Lloyds GMP Equalisation judgment

The High Court has today (26 October 2018) handed down its judgment in the Lloyds case relating to equalisation of member benefits for the gender effects of Guaranteed Minimum Pensions ("GMP equalisation"). This addresses a long-standing legal uncertainty, with potentially wide-reaching implications for most UK defined benefit schemes. While the judgment relates to the Lloyds Banking Group schemes, it is expected to create a precedent for other UK schemes with GMPs. The key points from the judgment are:

• GMP equalisation is required.
• The Court considered a number of options for achieving equalisation. Some potential methods of equalisation (including the most expensive) have been ruled out by the principle of "minimum interference", ie that benefits should only be adjusted to the extent that this is necessary.
• The principle of minimum interference suggests that employers can insist that trustees adopt the least costly of the legally viable methods.
• The focus is then on a year-by-year test with the pension paid each year being determined as the benefit (male or female) that is highest on an accumulated basis to that point, allowing for interest (rather than paying the higher benefit in each year).
• The Government's 2016 method built around GMP conversion may also be a lawful method by which GMP equalisation can be achieved.
• Back-payments will be required from the date a member retired unless there is a more limited period under an individual scheme's rules. Interest will need to be added to these back-payments at Bank base rate plus 1% pa.

Not all members with GMPs earned after 17 May 1990 will be entitled to additional benefits. Both men and women can benefit, depending on a scheme's specific circumstances.

There will need to be a further hearing to address some questions, for example the position with regards to past transfers, which are unanswered in the judgment.

Implications

The wide reaching implications of the judgment include company year-end accounting, scheme administration, member communications and funding. Further details are set out in our article: Preparing for GMP Equalisation.

Possible appeal

Any of the parties involved in the court case can appeal part or all of the judgment. This means that there remains legal uncertainty until it is known whether the position is being appealed, which may not be until the New Year (after the further hearing).

Timelines

Even if there is no appeal, GMP equalisation is likely to take some time to fully resolve, as schemes will need to complete their GMP reconciliation and rectification (ie start with the right GMP data) before equalising the benefits.