A second hearing in the Lloyds pension case has been earmarked for early next year, which is expected to bring clarity to what pension schemes need to do to align past pension transfers with equalisation rules.
In October 2018, the High Court ruled Lloyds bank scheme trustees must equalise benefits between women and men who have guaranteed minimum pensions because of contracted out benefits.
The ruling was considered a solution for a pension problem spanning almost three decades, and schemes are now having to decide how to equalise the contracted out benefits of their members.
Contracting out means defined benefit schemes could opt out of the state earnings-related pension scheme, so that individual members would not be tripling up on pension benefits by building up a basic state pension, Serps, and an earnings-related occupational pension.
Between 1978 and 1997, provided the scheme offered a pension of a guaranteed minimum level, the employer and employee would be allowed to pay a reduced rate of national insurance contributions and the worker would no longer build up rights under Serps.
Due to the Lloyds ruling final salary scheme members who contracted out are set to receive millions of pounds in back payments, but there are still questions about how to address past pension transfers taken by members who had GMPs.
The issue of revisiting past pension transfers was part of the original application to the court, but the judges didn’t rule on this.
Accordingly, the trustees requested in June 2019 that this issue be considered again and a second hearing has now been earmarked for April or May next year.
Sir Steve Webb, former pensions minister and director of policy at Royal London, said the follow-up hearing meant there was no end in sight in the saga of GMP equalisation.
He said: “If the next case will not even start until well into 2020, the judgment and subsequent implementation could easily take us into 2021 and beyond. It is clear that there are going to be loose ends around GMPs for many years to come.”
Matt Davis, head of GMP equalisation at Hymans Robertson, said: “This follow up hearing could mean that schemes need to revisit historic transfer value payments going back to the 1990s. For many schemes there could be significant practical barriers to doing this, as suitable historic data may not exist."
Vicky Mullins, head of the GMP equalisation team at XPS Pensions Group, welcomed the clarity the hearing is expected to bring.
She noted, however, the fact that it will only cover past transfers will disappoint those who were also hoping to get a ruling on the minimum level of benefits that do not need to be equalised.
Ms Mullins added: “On the plus side, this means there is one less thing for schemes to wait for in order to make progress with equalising their current members. Trustees should already be getting their data in order and can now start deciding the process they are going to follow to equalise benefits.”
One of the solutions being considered by schemes in converting GMPs is to convert them into a normal scheme benefit.
But the problem with this, from a member's perspective, is that it will likely uplift the value of their pension, which could trigger an annual or lifetime allowance tax charge.
In the meantime, the trustees of the Lloyds schemes are continuing to work on equalising the members’ benefits, and hope to start updating individual members in the summer of 2020.
maria.espadinha@ft.com
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