Defined Benefit  

Pension transfers put on hold due to Lloyds court case

Pension transfers put on hold due to Lloyds court case

Some administrators are telling their defined benefit (DB) pension scheme clients to put transfers on hold because of the implications of a recent court case.

Final salary scheme members who contracted out are set to receive millions of pounds in back payments after a landmark ruling in a case brought by the trustees of Lloyds Bank's DB schemes this summer.

In a decision which could have widespread implications for hundreds of thousands of pensioners, Justice Morgan ruled trustees must equalise benefits between women and men who have guaranteed minimum pensions (GMPs) because of contracted out benefits.

In response, some pension schemes and administrators are concerned they should not process transfers until equalisation has taken place and some have even put a temporary hold on transfers, Royal London has revealed.

Schemes are understood to be concerned that if they carry out transfers based on existing valuations they may later be found to have deprived members of the potential uplift from equalisation.

Sir Steve Webb, director of policy at the mutual insurer and former pensions minister, urged the Department for Work and Pensions (DWP), the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) to act quickly to clear up the confusion because this decision could leave many unable to transfer until it was resolved. 

Sir Steve said: "The recent Lloyds Bank case has made clear that pension schemes need to tackle inequalities in their schemes, but many questions remain unanswered. 

"It is vital that pension savers who are considering a transfer out are not left in limbo while the industry works out what exactly this ruling means. 

"The pensions industry and pension savers urgently need to hear from the authorities what they should do now with regard to pension scheme valuations and pension transfers.  With some pension transfers already on hold, a public statement is urgently needed."

Stephen Scholefield, partner at law firm Pinsent Masons, was aware some administrators were suggesting a hold on pension transfers.

He said: "Whilst trustees should not rush into equalisation, they do need to make some fairly quick decisions about how they deal with one off payments such as transfers.

"For example, they could look to build in a prudent allowance or they could look to pay small tops ups further down the line."

Mr Scholefield said pausing while the schemes "take advice about what to do makes sense, but statutory deadlines still need to be met".

He added: "Trustees should also keep in mind the fact that members may have good reason for wanting to transfer quickly, for example to take advantage of a guaranteed annuity rate or to draw down benefits for their retirement.

"Members may not be best pleased if they end up worse off overall as a result of a transfer being delayed, so suspensions require careful thought and should be as short as possible."

Matt Davis, partner at consultant and administrator Hymans Robertson, said: "Ultimately many people will end up being entitled to higher transfer values following on from the GMP equalisation ruling.