England and Wales High Court (Chancery Division) Decisions

(1)    is there an obligation to equalise benefits?

(2)    if so, what method should be adopted in order to equalise benefits?

(3)    for what period in the past can a member claim in respect of previously underpaid benefits?

(4)    what should be done in relation to benefits which have been transferred into, and out of, the relevant schemes?

The parties

Representation orders

a)                   the First Defendant be appointed to represent all present, future and former employers and present, future and former beneficiaries of the No. 1 Scheme and the No. 2 Scheme (and those claiming under them) in whose interests it would be for the answers to the Issues to be those set out in Column 2;

b)                  the Second Defendant be appointed on the same terms as in (a) but in respect of the HBOS Scheme;

c)                   the Third Defendant be appointed to represent all present, future and former beneficiaries of the No. 1 Scheme (and those claiming under them) in whose interests it would be for the answers to the issues be those set out in Column 3;

d)                  the Fourth Defendant be appointed on the same terms as in (c) but in respect of the No. 2 Scheme; and

e)                   the Fifth Defendant be appointed on the same terms as in (c) but in respect of the HBOS Scheme.

Procedural background

A summary of the problem

“3.10     The GMP is the minimum pension that a scheme that was contracted out of the Additional State Pension between 6 April 1978 and 5 April 1997 has to provide to its members. GMP rules were abolished for post 5 April 1997 contracted out service. However past accruals remain subject to them and a scheme must still provide a pension at least as good as the GMP for any time a person was a member of that scheme, up to and including 5 April 1997.

3.11       Legislation requires GMPs to be determined on an unequal basis: under the Pension Schemes Act 1993 (“PSA93”), a woman’s GMP accrues at a greater rate than that of a man in recognition that a woman’s working life for State pension purposes was five years shorter than that of a man. As a result, where a woman and a man have an identical work history, the woman’s overall GMP will be greater than that of the man.

3.12       As a woman is also entitled to receive her GMP at an earlier age (age 60) than a man is entitled to receive his (age 65), further differences can arise for a GMP in payment. This is through the operation of the revaluation provisions of PSA93 applicable up to this GMP pension age and of the indexation provisions of PSA93 after GMP pension age. Whilst the rates of revaluation or indexation do not differ on the basis of sex, a woman will be entitled to indexation in periods during which a man is entitled to revaluation, due to the differing GMP pension ages, and the rate of indexation differs from the rate of revaluation.

3.13       The requirement that GMPs are calculated and paid on an unequal basis flows through to result in an inequality of the overall scheme pension in payment.  This is compounded by the requirements for preservation, revaluation and anti-franking legislation in PSA93 that benefits above GMP (“excess benefits”) be determined with reference to this unequal GMP and the fact that revaluation and indexation provided on the excess benefit can and usually differs to that on the GMP element (depending on the legislation and the rules of the scheme).

3.14       As a result, it can become far from clear which sex receives the greater total scheme benefit. It is also possible for the position to change over the course of a lifetime so that an individual who is advantaged on the basis of sex when the GMP is first paid becomes disadvantaged later. In other words, which sex is advantaged may fluctuate over the course of a lifetime.”

 “implementing [GMP] equalisation programmes for all private sector contracted out schemes on a basis of equalising actuarial values would add in the region of £13 billion to pension scheme liabilities, and could absorb up to £300 million in implementation costs”. 

In response to the same consultation, the Pensions Management Institute estimated the GMP equalisation costs to be “in the region of £10-20 billion …”.

PART II: SERPS and GMPs

SERPS

(1)                a basic pension payable at a weekly rate; and

(2)                an additional pension payable where there are one or more surpluses in the pensioner's earnings factors for the relevant years or where the pensioner has one or more units of additional pension.

Thus, section 44(3) provides for an additional pension (“AP”) as a part of the state Category A pension. 

(1)                the claimant has reached pensionable age in the period to which the scheme applies, pensionable age being 60 for women and 65 for men: SSCBA 1992, sections 44(1)(a) and 122(1) as originally enacted.  For women retiring before 6 April 2016 under SERPS, their State Pension age would range from 60 to 63; and

(2)                the relevant contribution conditions are satisfied: SSCBA 1992, sections 44(1)(b), 20(1)(f) and 22 and schedule 3, para 5; in summary, the claimant has to have paid (or been credited with) Class 1, 2 or 3 National Insurance Contributions on earnings between the lower and upper earnings limits for at least nine-tenths of his or her working life; “working life” is from age 16 to retirement or death if earlier: see SSCBA 1992, schedule 3, para 5(8). 

(1)                in how many years the earner paid Class 1, 2 or 3 National Insurance Contributions;

(2)                earnings;

(3)                whether the earner topped up their basic State Pension with Class 3A contributions so as to be entitled to ‘additional units’ of pension under SSCBA 1992, section 14A (this was only possible between 12 October 2015 and 5 April 2017); and

(4)                the date the earner reaches state pension age.                                      

“ 45.- The additional pension in a Category A retirement pension.

(1) The weekly rate of the additional pension in a Category A retirement pension in any case where the pensioner attained pensionable age in a tax year before 6th April 1999 shall be the sum of the following— (a) in relation to any surpluses in the pensioner's earnings factors, the weekly equivalent of 1 1/4 per cent. of the adjusted amount of the surpluses mentioned in section 44(3)(b) above; and (b) if the pensioner has one or more units of additional pension, a specified amount for each of those units.

(2) The weekly rate of the additional pension in a Category A retirement pension in any case where the pensioner attained pensionable age in a tax year after 5th April 1999 shall be the sum of the following— (a) in relation to any surpluses in the pensioner's earnings factors for the tax years in the period beginning with 1978-79 and ending with 1987-88, the weekly equivalent of 25/N per cent. of the adjusted amount of those surpluses; and (b) in relation to any surpluses in the pensioner's earnings factors in a tax year after 1987-88 but before the first appointed year, the weekly equivalent of the relevant percentage of the adjusted amount of those surpluses;  and (c) in relation to any tax years falling within subsection (3A) below, the weekly equivalent of the amount calculated in accordance with Schedule 4A to this Act; and  (d) in relation to the flat rate introduction year and subsequent tax years, the weekly equivalent of the amount calculated in accordance with Schedule 4B to this Act; and (e) if the pensioner has one or more units of additional pension, a specified amount for each of those units. (2A) For the purposes of subsections (1)(b) and (2)(e) the “specified amount” is an amount to be specified by the Secretary of State in regulations.

(3) In subsection (2)(b) above, “relevant percentage” means — (a) 20/N per cent., where the pensioner attained pensionable age in 2009-10 or any subsequent tax year; (b) (20 + X)/N per cent., where the pensioner attained pensionable age in a tax year falling within the period commencing with 1999-2000 and ending with 2008-9.

(3A) The following tax years fall within this subsection– (a) the first appointed year; (b) subsequent tax years before the flat rate introduction year.

(4) In this section— (a) X = 0.5 for each tax year by which the tax year in which the pensioner attained pensionable age precedes 2009-10; and (b) N = the number of tax years in the pensioner's working life which fall after 5th April 1978; but paragraph (b) above is subject, in particular, to subsection (5) and, where applicable, section 46 below.

(5) Regulations may direct that in prescribed cases or classes of cases any tax year shall be disregarded for the purpose of calculating N under subsection (4)(b) above, if it is a tax year after 5th April 1978 in which the pensioner— (a) was credited with contributions or earnings under this Act by virtue of regulations under section 22(5) above, or (b) was precluded from regular employment by responsibilities at home, or (c) in prescribed circumstances, would have been treated as falling within paragraph (a) or (b) above, but not so as to reduce the number of years below 20.

(6) For the purposes of subsections (1) and (2) above, the weekly equivalent of any amount shall be calculated by dividing that amount by 52 and rounding the result to the nearest whole penny, taking any 1/2p as nearest to the next whole penny.

(7) Where the amount falling to be rounded under subsection (6) above is a sum less than 1/2p, the amount calculated under that subsection shall be taken to be zero, notwithstanding any other provision of this Act or the Administration Act.

(8) The sums which are the weekly rate of the additional pension in a Category A retirement pension are subject to alteration by orders made by the Secretary of State under section 150 of the Administration Act.”

“2.5.19    … Entitlement is based on earnings between the LEL [lower earnings limit] and the UEL [upper earnings limit], which are recorded each year. At retirement age, the relevant earnings for each year are revalued in line with the growth of average earnings. The pension payable is calculated in two stages. The total revalued amount is first divided by the number of years in the individual's working life since 6 April 1978. The result is then multiplied by a percentage which for a person reaching state pension age before 6 April 1999 is 25 per cent, and for a person reaching that age after 5 April 2009 is twenty per cent, with a sliding scale for the intervening years. For those retiring before 1999, SERPS is effectively the equivalent of a scheme accruing at n/80 for the twenty-year period since 1978, (though of revalued average, rather than final earnings). When the transition is complete, the effective accrual rate will drop to as little as n/245 for a man with a 49-year working life. As for basic pension, pensions in payment are indexed by retail prices.”

“61. Differential pensionable ages were first introduced for men and women in the United Kingdom in 1940, well before the Convention had come into existence, although the disparity persists to the present day (see paragraph 32 above). It would appear that the difference in treatment was adopted in order to mitigate financial inequality and hardship arising out of the woman’s traditional unpaid role of caring for the family in the home rather than earning money in the workplace. At their origin, therefore, the differential pensionable ages were intended to correct “factual inequalities” between men and women and appear therefore to have been objectively justified under Article 14 (see paragraph 51 above).

