A recent landmark court ruling has resulted in the requirement for occupational pension schemes to provide equal GMP benefits for men and women to reflect the equalisation of retirement ages in the 1990s.
The Guaranteed Minimum Pension (GMP) is the minimum pension which an occupational pension scheme has to provide for those employees who were contracted out of the State Earnings-Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997. The amount is said to be ‘broadly equivalent’ to the amount the member would have received had they not been contracted out.
The High Court ruling in the case of Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank PLC and others means that Lloyds Banking Group must amend its three Defined Benefit (DB) pension schemes in order to equalise GMPs for men and women. The ruling could cost Lloyds up to £500m.
Total costs across all DB schemes that have members with GMPs could be around £20 billion!
If this ruling affects you as an employer, what are the ramifications?
There will be the impact on scheme funding of course, but in addition, you’ll need to consider the impact on your financial statements. The legal clarity provided by the ruling will effectively require trustees to equalise GMPs and so triggers the need for immediate action in accounting disclosures to include this liability on your balance sheets. This could affect budgets and forecasts.
If you are unsure of your GMP liabilities, or would like to talk about your workplace pension, please contact your Brunsdon Financial Adviser now.
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