A very late equaliser - pension transfers and the Lloyds Bank case
The High Court has handed down a very significant ruling arising out of the Lloyds Bank decision in 2018, which ruled that trustees of defined benefit pension schemes must provide Guaranteed Minimum Pensions on an “equalised” basis between male and female members and approved some methodologies for how this can be achieved. However, the Lloyds Bank decision also left some key issues around equal scheme benefits unanswered.
In this new judgment, the High Court has dealt with how the obligation to equalise benefits works where members have previously taken Cash Equivalent Transfer Values (CETVs) from their schemes, but where the CETV was calculated on an unequal basis between male and female members for different periods of service.
What did the Court decide?
In summary, the Court has ruled as follows in relation to historic CETVs:
- Pension Scheme Trustees owe a duty to a member to make a transfer payment which was correctly calculated, reflecting the individual’s right to equalised benefits under their scheme. The Court expects Trustees to be “proactive” in fulfilling this duty and to consider the remedies available to members before determining the appropriate way to do this
- Interest is payable on the shortfall from the date of the original CETV to the date when the shortfall is made good.
- Very importantly, any claim by a member is not time barred under either the scheme rules or any statute of limitations
- If a Trustee is unable to make a top-up payment to the receiving scheme (e.g. because the receiving scheme has now been wound up), the Court acknowledged that it would be open to schemes to provide an alternative benefit in place of a CETV top-up. However, the judge stopped short of ruling what form an alternative benefit might take, given that the outcome in a specific case may depend on what solution might be reached between the parties themselves. However, the judge did find that the Trustees would not be able to require the former member to accept any type of “residual” benefit under their scheme and, likewise, the member would not be able to require the Trustees to provide them with such a benefit
What does this mean for pension schemes and members?
The latest decision in the long running Lloyds Bank case is potentially good news for pension scheme members who may be due a windfall top-up (plus interest) to a previous transfer value. Trustees have now learned that they cannot rely on any discharge forms signed by the member at the time of the historic CETV. A member can now request that Trustees revisit historic transfers and make good any shortfall plus interest, without any issues as to time limits.
From the Trustees’ perspective, however, equalising historic CETVs is likely to be a complicated and time-consuming exercise. Given that unequal transfers may date back as far as May 1990 (the date from which schemes were first required to equalise benefits between male and female members) many schemes may find gaps in their membership data leading to practical challenges around contacting members who may have taken transfer values as long ago as the 1990s. Another issue is where top-ups can actually be paid to – an obvious issue here being that many pension schemes are simply no longer in existence. There is also the financial impact of the further funding strain to the scheme, as well as to how to provide an accurate estimate of these top-up costs given the potentially limited membership data available.
Further industry guidance is expected shortly on how schemes can tackle historic CETVs, but for now, clearly, all these issues will require Trustees to work very closely with their advisors to find a sensible and pragmatic solution for their scheme.
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