62. It follows that the difference in pensionable ages continued to be justified until such time that social conditions had changed so that women were no longer substantially prejudiced because of a shorter working life. This change, must, by its very nature, have been gradual, and it would be difficult or impossible to pinpoint any particular moment when the unfairness to men caused by differential pensionable ages began to outweigh the need to correct the disadvantaged position of women. Certain indications are available to the Court. Thus, in the 1993 White Paper, the Government asserted that the number of women in paid employment had increased significantly, so that whereas in 1967 only 37% of employees were women, the proportion had increased to 50% in 1992. In addition, various reforms to the way in which pension entitlement was assessed had been introduced in 1977 and 1978, to the benefit of women who spent long periods out of paid employment. As of 1986, it was unlawful for an employer to have different retirement ages for men and women (see paragraph 33 above).

63. According to the information before the Court, the Government made a first, concrete, move towards establishing the same pensionable age for both sexes with the publication of the Green Paper in December 1991. It would, no doubt, be possible to argue that this step could, or should, have been made earlier. However, as the Court has observed, the development of parity in the working lives of men and women has been a gradual process, and one which the national authorities are better placed to assess (see paragraph 52 above). Moreover, it is significant that many of the other Contracting States still maintain a difference in the ages at which men and women become eligible for the State retirement pension (see paragraph 37 above). Within the European Union, this position is recognised by the exception contained in the Directive (see paragraph 38 ...).

64. In the light of the original justification for the measure as correcting financial inequality between the sexes, the slowly evolving nature of the change in women’s working lives, and in the absence of a common standard amongst the Contracting States (see Petrovic , cited above, §§ 36-43), the Court finds that the United Kingdom cannot be criticised for not having started earlier on the road towards a single pensionable age. 65. Having once begun the move towards equality, moreover, the Court does not consider it unreasonable of the Government to carry out a thorough process of consultation and review, nor can Parliament be condemned for deciding in 1995 to introduce the reform slowly and in stages. Given the extremely far-reaching and serious implications, for women and for the economy in general, these are matters which clearly fall within the State’s margin of appreciation.”

Contracting out of SERPS

“ Contracting out of SERPS

The concept of contracting out

2.3.26    Instead of receiving the benefits provided by SERPS, an option may be exercised to pay reduced national insurance contributions, on condition that alternative arrangements are made either to receive benefits broadly equivalent to SERPS or to pay minimum contributions related to the cost of providing such benefits. The option may be made on behalf of an entire scheme and all those who choose to be members of it, it may be made by an individual through a personal pension arrangement. This process is known as contracting out, and the regulation of the alternative benefits provided by contracted-out schemes is one of the main driving forces behind social security legislation.

2.3.27    Before the passage of the 1986 Social Security Act, it was possible to contract out only if the occupational scheme provided a GMP. The reduction in the rate of national insurance contributions given to employers and employees who were members of such schemes, known as the contracted-out rebate, was set at a level based on the cost to those schemes of providing GMPs. Schemes which contract out on this basis are known as contracted-out salary related schemes (COSRS). The effect of this was that money purchase schemes could contract out only if the employer was prepared to offer an earnings-related underpin which was at least as good as the GMP.

2.3.28    Since 1988, it has been possible to contract out directly on a money purchase basis.  … [Note: a scheme contracted out on a money purchase was known as a COMPS.  The present claim is only concerned with COSRS.  COMPS were not required to provide GMPs.]

2.3.29    Over 30,000 schemes are presently contracted out, of which some 13,500 are COSRS and the remainder COMPS. …”

GMPs

(1)                employers who provided occupational pension schemes were permitted to “contract out” of SERPS so long as a minimum level of benefits was guaranteed under the occupational pension scheme; in return, the employer and its employees paid a lower level of National Insurance contributions;

(2)                from 6 April 1978 to 5 April 1997, contracting out of SERPS was permitted if the occupational pension scheme provided GMPs;

(3)                from 6 April 1997, contracting out on a GMP basis was replaced by a new system of salary related contracting out known as the “reference scheme test”; this new system does not give rise to any GMP equalisation issues and is not relevant to the present claim; the “reference scheme test” did not involve GMPs but a scheme quality test (under which the retirement age was equal at 65 for men and women: s 12B(3)(a)  of the Pension Schemes Act 1993 (“PSA 1993”) as in force from 6 April 1997;

(4)                from 6 April 2002, SERPS was itself replaced by the State Second Pension (“S2P”);

(5)                salary related contracting out was finally abolished with effect from 6 April 2016 by the Pensions Act 2014; this Act also replaced the two-tier basic State pension and S2P with a new flat-rate payment (the “single-tier pension”) for those reaching State pension age on or after 6 April 2016; however, accrued GMPs were left intact;

(6)                from 1988 until 2012, there was another system of contracting out known as contracting out on a “money purchase” basis, but this did not involve GMPs and is irrelevant to the present claim.

“GMPs are calculated in broadly the same manner as the SERPS benefits they replace. The effect of revaluing a preserved GMP for an early leaver cannot precisely mirror what the SERPS benefit would have been, since the latter is calculated over the individual's whole working life. Schemes are required to index the GMP after it has come into payment only by growth in prices up to a maximum of three per cent. These two effects taken together mean that the initial level of GMP is not the same as the equivalent SERPS pension would have been, and that after retirement if prices grow more quickly than three per cent a year, the two will steadily diverge. In these circumstances, the member will be paid both the GMP from the scheme and any shortfall between this and his or her SERPS entitlement directly from the National Insurance Fund. Statutory increases in the value of GMP rights may not be offset against the overall level of benefits from the scheme.”

GMPs: the legislation

(1)                by s 7B(2) PSA 1993 (in its current form)

“(2) An occupational pension scheme was “contracted-out” at a time if, at that time, there was in force a certificate under section 7 (as it then had effect) stating that the employment of an earner in employed earner's employment was contracted-out employment by reference to the scheme. …

(4) An occupational pension scheme was a “salary related contracted-out scheme” at a time if, at that time, the scheme was contracted-out by virtue of satisfying section 9(2) (as it then had effect).”

(2)                in order for the employment of an “earner” to be contracted out, it was necessary for the employer to obtain a contracting out certificate from the Occupational Pensions Board stating that the employment of the earner was contracted out by reference to an occupational pension scheme (s 7 PSA 1993);

(3)                the employment of an earner was “contracted out employment” (on a salary related basis) if his service qualified him for “a guaranteed minimum pension provided by an occupational pension scheme” and a contracting out certificate was in force (section 8(1) PSA 1993);

(4)                a “guaranteed minimum pension” was originally defined in section 8(2) PSA 1993 as:

“any pension which is provided by an occupational pension scheme in accordance with the requirements of sections 13 and 17 to the extent to which its weekly rate is equal to the earner's or, as the case may be, the earner's widow's or widower's guaranteed minimum as determined for the purposes of those sections respectively”:-  

(5)                a “guaranteed minimum pension” is now defined in very similar terms in section 8(2) PSA 1993 (as amended) as:

“any pension which is provided by a scheme that was a salary related contracted-out scheme, in accordance with the requirements of sections 13 and 17 to the extent to which its weekly rate is equal to the earner's or, as the case may be, the earner's widow's, widower's, surviving same sex spouse's or surviving civil partner's guaranteed minimum as determined for the purposes of those sections respectively”:-

(6)                in order to be contracted out on a salary related basis, the occupational pension scheme had to satisfy section 9(2) PSA 1993 in its then form; this stipulated that the scheme had to comply with the provisions of sections 13-24 PSA 1993 and various prescribed requirements;

(7)                the requirements of sections 13-24 PSA 1993 included minimum pensions for earners (sections 13-14), revaluation (section 16) and minimum pensions for survivors (section 17); these points are of particular relevance for present purposes.

“(1) Subject to the provisions of this Part, the scheme must –

(a) provide for the earner to be entitled to a pension under the scheme if he attains pensionable age; and 

(b) contain a rule to the effect that the weekly rate of the pension will be not less than his guaranteed minimum (if any) under sections 14 to 16. …

(3) Subject to subsection (4) [postponement of GMPs], the scheme must provide for the pension to commence on the date on which the earner attains pensionable age and to continue for his life.”

“so far as any provisions (other than sections 46 to 48) relate to guaranteed minimum pensions, means the age of 65 in the case of a man and the age of 60 in the case of a woman …”.

“(1) An earner has a guaranteed minimum in relation to the pension provided by a scheme that was a salary related contracted-out scheme if in any tax week in a relevant year –

(a) earnings were paid to or for the earner's benefit in respect of employment which was contracted-out by reference to the scheme; and  

(b) those earnings were in excess of the lower earnings limit for that tax week (or the prescribed equivalent if the earner was paid otherwise than weekly).

(2) Subject to section 15(1) [postponement of GMPs], the guaranteed minimum shall be the weekly equivalent of an amount equal to the appropriate percentage of the total of the earner's earnings factors for the relevant years, so far as derived from excess earnings mentioned in subsection (1)(b) upon which primary Class 1 contributions have been paid or treated as paid. 

…

(5) In subsection (2) the "appropriate percentage" means –

(a) in respect of the earner's earnings factors for any tax year not later than the tax year 1987-88 –

(i) if the earner was not more than 20 years under pensionable age on 6th April 1978, 1.25 per cent.; 

(ii) in any other case 25/N per cent.; 

(b) in respect of the earner's earnings factors for the tax year 1988-89 and for subsequent tax years –

(i) if the earner was not more than 20 years under pensionable age on 6th April 1978, 1 per cent.; 

(ii) in any other case 20/N per cent.; 

where N is the number of years in the earner's working life (assuming he will attain pensionable age) which fall after 5th April 1978. 

