The High Court has ruled that Lloyds Banking Group must equalise its guaranteed minimum pensions (GMP) for men and women, in a landmark judgment that could cost major pension schemes £15 billion.
The case relates to GMP schemes that ran between 1990 and 1997 for members who contracted out of the top-up state earnings-related pension scheme (SERP). GMPs were not recalculated to reflect the equalisation of state pension ages in the 1990s due to lack of clarity on how this should be carried out.
However, three female members of Lloyds pension schemes took their case to court, claiming discrimination because their GMPs increased at a lower rate than equivalent male schemes.
A Lloyds spokesperson said: “The hearing focused on what is a complex and longstanding industry-wide issue. The group welcomes the decision made by the court and the clarity it provides. The group and the pension scheme trustee will be working through the details in order to implement the court’s decision.”
The High Court judgment in favour of the women is expected to cost Lloyds Banking Group up to £150 million. On a wider level, the ruling means men and women should have the same benefits from historical pensions, potentially affecting millions of people. Consultants LCP recently estimated that the wider impact of the case could cost major organisations £15 billion.
Angela Sharma, professional support lawyer, pensions, at Taylor Wessing, commented: "The decision is clearly a costly outcome for the employers involved, and potentially affected schemes generally. Member expectations and communications will have to be carefully managed following the decision.
"The court's view of the methods which can be applied will need to be examined carefully by affected schemes. That will not be straightforward. In any event, accurate data will be key in what is likely to be a time consuming and in itself costly equalisation process."
The Department for Work and Pensions (DWP) said it would be offering guidance to pension schemes in the near future following the ruling.
Samantha Brown, pensions partner at Herbert Smith Freehills, said: "This judgment provides welcome clarity on a longstanding area of legal debate, and confirms that pension schemes do need to equalise members' benefits for the effect of guaranteed minimum pensions. Although the inequalities stem from the state pension framework and the legislation itself, the court's decision was clear that it is an issue that affected schemes will now need to address.
"This case highlights the nightmarish complexity of UK pensions legislation. It also illustrates the perils faced by employers who, having complied with the UK's legislative requirements to the letter, now face a significant additional liability because that legislation and the corresponding state pension benefits treat males and females differently."
