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