Final salary scheme members wishing to trade their guaranteed income for a cash lump sum are being warned to expect delays following a recent ruling in the High Court.
The ruling has forced Lloyds Bank to equalise pension benefits between men and women in a move that is expected to cost the high street bank £150million.
The case centred on guaranteed minimum pensions, a portion of members’ pension benefits that is paid as a result of them being contracted out of the earnings-related state pension.
While pension benefits have been equalised between men and women for some time, the complexity involving these so-called guaranteed minimum pensions (GMPs) meant they had remained unequal due to men and women having different state pension ages.
Pension schemes had long been aware that this issue was brewing but had not arrived at a way equalising benefits in a way that would be fair to all members.
However, the issue was bought into the spotlight by three female members of the Lloyds Bank pension scheme who argued that their pension benefits had been undervalued as a result of the scheme’s failure to equalise GMPs for men and women.
Commenting on the ruling Nathan Long, senior analyst at Hargreaves Lansdown says: “There are several ways to equalise the GMP and schemes will now need to agree the best ways to do that for their members.”
He adds that the ruling is being regarded as a test case and is likely to force other schemes to equalise GMP benefits too. “They may put transfer values on hold until they have worked out how to adopt this new ruling and finalise their approach.”
Steve Webb, director of policy at Royal London says the ruling has made it very difficult to calculate accurate transfer values that will not be challenged. However not all schemes will put transfer values on hold. Some schemes are carrying on as usual on the understanding that an uplift may need to be applied at a later date while others are applying “ad hoc uplifts to transfer values now in approximation of GMP equalisation uplift”.
He says: “The recent ruling in the Lloyds Bank case has created real confusion among pension schemes and those who advise them.
"We urgently need the authorities to give a clear steer to schemes as to how they should respond to the court ruling and how they should go about equalising for the effect of differences in GMPs between men and women.”