Do trustees really have to top-up 30 years’ worth of transfer payments?
Last month, the High Court gave a new ruling in the Lloyds case about the duties of trustees in relation to past transfer payments that failed to take account of the obligation to equalise for guaranteed minimum pensions (GMPs). The ruling has given rise to concerns that trustees face a significant additional administrative burden. But do trustees really have to top-up transfer payments in respect of all transfers-out going back to 17 May 1990? The short answer is: not necessarily.
In a nutshell, the Court decided that:
- Trustees are liable to top-up transfer payments that failed to take account of the obligation to equalise for GMPs in cases where the transfer was made under the cash equivalent transfer value (CETV) legislation.
- Trustees are not discharged from that liability by any statutory provision or any scheme rule or by any form of discharge signed by the transferring member (although the judgment leaves open the possibility that different rules or forms may have a different effect).
- No statutory limitation period applies and it is likely that most forfeiture rules won’t apply to transfer payments.
On the face of it, then, trustees need to consider all transfers-out going back to 17 May 1990. However, the judge was specifically asked whether the trustee of the Lloyds Bank schemes must proactively identify and calculate any shortfalls in previous transfers-out and take steps to equalise them, or whether the trustee could reasonably decide to wait for a request from the transferred-out member. His conclusion in relation to this issue was that: “the Trustee does need to be proactive in that it must consider the rights and obligations which I have identified, the remedies available to members and the absence of a time bar and then determine what to do”.
In other words, trustees need to actively consider what to do about past transfers-out. But, having considered the issue, trustees might reasonably decide to review at least some of those past cases only if specifically asked to do so. Our view is that trustees might reasonably decide to wait for the transferred-out member to ask for a review where, for example, the data required to calculate the top-up is not easily to hand or where the top up is likely to be small relative to the administrative cost of the calculation. We expect that many schemes will no longer have the necessary data available in relation to historic transfers-out, particularly where the transfer payment was made many years ago or where there has been a change of administrator. We would also expect the top-up to be relatively small for transferred-out members who had little salary-related contracted-out service between 17 May 1990 and 6 April 1997.
It is also worth highlighting the case of transfers that weren’t made under the CETV legislation, for example, bulk transfers or individual transfers paid in accordance with the scheme rules. In these cases, the position is likely to depend on the relevant scheme rules and (in the case of a bulk transfer) on the transfer agreement between the schemes concerned and any agreement between the sponsoring employers. It is by no means certain that any top-up will be required, especially in bulk transfer cases.
And what about the obligations of receiving scheme trustees? The Lloyds case didn’t deal with this issue, as the parties in the case seemed to agree (in our view, wrongly) that receiving salary-related schemes are always liable to equalise for GMPs in relation to transferred-in members. Our view is that the position will depend on the circumstances in which the transfer was made, and the information given to the transferring member about the benefits to be provided. See our FAQs on GMPs for more information.
So while trustees will have to consider what to do about past transfers-out (and past transfers-in), the administrative burden may not be as significant as first feared. In particular, trustees with no or incomplete data in relation to past transfers-out might reasonably decide to review past cases only if a request is made by the transferred-out member.