The High Court has ruled that trustees must revisit past transfers out to allow for GMP equalisation.
In 2018, the High Court delivered a landmark ruling that the inequality between men and women in respect of GMP benefits is not compatible with UK or EU legislation.
However, the judgment left several important issues unresolved, including whether schemes are required to revisit benefits after a member has transferred out to another scheme.
The High Court was again asked to rule on such matters in respect of the Lloyds Bank schemes, and it published its long-awaited follow-up judgment on 20th November 2020.
High Court ruling
The judge concluded that the trustees owed a duty to a transferring member to make a correctly-calculated transfer payment that reflected the member’s right to equalised benefits.
Therefore, where the initial transfer payment was inadequate on this basis, the trustee is obliged to make a top-up payment to the receiving scheme on the transferred member’s behalf. Any claim by a transferring member is not time barred, either under the scheme rules or under the Limitation Act 1980. Crucially, this means that transfers as far back as 1990 are in scope.
The judge stopped short of compelling schemes to proactively make top-up payments to all affected members but pointed out 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”.
This comment was made because the administration costs of remedying past transfers may greatly outstrip the amount needed to make a correction.
Top-up payment
To account for the delay in being made, the top-up payment should include interest applied at 1% above base rate.
Some flexibility is allowed for schemes to adopt an alternative to a top-up, but the trustee can’t require a member to accept a residual benefit nor can the member require the trustee to provide a residual benefit.
The judgment isn't clear about what approach should be taken if it isn’t possible to make a top-up payment to the receiving scheme. Instead, it suggests that the outcome in a particular case would be based on what the parties agree or a court orders.
Individual non-statutory transfers
In the case of individual transfers made under provisions in the scheme rules (that is those made where the member didn’t have a statutory right to one), the judge ruled that the trustee acted under a power conferred by the scheme rules.
As the power has been exercised, the transferring member no longer has rights under the transferring scheme and no top-up is required unless the member disputes the execution of power in court.
Bulk transfers
It was determined that, for bulk transfers in which mirror image benefits were provided and the relevant actuarial certificates are valid, there’s no remaining liability with the Lloyds' schemes.
Bulk annuity transactions, such as buy-ins or buyouts, aren’t mentioned in the ruling, so trustees of schemes that have been involved in these exercises may wish to consider taking their own legal advice.
Transfers-in
The obligation for a scheme to equalise for the effect of any transferred-in GMP earned after 17th May 1990 applies regardless of whether it receives a top-up payment from the transferring scheme.
Capita comment
This is a complex area and the judgment raises several issues for trustees that will need detailed consideration as part of their GMP equalisation projects. The impact of the ruling will be scheme-specific and dependent on the number of past transfers-out the scheme has made that included a GMP built up between 1990 and 1997. They will need to consider how the top-ups are calculated and whether administrators hold the necessary data to do so. They may also find it difficult to identify those who may be affected as they’re likely to have limited data on members who have transferred out.
Although the judgment clarifies the extent of trustees’ obligations to revisit past transfers, it was specifically in relation to the Lloyds schemes, so it didn’t address some scenarios relating to transfers. Trustees of affected schemes should discuss their individual circumstances with their advisers and seek further legal clarity if necessary.
We have published a Spotlight that looks at the judgment in more detail. Please speak to your usual Capita contact if you would like a copy.