The mist has begun to clear from the recent October 2018 High Court judgment in the Lloyds Bank case, relating to equalisation of guaranteed minimum pensions (GMPs). As lawyers digest the clear and lucid 174-page judgement, they are considering the practical future implications for members, trustees and employers in UK pension schemes.
There is a need to equalise. However, the current pension differences between men and women are not straightforward; lawyers sometimes call it the ‘Jack or Jill’ approach.
Usually, it is better to be Jill before age 65, then switch to being Jack. The Court, however, said individuals cannot be ‘part Jack and part Jill’ from 65; this would be gold-plating the benefit, effectively giving both sexes something that neither was entitled to before. Nor can these switches occur as soon as his monthly pension begins to overtake hers, unless the employer agrees to that approach. All that can be insisted upon is to switch the approach when Jack’s total pension payments from retirement surpass Jill’s. Interest is to be included in order to take account of the value of Jill having had more earlier.
The worked examples in the judgment show the cross-over age on that basis is 91.
Implementation will require a lot of work, but this cumulative approach is helpful to schemes and employers in terms of delivering equality with the minimum financial impact.
The practical implications of the judgment will have to be worked out scheme by scheme because they depend on rules, but the direction of travel on GMPs seems clear: reconcile, equalise, convert.
The conversion legislation is not perfect, but it will simplify administration to convert GMPs into something that behaves the same way as the rest of the pension. A big obstacle has at last been unblocked; we can now begin to engage in a constructive way.
Kate Payne is partner at Arc Pensions Law