The second part of the union’s landmark legal case on Guaranteed Minimum Pensions (GMPs) will begin in the High Court today. Given the current turmoil the case will be heard by Mr Justice Morgan via Skype.

Members will recall that in the first case in 2018, the High Court ruled that the Trustee of the Lloyds pension schemes is under an obligation to equalise the benefits of male and female members to address the effect of unequal GMPs.

The Core Issue

In the new case, Mr Justice Morgan will be asked to turn his attention to those members who have transferred out of, or into, one of the Lloyds defined benefit (final salary) pension schemes. The Court will be asked to determine who is responsible for paying unequal GMP benefits: the scheme from which the pension came or the receiving scheme.

If a member leaves a pension scheme and transfers his or her benefits to another pension arrangement, the Scheme actuary calculates the capital value of the pension that the member will be paid at normal retirement age, making actuarial assumptions about the revaluation of the pension between the transfer date and normal pension age, pension increases that will be paid after normal pension age, and the life expectancy of the member concerned. This stream of anticipated future payments is then discounted back to a current date to give a capital value, usually called a cash equivalent transfer value or CETV.

If the starting value of the pension is wrong, the capital value will be wrong. The bank admits that it did not equalise CETVs, although we now know that they should have done so since 17 May 1990.

The High Court is being asked to answer the following issues:

  • whether the Trustee needs to remedy the position now;
  • if so, how should it do so;
  • if a member transfers out his or her excess over GMP but leaves the GMP in one of the Lloyds schemes, how does that affect the equalisation obligation;
  • if the receiving scheme also has an equalisation obligation, how do the two obligations interact;
  • if the Trustee is obliged to equalise, is the obligation discharged by any of the pension legislation or any of the transfer forms that members signed; and
  • what time limits are applicable to any claim?

There are two points which are relatively uncontroversial. First, if a member transfers from one occupational defined benefit scheme to another, the equalisation obligation falls on the receiving scheme. The European Court has already said so. The same is likely to be the case where the receiving scheme is a defined contribution scheme.

Second, if a member transfers to a personal pension (or SIPP), it is likely that the receiving scheme does not have to equalise. There is no employer. Unless the right to equal pay disappears altogether (which the union, supported by the Department of Work and Pensions, say is inherently unlikely) it follows that the obligation remains with the Lloyds scheme. We believe that the member remains entitled to a residual pension in his or her former Lloyds scheme.

From the members’ perspective, the interesting question, on the assumption we win, is how this pension is paid. The member might want to take a second small CETV, but if the pension is sufficiently small it could be paid as a single lump sum (a so-called trivial commutation lump sum). So, if we succeed, the union may secure some fairly significant cash lump sum payments to members.

In Lloyds we know that thousands of staff took advantage of the pension freedoms introduced in 2015 and transferred their pensions out. We estimate that at least £2bn has been transferred out of the Lloyds schemes over the last few years. It’s difficult to get the exact data but according to the Pensions Regulator, between 2018/19 approximately 210,000 individuals transferred out of defined benefit pension schemes. The total value of those transfers is estimated at approximately £34bn. In 2017/18 there were 100,000 transfers with a total value of £14.3bn. Most of those could benefit from the outcome of our High Court case.

Members with any issues they would like us to deal with on this should contact the Union’s Advice Team on 01234 262868 (choose Option 1).

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