In the past, State Pensions were paid to men and women at different ages. This is still the case for GMPs. As a result, women and men built up GMPs at different rates and therefore their GMPs are payable at different dates.
In 1990, the law changed and all UK pension schemes had to equalise pension benefits for women and men. However, the law setting out the way GMPs were treated didn’t adjust in line with this change. GMPs are still unequal because they were based on the old State Pension system, which had different retirement ages for women and men.
For many years the government and the pensions industry talked about whether something should be done to make up for some GMPs being unequal, however, it is a very complex area and it was difficult to work out what should be done and how.
In 2016 the Affinity Trade Union, which also communicates as the Banking Trade Union, supported cases against Lloyds Bank Plc and the Trustee in an Employment Tribunal on behalf of some Scheme members. It supported claims that these Scheme members’ pensions were being treated differently because of GMPs, which meant that these members had been discriminated against. Lloyds Bank plc, the Trustee and those Scheme members bringing the case agreed that these issues should be heard in the High Court because of the complexity and importance of the issue and the number of other members who could be affected.
The Trustee, Lloyds Bank plc and HBOS plc, and members from each of the Lloyds Bank Pension Schemes No.1, No.2 and HBOS Final Salary Pension Scheme were all represented at the Court hearing. The Department of Work and Pensions and Her Majesty’s Treasury also joined the proceedings. The hearing started on 5 July 2018 and ended on 18 July 2018. The decision that pensions should be equalised for the effect of GMPs was announced by the Court on 26 October 2018.
Overview of the Court Hearing
Two main questions were put to the Court:
‘Do we need to equalise the way GMPs are treated?’
‘If we do need to equalise the way GMPs are treated, do we need to do it in a certain way, or do we have a choice?’
All parties, including the Bank and members representing each of the Schemes, set out their positions to the Court and the parties involved put forward four main methods for achieving equalisation. It was then for the Court to decide which, if any, of these various methods were lawful.
The outcome of the hearing was that pensions do need to be equalised for the effect of GMPs and the method chosen by the Bank and Trustee involved an annual comparison and paying the higher of the male or female pension each year, ensuring that members are not worse off.
A Guaranteed Minimum Pension (GMP) is a minimum level of pension that some members get. A member will only have a GMP if their pension scheme was contracted out of the State Second Pension. The Court hearing looked at GMP built up between 17 May 1990 and 6 April 1997.
There used to be two state pensions – the basic one and an additional one, known as the State Second Pension or SERPS.
People who had a workplace pension could be ‘contracted out’ of this additional state pension. The Lloyds schemes were amongst thousands of schemes that contracted out. Contracting out meant that the employer and the members paid lower National Insurance contributions. These members built up less pension in SERPS but instead got a guarantee that their workplace scheme would pay them a minimum level of pension income. This was broadly equivalent to the SERPS pension they would have earned had they not been contracted out. This level was called a Guaranteed Minimum Pension (GMP).
If you have a GMP, your pension scheme has to pay you a pension income that is at least as much as your GMP amount, when you reach your GMP age (60 for women and 65 for men). If you haven’t built up enough benefits in the scheme to give you your GMP amount, the scheme has to make up the difference. Also, any GMP built up between 6 April 1988 and 5 April 1997 must be protected against rising prices.
For members who have a GMP, it’s usually only a small part of their overall pension.
If you are a member of a pension scheme that was contracted out of the State Second Pension between 6 April 1978 and 6 April 1997, you will probably have a GMP. Lloyds Bank Pension Schemes No.1, No.2 and HBOS Final Salary Pension Scheme were all contracted out. However, the only members affected by the Court’s ruling will be some members who were building up a GMP between 17 May 1990 and 6 April 1997.
Employers decided whether or not a scheme would contract out of the Second State Pension, after consulting with relevant trade unions and informing affected employees. The decision applied to everyone who was building up benefits in that scheme and anyone who then joined that scheme.
In the past, State Pensions were paid to men and women at different ages. This is still the case for GMPs. As a result, women and men built up GMPs at different rates and their GMPs are payable at different dates. In 1990 the law changed and all UK pension schemes had to equalise pension ages for women and men. However, the law setting out the way their GMPs were treated didn’t adjust in line with this change. As a result, GMPs remained unequal.
GMP Equalisation is the process of adjusting scheme benefits to ensure that men’s and women’s GMP is treated the same. In many UK defined benefit pension schemes, including some of the Lloyds ones, GMPs are still unequal. This is because they built up at different rates for men and women and are payable at different dates.
The issue of unequal GMPs affects lots of pension schemes, not just the Lloyds Schemes. Thousands of UK pension schemes provide GMPs and are likely to treat GMPs unequally. This is because of the complicated way that pensions have changed over the years. The Court hearing was about the Lloyds Schemes, but the Court’s decision will affect lots of similar schemes.
Who is affected by GMP Equalisation and how?
This section provides details about how GMP Equalisation could affect you, based on your personal circumstances.