…

(7) For the purposes of subsection (2) the weekly equivalent of the amount there mentioned shall be calculated by dividing that amount by 52.

(8) In this section "relevant year" means any tax year in the earner's working life (not being earlier than the tax year 1978-79 or later than the tax year ending immediately before the principal appointed day [which was 6 April 1997]).”

(1)                revaluation in accordance with section 148 of the SAA 1992: see section16(1) PSA 1993;

(2)                fixed rate revaluation: see section 16(2) PSA 1993 and regulation 62 of the CO Regs 1996 and regulation 24 of The Occupational Pension Schemes (Schemes that were contracted-out) (No. 2) Regulations 2015 (2015/1677); the fixed rate depends on when the earner left service; the rate ranges from 3.5% to 8.5% pa compound;

(3)                limited rate revaluation: see section 16(3) PSA 1993 in its pre-6 April 1997 form; this provided for revaluation for pre-6 April 1997 leavers in accordance with the lesser of (i) 5% compound for each year after leaving service and (ii) national average earnings growth.

(1)                the basic purpose of the anti-franking provisions is to ensure that where the earner leaves pensionable service before his GMP commences, he gets the full benefit of the revaluation on his GMP as well as the Excess;

(2)                the provisions are intended to prevent the Excess being used to offset the revaluation on the GMP, i.e. to stop the Excess being “franked” by GMP revaluation;

(3)                the provisions operate by applying a statutory minimum which the pension must exceed; the provisions are to be applied when the GMP commences (65/60 for men/women);

(4)                the Goode Report gives a useful summary of the rationale for the anti-franking provisions:

“4.18.61 The anti-franking requirements came into effect from 1 January 1985. They were needed because scheme members in a contracted-out earnings related scheme effectively accrue rights to two benefits: the GMP, and the benefits accrued under the scheme rules, within which the GMP rights are subsumed. These two benefits are treated differently for the purposes of preservation and revaluation of accrued rights. The GMP element must be revalued in one of a number of ways laid down in legislation. The preservation requirements for the overall pension are less advantageous to the member than those for the GMP. Where the overall rights exceed the GMP rights, it would be possible for the increases to the GMP to be absorbed within the overall ceiling on the individual's scheme benefits. In effect, the individual would lose the advantage of the GMP revaluation requirements. Under the anti-franking requirements such practices are forbidden, and the full effect of the GMP revaluation must be given as an addition to the overall scheme benefits.”

(1)                the anti-franking test applies if, broadly, (a) there is an interval between the earner ceasing to be in pensionable service (the “cessation date”) and the date the GMP commences (at age 65/60 but subject to the possibility of postponement under section 13(4) PSA 1993), (b) there was an Excess at the cessation date, and (c) the GMP has increased between the cessation date and GMP commencement date (which it will do through GMP revaluation if the interval is long enough and GMP could also increase after GMP pensionable age through postponement): section 87(1) PSA 1993;

(2)                the test applies “at any time when that pension is required to be paid” (section 87(3)); this means at the GMP commencement date (65/60) since the test can only be engaged once the commencement date has been reached;

(3)                the test requires that the pension shall be not less than the amount specified in section 87(3); in general, the minimum level is the “relevant aggregate” (section 87(3)(b));

(4)                the “relevant aggregate” is composed of four elements: sections 87(4) and 88-90; these are technical provisions which defy easy explanation but broadly, the elements are (a) the pension accrued at the cessation date, (b) GMP revaluation between the cessation date and the GMP commencement date, (c) other benefits accrued in the scheme after the cessation date, and (d) an uplift on the Excess accrued at the cessation date; the net effect is to ensure that the earner receives the benefit of GMP revaluation on top of the Excess.

Other rules applicable to GMPs

GMP inequalities between men and women

(1)                the different GMP pensionable ages of 65 and 60 for men and women;

(2)                the formula for calculating post-88 GMP.

“(i) if the earner was not more than 20 years under pensionable age [i.e. 65/60] on 6th April 1978, 1 per cent.;

(ii) in any other case 20/N per cent.;

where N is the number of years in the earner's working life (assuming he will attain pensionable age) which fall after 5th April 1978.”

“… the period beginning with the tax year in which the person attains the age of 16 and ending with –

(a) the tax year before the one in which the person attains the age of 65 in the case of a man or 60 in the case of a woman, or

(b) if earlier, the tax year before the one in which the person dies.”

“13. … The divisor [N] will therefore be smaller for a woman than for a man, and the corresponding percentage [i.e. the “appropriate percentage”] will be greater, but having regard to the differing lengths of their respective working lives the overall object and effect are that the GMP of a person working to the statutory pensionable age with a full service record of contracted-out employment is calculated by reference to the same percentage of earnings whatever the sex of that person. At the end of their respective working lives, again with a full service record of contracted-out employment, the percentage will still be the same, although the man who retires at 65 will have a higher GMP than a woman who retired at 60, but only because he has worked an extra five years and will therefore have more earnings to which the appropriate percentage will apply. In order to achieve this result, and bearing in mind the shorter working life of the woman, the woman's accrual rate is necessarily slightly higher than the man's.

14. The result of this formula is that the GMPs of a man and a woman retiring at their respective pensionable ages of 65 and 60 will, assuming their working history to be otherwise similar, be non-discriminatory. However, their GMPs will or may become discriminatory if one or other or both of them leave the scheme before those respective ages, for example by taking early retirement, becoming redundant or moving to another employer. If, for example, both leave the scheme at 55 they will, by reason of their different rates of accrual, have accrued different GMPs.”

Effect of the different GMPs

PART III: THE SCHEMES

The Schemes – an introduction

Lloyds No. 1 Scheme

Lloyds No. 1 Scheme – Main Section

i)                    Special Rules B - the Main Final Salary Section (Post 1974 joiners)

Broadly, this section provides final salary benefits to all pre 1 January 1996 Members who are not covered by one of the other sections/Special Rules.

ii)                  Special Rules C - Lewis’s Scheme Members

These rules provide final salary benefits to Members who joined the No. 1 Scheme on 1 July 1989 and were formerly members of the Lewis’s Bank Staff Pension Scheme.

iii)                Special Rules D - Pre-1974 joiners

These rules apply to Members who joined the No. 1 Scheme or the Lloyds Bank Women’s Retirement Benefits Scheme before 1 July 1974.

iv)                Special Rules E - LBI Members

These rules apply to Members who joined the No. 1 Scheme on 1 July 1989 and were formerly members of the LBI Pension Scheme.

v)                  Special Rules F - C&G Members

These apply to Members who joined the No. 1 Scheme on 1 June 2001 and who were members of the Cheltenham & Gloucester Plc Pension Fund immediately before joining the No. 1 Scheme.

vi)                Special Rules G - Factors Members

These rules apply to members of the Lloyds Bank Factors Pension Scheme immediately before joining the No. 1 Scheme.

vii)              Special Rules H - Your Tomorrow Section

These rules govern a money purchase section within the No. 1 Scheme established with effect from 1 August 2011.  The rules apply to Members who were entitled to benefits under the PIP Section before 1 August 2011 and in respect of pensionable service on or after the Effective Date. [The Effective Date depends on a number of circumstances.]

viii)            Lloyds TSB Asset Finance Divisions

On 21 May 2012 the assets and liabilities of the Lloyd TSB Asset Finance Division Pension Scheme were transferred to the No. 1 Scheme. The transferring assets were allocated to the Main Section of the No. 1 Scheme and benefits for transferring members are provided under the Main Section of the No. 1 Scheme.

Lloyds No. 1 Scheme – PIP Section

Lloyds No. 2 Scheme

i)                    Section B - TSB Division

This is applicable to a TSB Member who (i) was either admitted to membership of the No. 2 Scheme before 31 December 1991; or (ii) admitted to membership of the No. 2 Scheme on or after that date pursuant to the rules.

ii)                  Section C - Senior Executive Division

This section applies to a person who has become an SE Member pursuant to Rule 18.

iii)                Section D - Hill Samuel Division

This applies to a person who has become a HS Member pursuant to Rule 22 or 49.

iv)                Section E - Swan National Division

This section is applicable to a person who (i) is admitted to membership pursuant to Rule 34; or (ii) (subject to the other conditions) was an employee of the Swan National Companies on 1 April 1990.

v)                  Section F - UDT Closed Section

This applies to a person who was an employee on 1 April 1990 and who was, prior to that date, a member of the UDT Scheme.

HBOS Scheme

a)                   the Bank of Scotland 1976 Pension Scheme (originally known as the Bank of Scotland Staff Pension Fund) established by a trust deed dated 30 June 1936;

b)                  the Birmingham Midshires Pension Scheme established by an interim trust deed dated 9 December 1958;

c)                   the Clerical Medical Staff Superannuation Fund (originally known as the Clerical, Medical and General Staff Superannuation Fund) established by a definitive trust deed and rules dated 1 January 1958; and

d)                  the Halifax Retirement Fund (originally known as the Halifax Building Society Staff Retirement Fund (1974)) established by an interim trust deed dated 21 November 1973.

together “the HBOS Former Schemes”.

Some key features of the Schemes

Comments on the table in Appendix A

(1)                the rates of increase are the same for men and women so there is no discrimination on the face of things;

(2)                however, the rates of increase to pensions in payment differ for GMP and Excess (rows 3 and 4) and the rates of revaluation in deferment differ for GMP and Excess (rows 5 and 6); in the HBOS Scheme, some of these rates are discretionary rather than written into the rules;

(3)                to an extent, the Schemes follow the typical pattern of revaluation rates being higher for GMP than the Excess, and vice versa for pensions in payment.  However, the Schemes contain a number of bespoke provisions that reduce the effect of the usual GMP-driven inequalities that arise. These include, for example: (a) underpins applicable under the rules to GMP pension increases, which help reduce the difference between increases to GMP and Excess in payment; (b) Excess pension increases for most members of the No 2 Scheme that are calculated using CPI, which is the same inflation measure as used for statutory GMP increases (albeit with different caps), which again helps reduce the difference, at least in a low inflation environment.

