On the go: Trustees of defined benefit schemes will have to revisit pension transfers from the past 30 years if the individual had contracting-out benefits, and provide a top-up if necessary.
In a judgment handed down on Friday, the High Court ruled that trustees committed a breach of duty if they did not equalise members’ guaranteed minimum pension benefits at the time of the cash equivalent transfer value.
Schemes that had contracting-out benefits will need to revisit their past transfers since the 1990s, with Mr Justice Morgan ruling that there is no time limit for this exercise.
GMPs were created due to contracting out, which meant DB schemes could prevent their members tripling up on pension benefits by building up a basic state pension — state earnings-related pension scheme — and an earnings-related occupational pension. In exchange for giving up Serps, both employees and employers paid less national insurance contributions.
But as a consequence of the different treatment of men and women in state pensions being ruled discriminatory under EU law, in October 2018 the High Court ruled that Lloyds Bank scheme trustees must also equalise benefits between women and men who have GMPs.
The ruling was considered a solution for a pension problem spanning almost three decades, and schemes are now having to decide how to equalise the contracted-out benefits of their members.
However, questions remained over past pension transfers, which, although part of the original application to the court, were not ruled on by judges. Lloyds trustees requested a second hearing in June 2019, which took place in May this year.
Samantha Brown, regional head of employment, pensions and incentives at Herbert Smith Freehills, said: “Once again, this ruling is likely to affect every DB scheme in the UK that provides GMPs accrued between May 17 1990 and April 5 1997.
“It means that trustees of such schemes are required to revisit CETV’s paid to former members and make a top-up payment where a member has not been paid their full entitlement.”
Ms Brown continued: “Trustees of affected schemes should already be taking steps to equalise the benefits of male and female members who are still in their scheme, following the ruling in the first judgment.
“These GMP equalisation projects will now need to be extended to include historic cash equivalent transfer payments.”
