The High Court Judgment in the Lloyds Bank Transfer case on 20 November 2020 provides answers but leaves plenty undecided.
Here is a bird’s eye view of what was decided, what is left undecided and how we can help:
1. What did the Court decide?
Decision – Trustees of a transferring scheme are under a legal obligation to the member to pay a top-up to the receiving scheme so far as needed to iron out any GMP inequality.
Transferring scheme trustees need to identify the members affected, carry out the calculation and pay the top-up to the trustee of the receiving scheme. What could be simpler?
2. Potential difficulties:
2.1 Data difficulties are likely to loom large as the GMP rights concerned accrued a long time ago (in the period from 17 May 1990 (the ‘Barber’ decision) to 5 April 1997 when GMPs ceased to accrue) and transfers will have occurred over the last 30 years.
The Lloyds Transfer case also decided that member claims for top ups against the transferring scheme are not time barred meaning trustees should not overlook any historic data or transfer.
Can the legal principle of ‘de minimis’ – ignoring small matters – be relied on to any extent to limit the work and cost involved? We can advise on this.
2.2 Identifying and categorising transfers made – the Court made it clear that the legal obligation to top-up applies only in relation to statutory transfers under the cash equivalent legislation. Even if the member signed a discharge form, the Court said that the top-up obligation still applies to statutory transfers. However, in the case of non-statutory transfers, the Court accepted that the scheme rules and any signed discharge may, depending on the wording used, mean a top-up transfer is not required.
As for bulk transfers where mirror image benefits are given in the receiving scheme, the Court said the top-up requirement does not apply to members’ “short service benefits” transferred in accordance with the 1991 Preservation Regulations (transfers without member consent).
The categorisation of transfers into types of transfer and the effect of discharge forms where relevant are topics on which trustees should obtain legal advice.
3. Must the transferring trustees be pro-active in calculating and paying any top-up payment due?
The Court confirmed transferring trustees should be pro-active but left this ultimately for each trustee board to decide. Unless there are special circumstances it is likely the member could apply to the Court for an order compelling trustees to carry out their legal obligation to top-up.
Trustees will need advice on whether special circumstances exist in their particular scheme.
4. What types of special circumstances may exist?
The judgment relates to top-up payments due from an existing DB transferring scheme to an existing DB receiving scheme being an occupational pension scheme.
But what of the following circumstances:
4.1 the member has moved on from a receiving scheme to another scheme; or
4.2 the receiving scheme has been wound up; or
4.3 the transfer was not to a DB occupational pension scheme, but to another arrangement such as a DC arrangement or applied in buying an annuity policy with an insurer.
These circumstances were not in issue in the Lloyds case and so the Court gave no clear answers to them. We will be pleased to discuss our views with you.
5. The other end of the telescope – what must receiving scheme trustees do if the transferring scheme will not implement a top-up payment, or cannot do so e.g. because it has been wound up?
These are further difficult legal questions which the Court left open in the Lloyds Bank case as they were not the factual circumstances before the Court. Trustees will need legal advice in this area.
Many issues will arise as trustees try to fulfil their legal obligations in accordance with the Lloyds Transfer decision.
We are acutely aware of the need for practicality and we look forward to helping trustee boards to find the right way forward.
NB. For our September 2020 podcast on GMP equalisation (prepared prior to the Lloyds Bank Transfer case), visit https://wedlakebell.com/episode-1/