The trustees of defined benefit schemes will have to revisit pension transfers made in the past 30 years for individuals with contracted-out benefits and provide a top-up if necessary.
In a judgment handed down today, the High Court ruled that the trustees committed a breach of duty if they did not equalise the member’s guaranteed minimum pension benefits at the time of calculating the cash equivalent transfer value.
Schemes which had contracting-out benefits will need to revisit their past transfers dating back to 1990, with Mr Justice Morgan ruling there was 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 in 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.