(1)                normal retirement pensions are payable to both men and women in accordance with the rules of the Schemes from age 60 but GMP pensionable age remains 65 and 60 in accordance with section 181 PSA 1993;

(2)                for a woman, part of the pension paid from age 60 will be GMP (as she has reached her statutory GMP pensionable age) and the rest Excess; the total pension will be increased in payment thereafter at the rates of pension increase applicable to the GMP and to the Excess;  

(3)                for a man, a normal retirement pension from age 60 will be all non-GMP until age 65 when part of the total pension will be treated as GMP; this means that from age 60 to 65, the whole pension is increased in payment at the rate applicable to the Excess, and from 65 it will be increased at the rates applicable to the GMP and to the Excess (plus receiving any anti-franking uplift that applies at 65);

(4)                for some sections, the normal retirement age is 62 or 63 rather than 60; the position here is the same as in the preceding sub-paras, substituting 62 or 63 for 60; in such a case, the female GMP will be postponed for 2/3 years from 60 to 62/63, and therefore increased pursuant to section 15 PSA 1993 during those 2/3 years; the statutory rate is likely to be different from the revaluation rate applicable to the Excess in a typical scheme; (I will later refer to certain worked examples in Appendix B to this judgment; these worked examples are for a DB member with a normal retirement age of 62). 

The effect of unequal GMPs on the Schemes

(1)                in many cases the female member is disadvantaged compared to a comparable male member, though in some cases it is the male who is disadvantaged;  

(2)                there are also examples where the advantage switches from one sex to another after the pension has been in payment for some time; 

(3)                the amount of the advantage/disadvantage is relatively small compared to the total pension.

(1)                the results of the projections are dependent on the assumptions used, in particular regarding inflation; the inequality can reverse or disappear if different inflation assumptions are used;

(2)                the outcome can be dependent on member choices, such as whether to leave service early which can favour females (insofar as GMP revaluation in deferment is more favourable than revaluation of the Excess under the rules); likewise, the outcome is affected by discretionary practices where increases are discretionary (as in some sections of the HBOS Scheme).

Other rules of the Schemes

PART IV: THE ISSUES

The issues

(1)                Method A (in one of its variants identified in the agreed specification);

(2)                Method B;

(3)                Method C (either variant C1 or C2);

(4)                Method D (either variant D1 or D2, and either implemented (i) at a single conversion date for all members or (ii) for each member at the point of retirement, transfer out or death and following any exercise of benefit options).

(1)                Method A (in one of its variants identified in the agreed specification);

(2)                Method B;

(3)                Method C1 or C2;

(4)                Method D (either variant D1 or D2, and either implemented (i) at a single conversion date for all members or (ii) for each member at the point of retirement, transfer out or death and following any exercise of benefit options).

(1)                Is the Claimant as trustee obliged to make back-payments to the member?

(2)                If so, should back payments be made (i) going back 6 years (and if so, 6 years before what date), (ii) going back to 17 May 1990, or (iii) going back to some other date?

(3)                Should interest be added to the back-payments, and if so at what rate?

(4)                Should the calculation of cumulative benefits under Method C and Method D take into account only those back payments as allowed for under (2)-(3) above?

(1)                Does the Claimant's obligation apply to benefits accrued in other schemes during the Barber window which have been transferred in to any of the Schemes?

(2)                Leaving aside the effect of any contractual obligation that may have been undertaken in relation to particular transfers out of the Schemes, does the Claimant's obligation apply in relation to benefits accrued in any of the Schemes during the Barber window which have been transferred out of the Schemes, and if so what does that obligation require?

(3)                If the answer to Issue 13(2) is that such an obligation applies, is that “in principle” obligation discharged (and thus not enforceable by relevant Scheme members) either

(i) under s 99 PSA 1993 and/or by reason of s 73(2) and (4) PSA 1993?

(ii) under transfer out provisions in the relevant Scheme rules?  

(1)    Issues 1 and 2 as to any obligation to equalise benefits;

(2)    Issues 5 to 8 as to the possible methods of equalisation; and

(3)    Issue 11 as to underpayment in the past.

PART V: ISSUES 1 AND 2

Issues 1 and 2

The EU legislation relevant to Issues 1 and 2

“1. Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied.

2. For the purpose of this Article, 'pay' means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer.

Equal pay without discrimination based on sex means:

(a) that pay for the same work at piece rates shall be calculated on the basis of the same unit of measurement;

(b) that pay for work at time rates shall be the same for the same job.”

“The principle of equal pay for men and women outlined in article 119 of the Treaty, hereinafter called “principle of equal pay”, means for the same work or for work to which equal value is attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and conditions of remuneration.”

 “For the same work or for work to which equal value is attributed, direct and indirect discrimination on grounds of sex with regard to all aspects and conditions of remuneration shall be eliminated.” 

 “ … there shall be no direct or indirect discrimination on grounds of sex in occupational social security schemes, in particular as regards:

(a) the scope of such schemes and the conditions of access to them;

(b) the obligation to contribute and the calculation of contributions;

(c) the calculation of benefits … ”.

“schemes not governed by Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security whose purpose is to provide workers … in an undertaking or group of undertakings, area of economic activity, occupational sector or group of sectors with benefits intended to supplement the benefits provided by statutory social security schemes or to replace them, whether membership of such schemes is compulsory or optional.”

“1. This Directive shall apply to:

(a) statutory schemes which provide protection against the following risks:

- sickness,

- invalidity,

- old age,

- accidents at work and occupational diseases,

- unemployment;

(b) social assistance, in so far as it is intended to supplement or replace the schemes referred to in (a).”

“1. This Directive shall be without prejudice to the right of Member States to exclude from its scope:

(a) the determination of pensionable age for the purposes of granting old-age and retirement pensions and the possible consequences thereof for other benefits;

… ”

The domestic legislation relevant to Issues 1 and 2

“ 62 The equal treatment rule  

(1) An occupational pension scheme which does not contain an equal treatment rule shall be treated as including one.

(2) An equal treatment rule is a rule which relates to the terms on which –

(a) persons become members of the scheme, and 

(b) members of the scheme are treated. 

(3) Subject to subsection (6), an equal treatment rule has the effect that where-

(a) a woman is employed on like work with a man in the same employment, 

(b) a woman is employed on work rated as equivalent with that of a man in the same employment, or 

(c) a woman is employed on work … of equal value to that of a man in the same employment, 

but (apart from the rule) any of the terms referred to in subsection (2) is or becomes less favourable to the woman than it is to the man, the term shall be treated as so modified as not to be less favourable.

(4) An equal treatment rule does not operate in relation to any difference as between a woman and a man in the operation of any of the terms referred to in subsection (2) if the trustees or managers of the scheme prove that the difference is genuinely due to a material factor which-

(a) is not the difference of sex … ”

(1)                a man receiving a larger sum than a woman to take account of the fact that he had not reached State pension age (“SPA”) and so is not yet entitled to receive a basic state pension, whereas he would have reached SPA and been so entitled if he were a woman (referred to as a “bridging pension”);

(2)                indexation of benefits under a salary-related contracted-out scheme where the pension of one person (‘A’) may be increased at a rate greater than that applicable to a person of the other sex (‘B’) provided the difference does not exceed the amount by which increases to the State additional pension of B exceed the increases to the State additional pension of A;

(3)                arising from the use of sex-specific actuarial factors in certain circumstances identified in the regulations (e.g. in the factors used when commuting periodical pension for a lump sum). 

“ 67 Sex equality rule

(1) If an occupational pension scheme does not include a sex equality rule, it is to be treated as including one.

(2) A sex equality rule is a provision that has the following effect—

(a) if a relevant term is less favourable to A than it is to B, the term is modified so as not to be less favourable;

(b) if a term confers a relevant discretion capable of being exercised in a way that would be less favourable to A than to B, the term is modified so as to prevent the exercise of the discretion in that way.

(3) A term is relevant if it is—

(a) a term on which persons become members of the scheme, or

(b) a term on which members of the scheme are treated.

(4) A discretion is relevant if its exercise in relation to the scheme is capable of affecting—

(a) the way in which persons become members of the scheme, or

(b) the way in which members of the scheme are treated.

(5) The reference in subsection (3)(b) to a term on which members of a scheme are treated includes a reference to the term as it has effect for the benefit of dependants of members.

(6) The reference in subsection (4)(b) to the way in which members of a scheme are treated includes a reference to the way in which they are treated as the scheme has effect for the benefit of dependants of members.

(7) If the effect of a relevant matter on a person (A) differs according to the effect it has on a person of the same sex as A, according to whether A is married, in a civil partnership, or for some other reason due to A's family status, a comparison for the purposes of this section of the effect of that matter on persons of the opposite sex must be with a person of the opposite sex to A who is in the same position as A and in particular—

(a) where A is married to someone of the opposite sex, A is to be compared to a person of the opposite sex to A (“B”) where B is married to someone of the opposite sex to B;

(b) where A is married to someone of the same sex as A or is in a civil partnership, A is to be compared to B where B is married to someone of the same sex as B or is in a civil partnership.

(8) A relevant matter is—

(a) a relevant term;

(b) a term conferring a relevant discretion;

(c) the exercise of a relevant discretion in relation to an occupational pension scheme.

