GMP equalisation extended to past transfers

Shona Harvie, Partner, Pension Funds Group

In the latest judgment arising from the Lloyds Banking Group's defined benefit (DB) pension schemes and GMP equalisation, it has been confirmed that Trustees of DB schemes that provided GMPs should revisit and, where necessary, top-up historic cash equivalent transfer values if an affected member makes a successful claim.


Following the Lloyds High Court judgment in October 2018 on the equalisation of Guaranteed Minimum Pensions (GMPs), all schemes with unequal GMPs for members who were contracted out between 17 May 1990 and 5 April 1997 have a legal obligation to equalise GMPs through other scheme benefits. It applies to past and future benefits and therefore impacts on scheme and employer accounts and actuarial valuations. Interest is payable at 1% above base. No decision was initially made on whether a de-minimis can be set for payments or the extent to which benefits need to be equalised for transfers out.

The latest judgment in November 2020 has confirmed that GMP equalisation should be extended to historic cash equivalent transfer values. Therefore, Trustees now have to assess the additional liability that this generates. The question of whether a de-minimis level can be set for payments still appears to remain unanswered.

Trustee challenges

  • Under the latest judgment, affected members who have received historical transfer values can obtain a court order that requires the Trustee to belatedly pay the correct transfer value. Trustees are also able to correct transfer value payments without a court order. The judgment, however, is not clear on how proactive Trustees must be in offering to correct transfer value payments for all affected members.
  • There is no time bar applicable to claims from members for such corrections so Trustees could potentially be receiving these claims for years to come.
  • In gaining an understanding of the potential impact on the Scheme, Trustees need to identify what transfers out have occurred since 17 May 1990. The quality of data going back 30 years may not be adequate.
  • The administrative costs of calculating the correction payments could be significantly higher than the value of the payments to members.
  • Bulk transfers to other schemes that provided 'mirror image' benefits in the new schemes, should not need revisiting. However, bulk transfers are not always on a ‘mirror image’ basis. Trustees may need to check the terms of their rules for the transferred liabilities and the terms of the transfer agreement. Trustees may also need to check the terms for any buy-in or buy-out that has taken place or is in the process of being negotiated.

Next steps for Trustees

Trustees should consider the implications of this judgment carefully and how it will impact on existing GMP equalisation projects. Trustees will need to communicate with sponsoring employers to understand the impact on both parties of any increase in liabilities and, where material, additional disclosures and estimated liabilities may be required in annual accounts. For schemes with upcoming year ends, there is not much time to analyse the impact.

How Crowe can help

If you wish to discuss this or any other matters, contact Shona Harvie or your usual Crowe contact.

Contact us

Shona Harvie
Shona Harvie
Partner, Pension Funds Group