GMP Equalisation only directly affects some members, or beneficiaries of members, in Lloyds Bank Pension Schemes No.1, No.2 and HBOS Final Salary Pension Scheme. It affects those who built up a GMP between 17 May 1990 and 6 April 1997.
This is because the law changed in 1990 and GMPs ended in 1997. As this is an industry-wide issue, the 2018 High Court ruling that schemes need to equalise pensions for the effect of GMP also affects many other UK defined benefit pension schemes - including other Lloyds Banking Group Schemes.
GMP Equalisation affects both men and women, and both pensioners and non-pensioners. However, only some members will actually be due an increase to their pension. If you are due an increase, this will only make a difference to you once you start taking your pension (and when the GMP affects the level of pension payable, which is usually not before age 60) - or if you transfer out of the Scheme.
In order to equalise a member’s pension, we measure it against a ‘comparison’ pension, worked out as if they were a member of the opposite sex (but with the same age, salary, service and retirement age). If the comparison pension is higher, we adjust the member’s pension to match it. If it’s not higher, the pension in payment will remain the same. This is done at the following points:
1. When you retire (if retiring at age 60 or over)
2. When you reach age 60/65 (Female/Male GMP age) – if this is after you retire
For members who have a GMP, it’s usually only a small part of their pension. So they’re likely to see little or no increase to their pension overall, as a result of GMP Equalisation.
A review of our records suggests that, of all the members in the relevant Lloyds and HBOS Schemes, around half are not affected at all by GMP Equalisation. That’s because they didn’t build up a GMP between 17 May 1990 and 6 April 1997. It’s possible that half or more of those who are affected will still receive no increase, because there’s no overall disadvantage to them from the way their GMP was treated. The analysis suggests that for the majority of people who are due an increase, it is likely to be less than £500 over the course of their retirement, which could be over 30 years.
Nobody will see the value of their pension go down as a result of GMP Equalisation.
You could be affected if you are due to receive a pension from Lloyds Bank Pension Scheme No.1 or No.2 or the HBOS Final Salary Pension Scheme, and you built up a GMP between 17 May 1990 and 6 April 1997. If you are affected, you might get an increase to your pension. The value of your pension will not go down.
If you are due an increase this will not make a difference to you unless you are aged 60 or over (and in receipt of a pension) - or transfer out of the Scheme.
So, if you are a long way from retiring, any increase you are due will just be included as part of your benefits when you start taking them.
Nobody will see the value of their pension go down as a result of GMP Equalisation.
You could still be affected if you built up benefits in the Scheme between 17 May 1990 and 6 April 1997, even if you transferred out.
This means that, if you are due any extra benefit as a result of GMPs being unequal in relation to your past transfer out, you would receive your benefit as a separate top-up payment. You can transfer this top-up payment into a pension arrangement of your choice (as long as it can accept the transfer). You can find out more information in the ‘If you transferred out of the Scheme in the past’ section.
Transferring your benefits out of the Scheme
This section applies to you if you have already transferred your benefits out of the Scheme. If you intend to in the future, the transfer will be calculated to reflect GMP equalisation.
A Court hearing on transferred benefits took place in early May 2020 with a follow-on hearing in October 2020.
The Court handed down its decision on 20 November 2020, providing clarity on how members who have transferred out of the Schemes should be treated with regard to GMP Equalisation.
The Trustee, along with its advisers, are now acting on the Court’s ruling. You may still be due a top-up payment if you built up Scheme pension between 17 May 1990 and 6 April 1997, and then transferred your benefits out prior to December 2020. Transfers beyond this date were completed taking GMP Equalisation into account.
As a result of High Court rulings in 2018 and 2020, all UK pension schemes are legally required to adjust members’ benefits to allow for unequal GMPs built up between 17 May 1990 and 6 April 1997. Where possible, the Trustee has now reviewed the transfers out of the Lloyds Banking Group schemes where ex-members had service during 17 May 1990 and 6 April 1997 and worked out which members would have been entitled to a higher transfer out as a result of GMP Equalisation.
For any eligible transfers out of the Scheme where GMP Equalisation has not been taken into account, we have appointed Aon to locate ex-members to arrange top-up payments where we know a payment is due.
Given the volume of our membership, this will take place on a phased basis between May and December 2023.
If you have not heard from us during this time and you believe that you built up a GMP between 17 May 1990 and 6 April 1997 in the Lloyds Bank Pension Schemes No.1, No.2 or HBOS Final Salary Pension Scheme and have since transferred your benefit to a new pension arrangement, you can contact the Scheme administrators and log your details.
Aon have been appointed by the Trustee to manage the process of contacting former members of the Lloyds Banking Group schemes where we know a top-up payment is due in relation to a historic transfer out impacted by GMP equalisation. If you are due a top-up payment in relation to a past transfer out as a result of GMP equalisation, Aon will contact you directly between May 2023 and 31 December 2023.