(9) This section, so far as relating to the terms on which persons become members of an occupational pension scheme, does not have effect in relation to pensionable service before 8 April 1976.

(10) This section, so far as relating to the terms on which members of an occupational pension scheme are treated, does not have effect in relation to pensionable service before 17 May 1990.”

“ 68 Sex equality rule: consequential alteration of schemes

(1) This section applies if the trustees or managers of an occupational pension scheme do not have power to make sex equality alterations to the scheme.

(2) This section also applies if the trustees or managers of an occupational pension scheme have power to make sex equality alterations to the scheme but the procedure for doing so—

(a) is liable to be unduly complex or protracted, or

(b) involves obtaining consents which cannot be obtained or which can be obtained only with undue delay or difficulty.

(3) The trustees or managers may by resolution make sex equality alterations to the scheme.

(4) Sex equality alterations may have effect in relation to a period before the date on which they are made.

(5) Sex equality alterations to an occupational pension scheme are such alterations to the scheme as may be required to secure conformity with a sex equality rule.”

“ 69 Defence of material factor

(1) The sex equality clause in A's terms has no effect in relation to a difference between A's terms and B's terms if the responsible person shows that the difference is because of a material factor reliance on which—

(a) does not involve treating A less favourably because of A's sex than the responsible person treats B, and

(b) if the factor is within subsection (2), is a proportionate means of achieving a legitimate aim.

(2) A factor is within this subsection if A shows that, as a result of the factor, A and persons of the same sex doing work equal to A's are put at a particular disadvantage when compared with persons of the opposite sex doing work equal to A's.

(3) For the purposes of subsection (1), the long-term objective of reducing inequality between men's and women's terms of work is always to be regarded as a legitimate aim.

(4) A sex equality rule has no effect in relation to a difference between A and B in the effect of a relevant matter if the trustees or managers of the scheme in question show that the difference is because of a material factor which is not the difference of sex.

“(a) if a relevant term is less favourable to A than it is to B, the term is modified so as not to be less favourable; (b) if a term confers a relevant discretion capable of being exercised in a way that would be less favourable to A than to B, the term is modified so as to prevent the exercise of the discretion in that way.”

“B12. Calculation of benefits and contributions

In spite of anything else in these Special Rules, benefits and contributions will always be calculated and paid in a way which is consistent with the requirements of: (i) Article 141 of the Treaty of Rome and section 62 of the Pensions Act 1995 … .”

Powers to modify the Schemes 

Case law relevant to Issues 1 and 2

 “[12] … the concept of pay, within the meaning of the second paragraph of article 119, comprises any other consideration, whether in cash or in kind, whether immediate or future, provided that the worker receives it, albeit indirectly, in respect of his employment from his employer … …

[16] … a redundancy payment made by the employer … cannot cease to constitute a form of pay on the sole ground that, rather than deriving from the contract of employment, it is a statutory or ex gratia, payment. 

[17]  In the case of statutory redundancy payments it must be borne in mind that, as the court held in its judgment of 8 April 1976 in [ Defrenne II ], … para 40, article 119 of the Treaty also applies to discrimination arising directly from legislative provisions. This means that benefits provided for by law may come within the concept of pay for the purposes of that provision.

[18] … the fact that a benefit is in the nature of pay cannot be called in question where the worker is entitled to receive the benefit in question from his employer by reason of the existence of the employment relationship.”

 “[25] … first of all … the schemes in question are the result either of an agreement between workers and employers or of a unilateral decision taken by the employer. They are wholly financed by the employer or by both the employer and the workers without any contribution being made by the public authorities in any circumstances. Accordingly, such schemes form part of the consideration offered to workers by the employer.

[26] Secondly, such schemes are not compulsorily applicable to general categories of workers. On the contrary, they apply only to workers employed by certain undertakings, with the result that affiliation to those schemes derives of necessity from the employment relationship with a given employer. Furthermore, even if the schemes in question are established in conformity with national legislation and consequently satisfy the conditions laid down by it for recognition as contracted-out schemes, they are governed by their own rules. 

“[32] … article 119 prohibits any discrimination with regard to pay as between men and women, whatever the system which gives rise to such inequality. Accordingly, it is contrary to article 119 to impose an age condition which differs according to sex in respect of pensions paid under a contracted-out scheme, even if the difference between the pensionable age for men and that for women is based on the one provided for by the national statutory scheme.”

(1)                the fact that the ABPW was directly governed by statute did not exclude it from the scope of Article 119 given Defrenne (No. 1) and Barber , see [26]-[27];

(2)                the need to ensure the uniform application of the Treaty throughout the Community meant that the application of Article 119 could not depend upon whether the unequal treatment arose from legislation or a collective agreement, see [28]-[29];

(3)                as Barber had held (and Ten Oever had confirmed) “ schemes such as private occupational contracted-out schemes, resulting either from negotiation between employees and employers or from a unilateral decision taken by the employer … without any contribution being made by the public authorities in any circumstances, form part of the consideration offered to employees by the employer”.   Even if the contributions paid to those schemes and the benefits they provide are in part a substitute for those of the general statutory scheme, that fact cannot preclude the application of Article 119”, see [30];

(4)                “Benefits awarded under an occupational scheme which, partly or entirely, take the place of the benefits paid by a statutory social security scheme may fall within the scope of Article 119”, see [37]; 

(5)                agreement between employers and employees is not essential for the application of Article 119, see [33];

(6)                funding arrangements are not determinative of the application of Article 119, see [38]-[40];

(7)                “the only possible decisive criterion is whether the pension is paid to the worker by reason of the employment relationship between him and his former employer”, see [43];

(8)                although the employment criterion is not exclusive (because pensions paid by statutory social security schemes may reflect, wholly or in part, pay in respect of work but fall outside Article 119) a scheme established by a national legislature would still fall within the scope of Article 119: “[45] …if the pension concerns only a particular category of workers, if it is directly related to the period of service and if its amount is calculated by reference to the civil servant’s last salary. The pension paid by the public employer is therefore entirely comparable to that paid by a private employer to his former employees.”

(1)                the fact that a scheme is determined directly by statute is not in itself sufficient to exclude such a scheme from the scope of Article 119, see [41];

(2)                the applicability of Article 119 is in no way conditional upon a pension being supplementary to a benefit provided by a statutory social security scheme, see [42];

(3)                “the Court has held that a decisive criterion is the link between the employment relationship and the retirement benefit, and has not regarded the structural elements of a system of pension benefits as playing a decisive role” see [44]-[45];

(4)                although that criterion cannot be regarded as exclusive, considerations of social policy, etc cannot prevail “if the pension concerns only a particular category of workers, if it is directly related to the period of service completed and if its amount is calculated by reference to the public servant’s last salary. The pension paid by the public employer is in that case entirely comparable to that paid by a private employer to his former employees …” see [47]; and

(5)                “…Article 119 … prohibits any discrimination with regard to pay as between men and women, whatever may be the system which gives rise to such inequality …, see [53].

(13) In its judgment [in Barber ], the Court of Justice determined that all forms of occupational pension constitute an element of pay within the meaning of Article 141 of the Treaty.

(14) Although the concept of pay within the meaning of Article 141 of the Treaty does not encompass social security benefits, it is now clearly established that a pension scheme for public servants falls within the scope of the principle of equal pay if the benefits payable under the scheme are paid to the worker by reason of his/her employment relationship with the public employer, notwithstanding the fact that such scheme forms part of a general statutory scheme. According to the judgments of the Court of Justice in [ Beune ] and [ Pirkko Niemi ] that condition will be satisfied if the pension scheme concerns a particular category of workers and its benefits are directly related to the period of service and calculated by reference to the public servant's final salary. For reasons of clarity, it is therefore appropriate to make specific provision to that effect.”

“[20] Accordingly, although until the age of 60 the financial position of a woman taking early retirement on grounds of ill health is comparable to that of a man in the same situation, neither of them as yet entitled to payment of the State pension, that is no longer the case between the ages of 60 and 65 since that is when women, unlike men, start drawing that pension. That difference as regards the objective premise, which necessarily entails that the amount of the bridging pension is not the same for men and women, cannot be considered discriminatory.

 [21] What is more, given the purpose of the bridging pension, to maintain the amount for women at the same level as that which obtained before they received the State pension would give rise to unequal treatment to the detriment of men who do not receive the State pension until the age of 65.

[22] Furthermore, it is common ground that as from the age of 65 the bridging pension for men is also reduced by the amount of the State pension to which they are entitled. … 

 [23] It must therefore be held that the mechanism for calculating the bridging pension is neutral, which confirms the absence of any discrimination.”

“38. The referring court and the Pensionsversicherungsanstalt emphasise that, having regard to this employment policy objective, the situation of female employees like Dr Kleist who have reached the age of 60 is not comparable to that of male colleagues who are the same age as, unlike male employees, the female employees have already reached the statutory normal pensionable age and they therefore benefit from social security cover resulting from their right to a pension in the event of losing their job.

39.      At first glance, it could be tempting to follow this line of argument and to conclude that, merely because a right to a pension exists, there is a decisive material difference which excludes any comparability between male and female employees.

40.      It is even possible to find case-law in which the Court appears to take such a position. Thus, in Burton , Birds Eye Walls and Hlozek the Court held it lawful to link certain social benefits granted by employers to a pensionable age that differs for men and women. 

41.      However, it appears to me that these judgments dealt with isolated cases and cannot in any event be applied more generally. Thus, the bridging payments in Burton and Birds Eye Walls served to cover employees’ loss of income where they took early retirement for operational or health reasons. In Hlozek the bridging allowance was specifically aimed at financially cushioning a special risk of long-term unemployment, a risk which was statistically proven to arise for men and women at different ages and was particularly high as the statutory retirement age drew closer. In the present case however, so far as is apparent from the documents in the case, there are no indications of there being such a specific risk. 

