, trustees are under a duty to equalise for GMPs. However, this duty only applies to GMPs accrued after the Barber judgment in 1990.
The judgment is expected to increase the Lloyds Bank Schemes liabilities by around £100m. Whilst some members of the Schemes may see an increase in the value of their pension, in practice, most will see little change as any increases are likely to be less than £500 in total over their retirement, which could be over 30 years, Lloyds noted. Regardless, the judgment is likely to have wide ranging implications for defined benefit schemes more generally.
In the case, the Court also addressed and narrowed down the methodology to be used to calculate the payments. In summary, the methods which were considered are:-
When considering which method should be used in this instance, the Judge considered that the method which involved the “least interference” should be chosen, which in this case would be Method B or Method C. Method D is the method which is currently used most frequently on scheme wind-ups as it provides a one-off calculation. The Judge held that Method D2 is, in principle, a lawful method.
Whilst it is possible that they may appeal the decision, Lloyds have welcomed the decision made by the Court and the clarity that it brings. They have commented that they are working through the details of the judgment in order to implement the Court’s decision.
If Lloyds do wish to proceed to appeal, they have 21 days from 26 October to lodge this.
The DWP has stated that it will be issuing Guidance in the light of this ruling.
Article co-authored by Riccardo Bruno and Sarah Boulton-Jones.
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