The High Court ruled on Friday that pensions provided to members of the Lloyds Bank pension scheme who had contracted out of the State Earnings Related Pension Scheme (SERPS) must be recalculated to ensure payments reflect the equalisation of state pension ages.
Three female members of the scheme claimed sex discrimination because their Guaranteed Minimum Pension (GMP) increased at a lower rate than for male members. Around 135,000 women at Lloyds are estimated to have been impacted by a £500 to £3,000+ per annum gap, which affected members who were contracted out of SERPS between 1990 and 1997. Those members will receive payment of the arrears with no limitation period and interest applied at 1% over Bank of England base rate. Following the High Court’s decision, the scheme is facing a bill of up to £150 million. Release of the judgment, which should provide more information as to the basis for calculating the compensation due to affected members, and the implications for other defined benefit schemes, is awaited. Industry analysts have suggested that the overall cost to the contracted out sector could be £20 billion, with thousands of other defined benefit schemes likely to have to amend their own scheme rules to equalise GMPs between men and women and make up arrears due to affected members.
GMPs were first introduced in 1978 to allow schemes to contract out of SERPS, provided they were as good as the statutory minimum amount. Following the Barber ruling in 1990, trustees have to pay equal benefits to comparable men and women in relation to service from that date. In 2004, the European Court of Justice judgment in Allonby made it clear that benefits should be equalised even in instances where there was no comparator of the opposite sex. While most schemes implemented this requirement by equalising pension ages and overall benefit scales as between males and females, most ignored the gender inequalities that existed concerning the calculation of GMPs because these were designed to broadly mirror state benefits (and state benefits, whilst unequal, were not covered by the treaty). This meant that women received their GMPs at age 60, compared to age 65 for men, which subsequently accrued at a faster rate.
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Lloyds faces bill of up to £150m in pensions discrimination ruling Landmark decision could lead to £20bn in payouts for women in the private sector