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.
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.
Tax questions
If, as a result of GMP Equalisation, you received a one off additional payment during 2020-2022, or an increase to your pension, this section provides some information about the potential tax impact.
Receiving a one-off extra amount in your pension could put you temporarily in a higher tax band, meaning you might be liable to pay more tax than if you had received the right level of pension originally in that tax year. You may be able to reclaim some of the tax you pay on the one-off additional payment in relation to payments due from previous tax years.
If you wish to make a claim, please contact the Scheme administrators and ask for a Tax-year breakdown of your figures, which you can send to HMRC. The Trustee has also prepared a template letter for you to use when contacting HMRC.
Yes, it is possible that if you receive a one-off additional payment, you will move into a higher tax bracket and your tax code (which is issued by HMRC) will change. But this is likely to be temporary.
When any additional payment is made, it will be added to the normal amount of pension that you receive each month. Tax will be deducted on the total amount through PAYE. The payroll information for that month is then passed to HMRC.
The month after you receive an additional payment, HMRC may issue a new tax code, as their system would think that your income has increased by this monthly amount for the rest of the year. HMRC have a system of dynamic coding, which means that the HMRC computer system reacts to any changes in income. It is possible that the tax code may not be correct at this point. However, by the second month after your additional payment, the system should have recalculated your expected income correctly and, if necessary, issued another replacement tax code.
The Lifetime Allowance (LTA) is a limit on the total value of your pension benefits that can be drawn from your pension schemes and paid to you without triggering an extra tax charge. Most people are not affected by this because you need to have a total value that exceeds the various historic rates - each of which are different but all are over £1 million (which equates to a pension of around £50,000 per year).
The LTA is set by the Government and was introduced in 2006.
If you retired before April 2006 the LTA will not apply to you.
If you retired after April 2006 and the total value of the benefits you receive from all your pension schemes (not including the State Pension) goes above this limit, you will have to pay extra tax.
You will find the current value of your Scheme benefits on your P60, which the Scheme administrators will send you. The amount of LTA you've used will usually be expressed as a percentage. Please remember that it's your responsibility to check your total benefits and determine if you have exceeded the government limits.
Increases to pension as a result of GMP Equalisation could impact your position against the Lifetime Allowance. If receiving a GMP Equalisation payment takes you over 100% of your Lifetime Allowance, or further over 100% if you had already exceeded your limit, you will have additional tax to pay.
Lifetime Allowance protection only applies to members who have previously elected for any reductions in the Lifetime Allowance to not apply to them. The Lifetime Allowance is currently set at over £1million - most members do not exceed this.
HMRC has confirmed that increased pensions resulting from GMP equalisation will generally not count as ‘new’ build-up of pension for the purpose of the Lifetime Allowance.
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 considering the Court’s ruling in full. As with the initial judgment, the matter is complex and it will take time to determine the appropriate resolution. We are currently reviewing the next steps and aim to equalise any relevant historic transfers and make top-up payments where required within the next 18 months i.e. quarter 2, 2024. Where necessary, former members who have taken transfers away from the Schemes will be contacted when the Trustee is able to provide further details.
We will continue to provide relevant information via this website.
If 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. The contact details for the administrators are:
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.
