Out-Law / Your Daily Need-To-Know

Pensions trustees must address GMP inequality, court rules

Out-Law News | 26 Oct 2018 | 4:12 pm | 2 min. read

Pension trustees have a legal obligation to address gender-based guaranteed minimum pensions (GMPs) inequalities for contracted-out workers, the High Court has ruled.

The landmark judgment, delivered 28 years after the Court of Justice of the European Union (CJEU) ruled that pension benefits should be equal for men and women, will have significant administrative and financial implications for defined benefit (DB) pension schemes, according to pensions experts at Pinsent Masons, the law firm behind Out-Law.com.

"Today's decision comes as little surprise," said pension disputes expert Isabel Nurse-Marsh. "GMP equalisation has been talked about by the pensions industry for years. We have been edging towards this moment for a long time."

"Since the Barber ruling in 1990, trustees have been asking their advisers about whether GMPs must be equalised. We now have a decision showing us that the answer is yes. Such clarity must be welcomed," she said.

DB pension schemes have been legally required to provide equal benefits to male and female members since the CJEU's 1990 'Barber' ruling. However, this ruling did not extend to state benefits. The UK government has since acted to equalise the male and female retirement age, but has not yet legislated to equalise treatment in relation to GMPs, which are benefits provided to employees who were contracted out of the state earnings-related pension scheme (SERPS) between 1978 and 1997.

The Department for Work and Pensions (DWP), which intervened in the High Court case, published a draft methodology for equalising GMPs in late 2016, based on a one-off calculation for each female scheme member whose benefits were lower than an equivalent male scheme member they should have been. However, it has held off from finalising its plans, which it is now likely to revise in light of the High Court judgment.

The case was brought by the trustee of three of the Lloyds Bank pension schemes, which sought a ruling from the court in response to claims from a number of female members of the schemes. The court was asked to rule on whether there was an obligation to equalise benefits and, if so, what method should be adopted in order to do so and whether there should be any time limits imposed on a member's right to claim in respect of previously underpaid benefits.

Mr Justice Morgan's detailed ruling confirms that trustees are under a legal duty to amend pension schemes in order to equalise benefits for male and female members where the discrepancy is as a result of GMPs. He also ruled that, while employers and trustees have some flexibility when choosing how to do this, the method adopted must not breach the "principle of minimum interference" and so cannot be more generous to members than necessary. This ruled out equalisation methods proposed by both the banks and the scheme members.

The judge ruled that the legal duty to equalise GMPs also extended to schemes being wound-up or entering buy-out transactions. In this "special case", the "commercial imperative" to complete the transaction may justify the use of an equalisation approach which breaches the principle of minimum interference, he said. Any time limits on compensating underpaid members should be governed by the scheme rules in each individual case, although there is no time limit on recovering overpayments from scheme members, he said.

Pensions expert Carolyn Saunders of Pinsent Masons said that although the difference to individual members' benefits as a result of the decision would be "relatively small", the actual cost to schemes "is likely to be huge because the calculation process is far from straightforward".

"While the ruling is as expected, it leaves some questions unanswered – such as comparators, and the impact of the judgment on scheme transfers," she said. "In much the same way that there were court cases following Barber, the decision is unlikely to be the last word on GMP equalisation - so watch this space."

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