42.      Quite apart from the specific features of each case, I consider that it would also be an error for reasons of principle to permit employers to differentiate between male and female employees according to the statutory normal pensionable age that is respectively applicable. Such an approach would lead to the differences between men and women in relation to the statutory normal pensionable age that still exist extending to other areas – here to the area of dismissal. Generalising the differences within the framework of statutory social security systems would, however, be contrary to the Court’s settled case-law, according to which the exception that still exists to the principle of equal treatment in relation to the pensionable age under statutory pension schemes (Article 7(1)(a) of Directive 79/7) is to be interpreted strictly.”

“35.  In the case in the main proceedings, the rules establishing the difference in treatment at issue are designed to govern the circumstances in which employees can lose their job.

(1)                The key question is whether the treatment at issue comes within the scope of Art 157.   Art 157 has direct effect in UK law.

(2)                In general, there is no doubt that pensions are ‘pay’ for the purposes of Art 157, and this is so whether or not they are a substitute, in whole or in part, for the state pension scheme.   The mere fact that a pension is a substitute for the state pension scheme does not mean that it falls outside the scope of Art 157.

(3)                On the other hand, pensions that are part of the state social security scheme are not ‘pay’ and are not within the scope of Art 157.  

(4)                The question in the present case concerns which side of the line the treatment at issue falls upon.

(5)                Although GMPs are not identical in every respect to SERPS or the AP, their function is undoubtedly to fulfil the role of the earnings-related element of the state pension.   They are an alternative way of delivering the earnings-related part of the state pension to a large part of the working population, for the mutual benefit of the state, employers and scheme members.  They are part of the state social security pensions framework, and are integrated into the state scheme. 

(6)                The difference in treatment between men and women in relation to SERPS and the AP is not in breach of Art 157, in particular, or EU law in general.

(7)                It would, therefore, be illogical for EU law to permit different treatment between the sexes in relation to SERPS and the AP, but not to permit different treatment which results from the legislative provisions relating to the equivalent to SERPS that is delivered via private occupational pension schemes.

(8)                EU law does not require such an illogical conclusion.

(9)                In considering whether the treatment at issue is within or outside the scope of Art 157, it is necessary to focus upon the factor which gives rise to the disparity at issue.   

(10)            In the present case, that factor is the direct result of legislation and is a function of the integration with the state pension scheme.   The difference in treatment exists because GMPs fulfil the role of the earnings-related part of the state pension.

(11)            That is what sets this case apart from an ordinary occupational pensions scheme case:  the aspects of GMPs which lead to differential treatment between men and women are the direct results of legislation which provides for the integration of GMPs as part of the state social security pension framework.

(12)            Whilst the case law of the ECJ/Court of Justice of the European Union has not dealt directly with the circumstances under consideration, the case law suggests that the treatment at issue in the present case is outside the scope of Art 157.

(13)            If, as in cases such as Barber and Beune , the treatment at issue in the present case had nothing to do with the fact that GMPs are providing part of the state pension entitlements, then the treatment would come within Art 157, and would be unlawful.  However, this case is different because the rules under challenge are the result of state legislative choices in relation to the state pension framework.

(14)            It follows that the treatment at issue is not within the scope of Art 157.

(15)            It follows in turn that either GMPs are not ‘pay’ for these purposes, or the difference in the position of men and women arising from the GMP legislation means that the difference in treatment is not unlawful for the purposes of Art 157 (either because the position of men and women is not comparable or because there is a ‘material factor’ defence).

(16)            If the above reasoning is correct, so that the treatment at issue does not fall within Art 157, then the treatment will also be outside the scope of domestic equality legislation (the PA 1995 and, now, the EA 2010) as the domestic legislation is intended to implement Art 157 into domestic law.   The domestic legislation covers the same ground, no more and no less.

(17)            Again, if the above reasoning is correct, the treatment at issue is not in breach of the occupational pension provisions of the Equal Treatment Directive, as the relevant provisions of the Directive are designed simply to replicate the legal protection given by Art 157, once again, no more and no less.

“The fact that a scheme is statutory is not, in my view, the conclusive test. Legislation may be used for different purposes. If it defines rights and obligations under a social security scheme for all workers, or for groups of workers who are not in any sense 'employed by' the State, it is no doubt based on 'considerations of social policy' rather than on an employment relationship. On the other hand, if by the same machinery, legislation, rules are adopted in respect of those 'employed by' the State, those rules may be an expression of social policy, or they may equally spring from and govern the employment relationship. It is true that the latter may indeed at the same time reflect a State's ideas of social policy, but that factor cannot in my view take away their essential characteristic as rules governing the employment relationship. If it were otherwise, civil servants could not rely upon the principle of equal pay for equal work contained in Article 119, and there seems to be nothing in that Article 119 or in the case law of the Court to justify such a result. The relevant question is thus whether what is done is done by the State essentially as an employer.”

“Admittedly, as regards pay Mr. Newstead was treated differently from his female colleagues and he was understandably offended by the fact. But neither Worringham nor Liefting supports the inference that any treatment which differs according to sex and affects gross or net pay automatically justifies the direct application of Article 119, without any regard for the legal basis on which the difference was made. I consider that such an interpretation exceeds the scope of the judgments delivered in those cases. It would, moreover, conflict with the division of powers imposed by the EEC Treaty and clearly enunciated in Defrenne III .”

“13.  As the United Kingdom and the Commission rightly pointed out, however, the difference between the net pay of men and women in the case before the Employment Appeal Tribunal is the result of the fact that only men are required to belong to the widows' pension fund and thus have a deduction made from their salary as a contribution to the fund.

14. It must therefore be concluded that the factor which gives rise to the disparity at issue is neither a benefit paid to workers nor a contribution paid by the employer to a pension scheme on behalf of the employee, which might be regarded as “consideration ... which the worker receives, directly or indirectly” as referred to in Article 119.

15. The disparity at issue is in fact the result of the deduction of a contribution to an occupational pension scheme. That scheme contains some provisions which are more favourable than the statutory scheme of general application and is a substitute for the latter. Such a contribution must therefore, like a contribution to a statutory social security scheme, be considered to fall within the scope of Article 118 of the Treaty, not of Article 119.”

(1)                GMPs are ‘a retirement pension established within the framework of a social security scheme laid down by legislation’ ( Defrenne (No 1) ); 

(2)                GMPs are part of ‘the financing of statutory social security systems’ ( Liefting );

(3)                GMPs are part of the state pension framework.  They are integrated into the state scheme.   They are a method of delivering the earnings-related part of the state pension to a large part of the working population which is mutually beneficial to the state, employers and scheme members;

(4)                The factors which give rise to the disparity at issue are laid down in legislation and are a direct consequence of the integration of GMPs with the state pension scheme.  The difference in treatment exists because GMPs fulfil the role of the earnings-related part of the state pension scheme;

(5)                The rules relating to GMPs, and, in particular, to the rates of increase in deferment and payment which give rise to the difference in treatment between the sexes, are set down by Government in statutory instruments.  They are not the result of agreement between employers and employees or their representatives;

(6)                The rates of increase that the present schemes are required to apply to GMPs are not determined by the employment relationship between the Banks and the members, but by considerations of social policy; the change in 2011, pursuant to which escalation for GMPs has been determined by reference to CPI rather than RPI (subject to a cap at 3%) is a good example of this; this change was made, as a matter of Government policy, by means of GMP Increase Orders, made pursuant to s 109 PSA 93:-

(7)                The minor differences between GMPs, on the one hand, and SERPS/ASPs, on the other, are immaterial.   They should not be allowed to conceal the central truth that GMPs were the legislature’s chosen mode of delivery for the earnings-related part of the state pension:-

(8)                There are two parallel legal routes to this outcome as described in the next two sub-paragraphs:-   

(9)                 The first route to the outcome: GMPs are not ‘pay’ for the purposes of Art 157, when the difference in treatment at issue arises from the legislative rules relating to GMPs and the contracted-out nature of the pension scheme (notwithstanding that, in relation to other types of claim, the whole of a contracted-out occupational pension is ‘pay’): this is the approach suggested by cases such as Defrenne (No 1) and Liefting , and is reflected in Issue 2(a);

(10)            The second route to the outcome: there is no breach of Art 157 because there is an objective difference between the position of males and females arising from the GMP legislation, so that (a) they are not in a comparable position and so a difference in treatment cannot be discriminatory; and/or (b) the difference in treatment is objectively justified: this is the approach suggested by Roberts v Birds Eye Walls and Hlozek , and is reflected in Issues 2(b) and 2(c), respectively;

(11)            The line of authority represented by Defrenne (No 1) , on the one hand, and Roberts , on the other, are not in conflict with each other.  Rather, they complement each other and serve to reinforce the conclusion that it is clear that the treatment under consideration in these proceedings is outside the scope of Art 157;

(12)             The arguments advanced on behalf of the Banks in relation to liability are limited in their scope.  The Banks do not submit that benefits under contracted-out pension schemes are not ‘pay’ for most purposes.  It is clear that they are.  But not for the purposes of the treatment under consideration in these proceedings.

