A UK High Court ruling that Lloyds Banking Group must equalise its pension pay-outs for men and women could have widespread implications for employers operating final salary pension schemes.
Lloyds Banking Group may have to pay out up to £150 million (US$196 million) as a result of the decision. It has already been ordered to amend its pension schemes to equalise the benefits after three women brought a case claiming sex discrimination on the grounds that their pensions increased more slowly than those of their male counterparts.
The case centred around ‘Guaranteed Minimum Pensions’ (GMPs) for employees who contracted out of the State Earnings Related Pension (SERPs) scheme in the 1990s. When contracting out, both employees and their employer were entitled to pay a reduced rate of national insurance. The company paid a GMP instead, which for tax purposes was supposed to be “broadly equivalent” to what the employee would have received from SERPs.
But because the retirement age for women is lower than men, they ended up receiving a lower GMP. The court has now ruled that this situation amounted to discrimination and has ordered Lloyds to equalise the rates.
The case could have widespread implications for other private and public sector employers with final salary pension schemes. The Banking Trade Union (BTU), which brought the case on behalf of Lloyds employees, claims that as many as five million members of 6,000 pension schemes across the country could be affected.
But Steve Webb, former pensions minister and current director of policy at Royal London told People Management: “The total bill will run into many billions of pounds, but it is still not entirely clear exactly how schemes should remove inequalities arising from GMPs. Employers will not know their exact bill until their scheme has decided how to equalise, and that in turn will depend on updated guidance from DWP [Department of Work and Pensions], as well as on scheme-specific factors.”
He added that, while the Lloyds verdict was helpful, the different ways in which GMPs could be equalised had been left open. As a result, businesses now needed advice from the DWP on how to proceed.
A spokesperson for Lloyds said: “The hearing focused on what is a complex and long-standing, industry-wide issue. The group welcomes the decision made by the court and the clarity it provides. The group and the pension scheme trustee will be working through the details in order to implement the court’s decision.”
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
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A UK High Court ruling that Lloyds Banking Group must equalise its pension pay-outs for men and women could have widespread implications for employers operating final salary pension schemes.
Lloyds Banking Group may have to pay out up to £150 million (US$196 million) as a result of the decision. It has already been ordered to amend its pension schemes to equalise the benefits after three women brought a case claiming sex discrimination on the grounds that their pensions increased more slowly than those of their male counterparts.
The case centred around ‘Guaranteed Minimum Pensions’ (GMPs) for employees who contracted out of the State Earnings Related Pension (SERPs) scheme in the 1990s. When contracting out, both employees and their employer were entitled to pay a reduced rate of national insurance. The company paid a GMP instead, which for tax purposes was supposed to be “broadly equivalent” to what the employee would have received from SERPs.
But because the retirement age for women is lower than men, they ended up receiving a lower GMP. The court has now ruled that this situation amounted to discrimination and has ordered Lloyds to equalise the rates.
The case could have widespread implications for other private and public sector employers with final salary pension schemes. The Banking Trade Union (BTU), which brought the case on behalf of Lloyds employees, claims that as many as five million members of 6,000 pension schemes across the country could be affected.
But Steve Webb, former pensions minister and current director of policy at Royal London told People Management: “The total bill will run into many billions of pounds, but it is still not entirely clear exactly how schemes should remove inequalities arising from GMPs. Employers will not know their exact bill until their scheme has decided how to equalise, and that in turn will depend on updated guidance from DWP [Department of Work and Pensions], as well as on scheme-specific factors.”
He added that, while the Lloyds verdict was helpful, the different ways in which GMPs could be equalised had been left open. As a result, businesses now needed advice from the DWP on how to proceed.
A spokesperson for Lloyds said: “The hearing focused on what is a complex and long-standing, industry-wide issue. The group welcomes the decision made by the court and the clarity it provides. The group and the pension scheme trustee will be working through the details in order to implement the court’s decision.”
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
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