Judgment in the Lloyds GMP Equalisation case
On 26 October 2018 Mr Justice Morgan handed down Judgment in Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank PLC & Others.
Andrew Short QC and Nicholas Hill acted for the Representative Beneficiaries, instructed by Ivan Walker of Walkers Solicitors. This landmark decision settles the longstanding question of whether Pension Scheme Trustees are required to adjust non-GMP benefits (“Excess”) in order that the total benefits received by male and female members with equivalent age, service and earnings histories are equal.
In summary, the Judge held that:
- Pension Scheme Trustees are obliged to adjust the Excess payable under schemes in order that the total benefits received by male and female members with equivalent age, service and earnings histories are equal. In particular the Judge held that:
- The totality of benefits paid to members under the schemes had the character of pay for the purposes of Article 157 of the Treaty on the Functioning of the European Union.
- b. Whilst he did not need to decide the point (because of his conclusion on the application of Article 157), on the literal wording of section 67 of the Equality Act 2010 it could be strongly argued that the payment of unequal benefits under the schemes was unlawful under section 67 itself.
- c. It was not open to the Trustee to say that it was lawful to pay the unequal benefits on the ground that there is an objective difference between the position of males and females arising from the GMP legislation. The unequal treatment in issue arose from the GMP rules which were a proxy for the difference in sex (the Judge thus rejected the Banks attempt to rely, by analogy, on Roberts v Birds Eye Walls Ltd (C-132/92)  ICR 338 and Hlozek v Roche Austria GmbH (C-19/02)  1 CMLR 28).
- d. For the same reason, it was not lawful to pay unequal benefits on the ground that the defence of material factor under section 69 of the Equality Act 2010 applied.
- Various options are available to Pension Scheme Trustees to amend Schemes in order to equalise benefits for men and women so as to alter the unequal result which is at present produced in relation to GMPs. In particular:
- a. The Judge accepted that the court was required (pursuant to European and domestic law) to adopt a term-by-term approach when carrying out a comparison of pension scheme terms in an equal pay case.
- b. The relevant term for the purposes of the comparison in issue was the overall pension benefit.
- c. Accordingly, various options were available lawfully to effect equalisation.
- d. The principle of minimum interference required the court to compare the options and consider in relation to any particular option whether the obligation to provide equal benefits might be complied with in some other way involving less interference with the rights of any party.
- e. As a result, although various options would have introduced equality, the Trustees were not entitled to adopt methods which were more generous than the necessary, as this would infringe the principle of minimum interference judged from the standpoint of the Banks. Similarly, methods that replaced an actual entitlement to levelled up benefits with a sum calculated by reference to actuarial assumptions would infringe the principle of minimum interference judged from the standpoint of the members.
- f. The Banks could require the Trustees to adopt a method which puts the higher of the male or female entitlements into payment but, in cases where the advantaged class switches from female to male (or vice versa), the accumulated advantage prior to the switch plus interest is set off against the accumulated loss after the switch.
- Notwithstanding concerns about the drafting, GMP conversion pursuant to the Pension Schemes Act 1993 (sections 24A to 24H) enables GMP conversion in relation to persons who are earners and survivors at the time of conversion.
- Beneficiaries are entitled to receive arrears of payments due to them together with simple interest at 1% above base.
- The period for which beneficiaries are entitled to receive arrears of payments is governed by the rules of the Schemes. The Rules of the Schemes in issue were not contrary to section 92(5) of the Pensions Act 1995.
- By virtue of section 21(1)(b) of the Limitation Act 1980, there is no relevant limitation period in relation to proceedings to recover arrears.
- Section 134 of the Equality Act 2010 is contrary to EU law and is not effective in relation to proceedings by beneficiaries to recover arrears of payments where the Trustee is in possession of trust assets, as section 134 offends the principle of equivalence in such a case.
The Judgment will have significant financial and legal consequences.
In 2012 the Occupational Pension Schemes Joint Working Group estimated the cost of implementing GMP equalisation programmes for all private sector contracted out schemes on a basis of equalising actuarial values (which the Judge held was not a permissible method because it breached the principle of minimum interference) at £13 billion (with up to £300 million in implementation costs). The Pensions Management Institute estimated GMP equalisation costs to be in the region of £10 – 20 billion.
The limitation issues that arise from the decision on s21(1)(b) of the Limitation Act 1980 and section 134 EA 2010 will be relevant in a wide range of contexts (not least professional negligence claims).
The Judgment also leaves open a number of tricky issues that still need to be resolved, not least the vexed issue of comparators and the decision of the ECJ in Allonby v. Accrington & Rossendale College  ICR 1328 and the impact of the Judgment on Scheme transfers.
Barristers: Andrew Short QC | Nicholas Hill