Issues 1 and 2: submission for the RBs

(1)                Barber and the subsequent cases expressly state that benefits paid under contracted-out occupational pension schemes are pay for the purposes of Article 157 (see for example Barber );

(2)                even if the level of benefits is determined by statute (see Pirkko Niemi ) or the benefits are a substitute for state benefits, this will not preclude the application of Article 157 (see Defrenne II , Barber , Ten Oever , Beune );

(3)                the only possible decisive criterion as to whether a sum is pay within the meaning of Article 157 is whether the sum is paid by reason of the employment relationship. That criterion will be satisfied “if the pension scheme concerns a particular category of workers and its benefits are directly related to the period of service and calculated by reference to the worker’s final salary” (see Barber , Beune and Pirkko Niemi and the recast Directive);

(1)                GMP is simply a minimum level of benefit that must be paid in return for the Banks and the members paying reduced National Insurance contributions;

(2)                GMP is not a separate pension;

(3)                GMP, as a minimum level of benefit, is not a state benefit nor is it to be treated as a state benefit;

(4)                the differences in benefits paid from the Schemes to men and women with identical work histories do not arise automatically or necessarily from the differences in their GMPs. The differences arise because the Scheme rules adopted by the Trustee and the Banks treat GMP differently to non GMP;

(5)                in any event it is, of course, the inequality in total benefits paid that is in issue in these proceedings. That disparity is not an automatic or inevitable consequence of the differentials between male and female GMP. The disparity occurs primarily because the Schemes provide different rates of revaluation and/or indexation for GMP and non GMP, as appears from the table in Appendix A to this judgment; 

(6)                where the “better” rate was not required by statute, it was the Banks’ (and Trustee’s) choice to provide that better rate.  Even where the better rate was required by statute (as with the impact of anti-franking), the Banks have always been entitled to make up any shortfall in total benefits. They were not forbidden from doing so by statute.

 “I agree with [counsel] that the better analysis of GMPs is that they are in the nature of calculation factors rather than pensions themselves or discrete elements of the scheme pension. The scheme pension is one indivisible pension. No doubt an element of it can be regarded as satisfying the minimum benchmark represented by the GMP, but I regard it as incorrect to regard the scheme pension as comprising two elements made up of a GMP and the excess above it.”

(1)                the treatment in those cases was intended to, and did, remedy an inequality or particular disadvantage that would otherwise be experienced by one sex and not the other; and the men and women were not otherwise in comparable circumstances.

(2)                in Roberts , women (but not men) could benefit from a state pension from age 60 to 64;

(3)                in Hlozek , women (but not men) were at particular risk of unemployment from age 50 – 54;

(4)                in contrast, the treatment in the present case is not intended to and does not remedy any inequality; rather, it introduces, exacerbates and/or perpetuates inequality in the total benefits paid under the Schemes by increasing GMP and excess at different rates and applying different revaluation arrangements to men and women; as a result, the benefits paid to men and women in respect of work carried out from 17 May 1990 are different;

(5)                in no sense are the arrangements in the present case a “neutral mechanism”, as the ECJ put it in Hlozek at [49], referring to Roberts at [23];

(6)                the mere fact that the GMP legislation treats men differently to women (so that the difference is a proxy for the difference in sex) does not, in itself, mean that they are not in comparable situations for the purposes of Article 157. See for example Beune , Pirkko Niemi and even Barber itself: it is inconceivable that the unequal benefits caused by the differing retirement ages in Barber would have been lawful if the Scheme had provided that Normal Retirement Date was “two-years before State Pension Age” rather than 63 for men and 58 for women;

(7)                it was clear in Roberts and Hlozek why men and woman of the same age were in materially different positions; that is not so in the present case; if a man and woman with identical work histories each retire at 60, they are entitled to expect to receive the same amount of deferred pay from their employer in respect of their employment; the fact that their employer agreed to provide pensions of at least a set minimum level in return for reductions in National Insurance contributions does not explain why their total pensions should be different.

Issues 1 and 2: submissions for the Crown

(1)                Article 7(1)(a) of Directive 79/7/EEC is concerned with social security benefits not with pay (and pay includes a pension payable under an occupational pension scheme):

(1)                one where there is unequal treatment of men and women by reason of the application of the GMP rules which are a proxy for the difference in sex; or

(2)                one where the unequal treatment of men and women is justified because men and women are in objectively different circumstances because they are treated differently under the GMP rules.

PART VI: ISSUES 5 TO 8

Issues 5 to 8: the methods to be used for equalisation

(1)                method A: equalise each unequal aspect separately;

(2)                method B: provide better of male or female comparator pensions each year;

(3)                method C: provide better of male or female comparator pensions each year, subject to accumulated offsetting;

(4)                method D: complete one-off actuarial equivalence.

(1)                the level of pension required at the scheme’s Normal Retirement Age (“NRA”) (typically, an issue in the case of deferred pensioners who left service before NRA);

(2)                the rate at which pensions increase once in payment;

(3)                the requirement for a pension payable to a male to observe minimum requirements upon the male pensioner attaining age 65, and to recognise the GMP in pension increase awards from that age.

(1)                the pension at NRA for males retiring from deferred pensioner status would be increased to equate it to the pension payable to a corresponding female;

(2)                from NRA onwards, the pension payable to both a male and a female would increase by the greater amount that would have been awarded on a male or female basis;

(3)                at age 65, any increase that would have applied to the pension payable to a male would also be applied to the corresponding pension payable to a female;

(4)                from age 65 onwards, the pension would increase by the greater amount that would have been awarded on a male or female basis.

(1)                method A: cost for female - £92,004; cost for notional male alternative - £75,598;

(2)                method B: cost for female - £31,165; cost for notional male alternative - £14,759;

(3)                method C1: cost for female - £20,143; cost for notional male alternative - £3,737;

(4)                method C2: cost for female - £16,406; cost for notional male alternative - £ NIL;

Issues 5 to 8 reviewed

(1)                is it obligatory to adopt a “term by term” approach in the way contended for by the RBs?

(2)                how is the “term by term” approach to be applied?

(3)                what is meant by “the principle of minimum interference” in this context?

(4)                what is required in the present case by the principle of minimum interference?

(5)                how do the provisions of sections 24A to 24H PSA 1993 operate?

(6)                in the light of the answers to the foregoing, which of the identified methods are legally permissible?

The term by term approach

(1)                what is required by European law as to equalisation of benefits?

(2)                how is that requirement to be applied in this case?

(3)                what is required by English law in relation to equalisation of benefits?

(4)                how is that requirement to be applied in this case?

“Article 1

The principle of equal pay for men and women outlined in Article 119 of the Treaty, hereinafter called "principle of equal pay", means, for the same work or for work to which equal value is attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and conditions of remuneration .

In particular, where a job classification system is used for determining pay, it must be based on the same criteria for both men and women and so drawn up as to exclude any discrimination on grounds of sex.” (emphasis added)

“The Guardian paid Mr. Barber a sum consisting of the cash benefits provided for in the severance terms and an amount equal to the statutory redundancy payment. He thus received a gross cash payment of £14,438 which, after deduction of income tax, has produced a net figure of £11,378. In addition, an ex gratia tax-free payment of £7,219 was made to him on 7 January 1981, making a total net sum of £18,597. As he had not attained the age of 55 at the time of his dismissal, Mr. Barber did not receive an immediate pension but was granted under the pension scheme a deferred pension payable as from 30 September 1990 and amounting to £5,165 per annum.

It is not disputed that a woman aged 52 in the same position as Mr. Barber would have been entitled to an immediate pension plus the statutory redundancy payment. It is also agreed that the value of such compensation would have been greater than the total payments received by Mr. Barber.”

“ (3) Is the principle of equal pay referred to in article 119 and the Equal Pay Directive infringed in the circumstances of the present case if (a) a man and a woman of the same age are made compulsorily redundant in the same circumstances and, in connection with that redundancy, the woman receives an immediate private pension but the man receives only a deferred private pension; or (b) the total value of the benefits received by the woman is greater than the total value of the benefits received by the man?”

“Question 3(b)

45. I would remind the court that the Guardian's severance terms accord redundant employees who are not entitled to an immediate pension a higher terminal payment. The parties to the main proceedings are agreed, however, that the value of an immediate pension - the actuarial value as I understand it - is greater than the amount of the higher terminal payment. In question 3(b) the Court of Appeal wishes to ascertain whether discrimination contrary to Community law exists where the total value of the benefits received by a redundant female employee is greater than the total value of the benefits received by a male employee.

46. In so far as the question relates to the difference established in the total amount of benefits for men and women of the same age it can be answered in the same manner as in paragraph 44 above.

However, the question raises an additional problem, in so far as it suggests that, in the event of article 119 being applicable, the principle of equal pay contained therein is not infringed provided that the total value of the benefits is the same, even though it is made up of components which differ according to sex but are mutually compensating.

In my view the principle of equal pay implies equality at the level of each component of remuneration. If it were otherwise, the enforceability of that principle by the courts would be seriously jeopardized. The courts would then have to evaluate and compare the most diverse advantages which employers confer on their employees. That may call for a complex factual analysis which would not guarantee the equality of total pay as effectively as the equality of each component separately, which is easier to verify.

I therefore suggest supplementing the answer given to the previous question as follows: the principle of equal pay implies equality at the level of each component of remuneration.”

“The approach of the British courts is the same. In Hayward v. Cammell Laird Shipbuilders Ltd. (No. 2) [1988] A.C. 894, the House of Lords considered that article 1 of Directive 75/117 cannot be understood as meaning that, where pay as a whole is the same for men and women, it is of no importance that some components of that pay discriminate in favour of women provided that this is compensated for by equally discriminatory pay components in favour of men.”

“ The third and fifth questions

31 Secondly, the Court of Appeal wishes to ascertain, in substance, whether equal pay must be ensured at the level of each element of remuneration or only on the basis of a comprehensive assessment of the consideration paid to workers.

