Costly equalisation error: Morrisons handed £100m liability by High Court ruling

Equalisation of retirement ages between men and women has been a persistent headache for schemes of all sizes since the 1990 Barber ruling and subsequent legislation required schemes to make benefits uniform across genders.

When benefits were equalised, schemes had to pay disadvantaged employees the same level of benefit as advantaged employees for the period between the ruling and the equalisation of benefits – a period known as the ‘Barber window’.

If it’s not something you have done recently – check you have carried out equalisation properly

Carolyn Saunders, Pinsent Masons

However, scheme data was often revised incorrectly during this period, with many failing to update retirement ages in a way that was compatible with scheme rules, including the issuance of announcements to members without formalising the change through a deed.  

For those schemes, this resulted in the Barber window being open far longer, increasing the level of benefit required to pay members and increasing the potential for historic errors to give rise to additional liabilities further down the line.

Costly ruling

Last year, Findel Group Pension Scheme paid more than £2.3m in past-service costs to make good an error in which a member benefit equalisation exercise was implemented incorrectly.

This week, a High Court decision dealt a £100m blow to supermarket giant Morrisons as Mr Justice Warren ruled that retirement ages for former Safeway workers had not been equalised until May 1996, despite the scheme announcing the change to members in December 1991.

In possibly the largest equalisation case, in financial terms, to come before the courts, Mr Justice Warren accepted the members' arguments and found that European law had been correctly applied in earlier case law; Warren declined to refer Safeway’s case to the European Court.  

Robert West, partner at law firm Baker & McKenzie, said the case was another “variation on the theme” of closure of the Barber window.

Schemes have wrestled with the issue of how to address the need to equalise without incurring substantial additional cost for the scheme, West said, adding that work on resolving historic uncertainties is still very much a live – and potentially expensive – issue for many schemes.  

“As [Mr Justice Warren] puts it in the Safeway judgment, a very large sum of money turns on whether the scheme's attempt to equalise retirement ages at 65 were effective from 1991, when an announcement was issued to members, or 1996, when the scheme was formally amended by deed,” said West.

Principles established in previous case law, notably the Avdel case, heard in the European Court of Justice, and in the Harland & Wolff judgment, were used by Warren to conclude that a retrospective amendment could not have the effect of reducing benefits which already enjoyed the protection of equal treatment under EU and UK law, West added.

Carolyn Saunders, partner at law firm Pinsent Masons, said the judgement did not bring any surprises, running consistent with earlier decisions.

But many schemes could find themselves “tripped up by a technicality”, she said – an error that has proved particularly costly for Morrisons – and urged trustees to revisit their work on benefit equalisation.

“If it’s not something you have done recently – check you have carried out equalisation properly,” she said.

Fundamental principle

Anne-Marie Winton, partner at law firm ARC Pensions Law, said schemes must follow the fundamental principles on equalisation of, 'Thou shalt follow the amendment power'.

On this basis, Winton said, it is surprising that schemes continue to seek “wiggle room”, but the huge amounts of money at stake mean cases still make it to court.

“Are there trustees and employers out there who aren’t 100 per cent certain they have equalised benefits properly?” she said.