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GMP equalisation – historic DB transfers

On 20 November 2020, the High Court ruled that trustees of defined benefit (DB) pension schemes that provide Guaranteed Minimum Pensions (GMPs) must review and, where necessary, top-up historic Cash Equivalent Transfer Values (CETVs) that were calculated on an unequal basis.

This ruling builds on the High Court ruling in October 2018 involving the Lloyds Banking Group DB pension schemes that confirmed the requirement to equalise benefits for the effect of inequalities between males and females in respect of GMPs which have been built up since 17 May 1990.

Trustees have now learnt that they cannot rely on statutory discharge nor any discharge forms that the transferring member signed at the time and these members can now request that trustees revisit historic transfers and pay them any top-up amounts due. These top-up payments would have to be adjusted to allow for interest over the period since the transfer value was paid. Furthermore, unlike the first Lloyds ruling, no limitation period applies, meaning that all historic transfers must be considered and trustees are unable to rely on provisions within their scheme rules to limit claims to a specified period (e.g. six years).

Whilst this ruling is good news for members who have historically taken transfer values, implementing it will present a number of challenges to trustees and it is likely to be a time-consuming exercise, adding to what is already a very complex and costly process to equalise GMPs for current scheme members.

With transfers potentially dating back to 1990, it is likely that for many schemes the data available to trustees to complete these calculations will be limited and, in some cases, may simply be missing. Even once the calculations have been completed, contacting members who took transfer values up to 30 years ago and finding a suitable receiving arrangement in which to pay the top-up may not be a trivial task.

For many employers, this ruling comes shortly before their financial year-end and employers will need to consider how it is reflected in year-end accounts. Auditors are likely to request that an allowance is included within the financial statements.  However, producing an accurate and reliable estimate will be challenging given the limited time and data available.

The judgment is very detailed extending to 117 pages and in a number of places is specific to the schemes and their rules in question. Trustees will therefore need to work closely with their advisers to understand the specific impact on their scheme. The full ruling is available here.

Please get in touch with your usual Quantum contact if you would like further information on this ruling.

24 November 2020