High Court confirms GMP equalisation is required
- trustees are under a duty to equalise for GMPs;
- a number of methods of equalising for GMPs are lawful in principle but, importantly, the employer is entitled to say that the trustees must adopt method C (see below for details) – this is the least expensive option for employers, but may be complicated to administer;
- trustees are obliged to make back-payments to members – potentially going back to 17 May 1990, although this will depend on the rules of the relevant scheme (in the Lloyds case, most members are entitled to arrears only for the period of six years before their claim); and
- simple (as opposed to compound) interest on the back-payments should be paid at 1% above base rate.
What are the methods for GMP equalisation?
- Method A: Equalise each unequal aspect separately.
Cost: £300 million
- Method B: Higher of unequalised male and analogous female benefit paid each year.
Cost: £135 million
- Method C: Provide better of male or female comparator pensions each year, subject to accumulated offsetting. Aims to address some of the perceived drawbacks of method B.
Cost: £100 million
- Method D: Complete one-off actuarial equivalence valuation and then convert GMP to non-GMP benefits.
Cost: £100 million
What happens next?
- the question of whether a de minimis approach could be adopted (for example, in cases where the estimated cost of calculating and implementing the equalisation method is greater than the additional benefits to which the members would be entitled); or
- whether the obligation to equalise for GMPs extends to benefits which have been transferred-out (although the parties agreed that it does extend to benefits transferred-in).
Is any action required?
We will be following up with more detailed practical information shortly. Please speak to your usual Linklaters contact if you need any help in the meantime.