You don’t need to do anything. The process for working out which former members are potentially impacted by GMP equalisation in relation to a past transfer out of a Lloyds Banking Group scheme is particularly complex and will take some time to complete. If we know you are due a top-up payment in relation to a past transfer out as a result of GMP equalisation, Aon will contact you directly between May 2023 and 31 December 2023.
If you have not heard from Aon during this time and you believe that you built up a GMP between 17 May 1990 and 6 April 1997 in a Lloyds Banking Group scheme and have since transferred your benefit to a new pension arrangement, you can contact the Scheme administrators and log your details.
Aon have been appointed by the Trustee to manage the process of contacting former members of the Lloyds Banking Group schemes where a top-up payment is due in relation to a historic transfer out impacted by GMP equalisation.
If we know you are due a top-up payment in relation to a past transfer out as a result of GMP equalisation, Aon will contact you directly between May 2023 and 31 December 2023.
More details on Aon can be found at their website: www.aon.com
To work out if you are due a top-up payment, we have to work out the level of GMP built up in respect of your previous scheme membership between 17 May 1990 and 6 April 1997 and measure the value of your total pension based on that GMP. We then measure the value of your total pension worked out as if your GMP built up between 17 May 1990 and 6 April 1997 were that of a former member of the opposite sex.
For some members, this will show that the value of your pension would have been higher had it been worked out on the basis of the opposite sex. As a result, you will be due a one-off top-up payment. GMP is usually a modest benefit in itself, which means that the top-up payments vary in amount.
For others, the value of your pension would have been at least as high as the ‘opposite sex’ pension and, as a result, are not due a top-up payment.
The High Court ruling stated that pension earned between 17 May 1990 and 6 April 1997 must be equalised for the effect of unequal GMP. GMP earned before this period does not need to be equalised. GMP ceased to exist for service after this period.
The option pack you will have received will tell you the amount you are due and what options are available to you for payment. Your options are determined by the following factors:
the size of the top-up payment;
when you transferred out; and
whether you still have deferred benefits or are being paid a pension in the same Lloyds Banking Group arrangement you transferred out of.
You may have had more than one period of membership in the same Lloyds Banking Group Scheme, which you then transferred out. If you have more than one transfer out of the same Scheme, we will consider them all, and your top-up payment will cover those transfers affected by this GMP issue.
Please note that you may have had one or more transfer that did not relate to the affected 1990-1997 period or did not entitle you to a top-up payment.
The issue of unequal GMPs affects lots of pension schemes, not just the Lloyds Banking Group schemes. Thousands of UK pension schemes provide GMPs and are likely to treat GMPs unequally. This is because of the complicated way that pensions have changed over the years. So, if you have transferred benefits out of other DB schemes, these may also be affected by GMP equalisation.
Possibly. We strongly recommend you contact the administrator of the arrangement you want to receive your top-up payment to check that they are willing and able to accept it. If they are, you will need to ask them to complete and return a “Receiving arrangement acceptance form” (this form is in your option pack), so that we know they will accept the payment.
If you are a current member (or have retained benefits) in Your Tomorrow (Lloyds Banking Group’s current defined contribution pension arrangement), you can transfer the top-up payment to this scheme. Please note that you need to fill in your member reference number to confirm your membership of Your Tomorrow. Please contact Willis Towers Watson (WTW) on 01737 227 522. Or you can email them at yourtomorrow@willistowerwatson.com
Remember, you are unable to transfer to any of the Lloyds Banking Group DB pension arrangements.
If your top-up payment is £5,000 or over, the Trustees have arranged an option for you to set up a ‘LifeSight’ account to receive the transfer. LifeSight is a ‘defined contribution’ pension arrangement that we have set up with WTW. More information on LifeSight can be found in the answer to the question “What is LifeSight?”
LifeSight is a ‘defined contribution’ pension arrangement which is set up as a trust and is run by an independent board of Trustees who have appointed Willis Towers Watson (WTW) to carry out the day-to-day administration. This sort of pension plan is known as a Master Trust. If you choose to have your top up payment made to LifeSight, it will be invested in the Medium Risk Drawdown Lifecycle option. You can access the Plan Guide, the Investment Guide and the Charges Schedule to familiarise yourself with the investment choices and charges if you want to select this option.
In a defined contribution pension arrangement, you build up a pot of savings that you use at retirement to provide benefits.
The savings you build up will depend on several factors, including how your investments perform, any charges you incur and the age at which you choose to access your savings.
You use your savings to provide one or more of the following options:
Drawdown – where you take one-off sums or a regular income from your savings as and when you need it. The rest of your savings remain invested.
An annuity – a contract with an insurance company that provides you with a regular income for a guaranteed period.
Cash – which gives you the option to take your savings as a single lump sum.
If you transfer out, you give up all future benefits from the Scheme. This is in return for a lump sum – a ‘transfer value’. We transfer this amount to a new pension arrangement that you choose. Since December 2020, transfer values have been calculated taking account of GMP Equalisation.