32 …

33. As regards the second of those questions, it is appropriate to refer to the judgments of 30 June 1988 in Commission v. France (Case 318/86) [1988] E.C.R. 3559 , 3582, para. 27, and of 17 October 1989 in Handels-og Kontorfunktionaerernes Forbund i Danmark v. Dansk Arbejdsgiverforening (Case 109/88) [1991] I.C.R. 75 , 80, para. 12, in which the court emphasised the fundamental importance of transparency and, in particular, of the possibility of a review by the national courts, in order to prevent and, if necessary, eliminate any discrimination based on sex.

34. With regard to the means of verifying compliance with the principle of equal pay, it must be stated that if the national courts were under an obligation to make an assessment and a comparison of all the various types of consideration granted, according to the circumstances, to men and women, judicial review would be difficult and the effectiveness of article 119 would be diminished as a result. It follows that genuine transparency, permitting an effective review, is assured only if the principle of equal pay applies to each of the elements of remuneration granted to men or women.

35. The answer to the third and fifth questions submitted by the Court of Appeal must therefore be that it is contrary to article 119 of the Treaty for a man made compulsorily redundant to be entitled to claim only a deferred pension payable at the normal pensionable age when a woman in the same position is entitled to an immediate retirement pension as a result of the application of an age condition that varies according to sex in the same way as is provided for by the national statutory pension scheme. The application of the principle of equal pay must be ensured in respect of each element of remuneration and not only on the basis of a comprehensive assessment of the consideration paid to workers.”

“30 I concur with the Finnish Government's view that it is not possible to lay down an unvarying rule that different elements of pay either should or should not be taken into account in making a pay comparison. However, whereas the Finnish Government submits that the rule will vary depending on factors arising out of the assessment of equal value, I consider that it is rather the nature of the pay structure at issue which will determine how equal pay is to be assessed.

(1)                it is not possible to lay down an unvarying rule that different elements of pay either should or should not be taken into account in making a pay comparison;

(2)                the nature of the pay structure will determine how equal pay is to be assessed;

(3)                the exercise which is carried out must be designed to produce equality;

(4)                the exercise which is carried out must achieve transparency;

(5)                the exercise which is carried out must ensure effective judicial review;

(6)                in general, treating each element of remuneration independently for the purpose of an equal pay comparison will be the only proper way to produce equality, achieve transparency and ensure effective judicial review;

(7)                there will be cases where the general rule will not apply; these cases include those where the pay structures are complex so that a separate comparison of the elements of remuneration is difficult or impossible or unrealistic or unprofitable;

(8)                other cases where the general rule will not apply is where its application might lead to discrimination against the other sex.

“It appears to me that it would be natural to compare the appellant's basic salary as set out in her contract with the basic salary determined under the men's contract. I think it would be natural to treat the provision relating to basic pay as a term in each of the contracts.

However, one has to take account of the hours to be worked in order to earn this money and I think this consideration points to the importance of the provision in question being one which is capable of being compared from the point of view of the benefit it confers with a corresponding provision in another contract to see whether or not it is more beneficial than that provision. Accordingly, I am of opinion that the natural application of the word "term" to this contract is that it applies for example, to the basic pay, and that the appropriate comparison is with the hourly rate of basic pay.”

“In my opinion the terms of article 1 are consistent with the appellant's submission. When elimination of all discrimination on grounds of sex is to be applied to all aspects and conditions of remuneration I consider this requires each of these aspects to be considered and discrimination existing in any aspect to be eliminated irrespective of the other aspects. It does not appear to me to be a natural reading of article l to say that if the remuneration as a whole provides the same result for a man and a woman it does not matter that some aspects of the remuneration discriminate in favour of the woman so long as there are corresponding discriminations in other aspects in favour of the man.”

“ … it imposes upon the word "term" a meaning which I myself do not regard as its natural or ordinary meaning. If a contract contains provisions relating to (1) basic pay, (2) benefits in kind such as the use of a car, (3) cash bonuses, and (4) sickness benefits, it would never occur to me to lump all these together as one "term" of the contract, simply because they can all together be considered as providing for the total "remuneration" for the services to be performed under the contract. In truth, these would include a number of different terms; and in my opinion it does unacceptable violence to the words of the statute to construe the word "term" in sub-paragraph (ii) as embracing collectively all these different terms.”

“You look at the two contracts: you ask yourself the common sense question - is there in each contract a term of a similar kind, i.e. a term making a comparable provision for the same subject matter, if there is, then you compare the two, and if, on that comparison, the term of the woman's contract proves to be less favourable than the term of the man's contract, then the term in the woman's contract is to be treated as modified so as to make it not less favourable.”

(1)                the position in English law is the same as the position in European law;

(2)                the court must adopt a term by term approach when carrying out a comparison in an equal pay case;

(3)                the terms to be compared should be identified on what it is natural to compare for the statutory purpose of an equal pay comparison;

(4)                the choice as to what is to be compared is a common sense question;

(5)                it may be necessary to carry out a careful analysis of the relevant provisions to assist in answering the question as to what is to be compared;

(6)                the classification of the relevant provisions should be realistic;

(7)                it may sometimes be appropriate to ask whether a provision is an element of a distinct part of the contract rather than itself being a distinct part;

(8)                just as it is wrong to lump together or engage in an overall comparison of different terms, it is also wrong to subdivide a single term into two or more parts in order to complain about one part only.

(1)                methods other than method A3 produce equality of treatment;

(2)                methods other than method A3 achieve transparency and ensure effective judicial review;

(3)                the benefits structure of the Schemes is undeniably complex;

(4)                the matters which are put forward by the RBs as distinct terms or distinct benefits are, in truth, calculation factors which take effect in combination, and not always in a predictable way, to produce the overall result which is an unequal result;

(5)                it is unrealistic and unprofitable to compare the individual calculation factors rather than to compare the overall result;

(6)                ultimately, one has to decide on what side of the line to place the individual calculation factors; does one say they are separate terms or does one say that they are only the means of calculating the overall benefit, which is the relevant term in the present context;

(7)                as a matter of evaluation, having regard to the complexity of the structure of the Schemes and having regard to the purpose of carrying out this evaluation, the relevant term is the overall benefit and not the individual calculation factors;

(8)                the result is that method A3 is not the only available method which produces equality of treatment.

The principle of minimum interference

340.           The Banks submitted that if it were the case that there was more than one method which produced equality of benefits then the Trustee was obliged to choose the method which produced minimum interference with the rights of any party. When applying that principle, the Banks submitted that as they funded the provision of benefits under the Schemes, the choice of a method which was more expensive than an alternative available method would infringe the principle of minimum interference.

“33 In my judgment, the approach in Bestrustees v Stuart [2001] Pen LR 283 represents in general the principled approach for reasons which Neuberger J gives, and provides the guiding principles in this situation. Accordingly, the court should, where possible, give effect to Barber rights by adhering to the provisions of the relevant scheme where it is possible to do so in preference to some other approach. If some departure is required, it should in general, so far as practicable, represent the minimum interference with the scheme provisions. This approach is not limited to the situation where members have been led to believe that a provision will be used in a certain way or a stated aim of a provision has been only imperfectly achieved (as in Bestrustees v Stuart itself). As the judge in this case recognised, it is a principle of more general application.

34 However, in determining what “minimum interference” is, regard must in my judgment be had to substance as well as form. Accordingly the court should consider not just the extent of any textual amendment required to the rules of the scheme to enable effect to be given to Barber rights, but also the substantive effect of the amendment so adopted. In this case, the implementation of the rights of members with mixed NRDs on the judge's approach involved taking away the company's right to give or withhold its consent to early retirement, or to give its consent on terms. Likewise his solution ended up giving those entitled to Barber rights far more than they were entitled to under European law: they acquired the right to non-reduced benefits on early retirement in respect of pension entitlement accrued outside the Barber window. Those factors cannot be ignored. The only effect of European law on benefits is to impose a NRD of 60 for pension entitlements accrued during the Barber window. The scheme should in general only be treated as amended to the extent necessary to make those rights effective. This principle of minimum interference with the scheme's provisions should be applied on the basis that minimum interference takes account of the substance and not simply the form of any notional amendment to the rules.

35 It follows from the approach of minimum interference that the court has to compare possible options and consider in relation to any particular option whether the Barber rights can be given effect in some other way involving less interference with the rights of any party, again determining the substance and not just the form of the interference. Whether a particular solution is appropriate in any given case will depend on the circumstances of the pension scheme in question.”

“Domestic legislation has been introduced to cover the point, but it does not circumscribe any more narrowly the range of choice open to the employer and the trustees in making the necessary modifications. Accordingly it is fair to regard the employer and the trustees as having a reasonable margin of discretion in this respect.”

“How the imbalance is to be redressed, or is to be regarded as having been redressed, in any given case may depend on the particular rules of the scheme. However, in principle, it seems to me that Neuberger J's approach in Bestrustees v Stuart [2001] Pen LR 283 that “minimum interference by the courts is desirable” is undoubtedly correct (see the passage quoted by Arden LJ, at para 30 above), and minimum effect, here, refers to the extent of the substantive effect rather than to the extent of the drafting exercise. The corrective effect of article 141 EC, as applied in the Barber and Coloroll cases, is to ensure equality of benefits as between male and female employees and scheme members, to the extent required by the two cases, but not anything more than that. Minimum change might require extensive amendments to the drafting of the rules, whereas fewer textual changes might result in a greater substantive alteration. I agree with Arden LJ that the minimum alteration required should start with the modifications made already by way of equalisation for the future, in 1993, and should proceed from there but making no greater additional alteration to the scheme than is necessary to achieve full conformity with Community law as declared in article 141 EC, the Barber and Coloroll cases.”

The operation of sections 24A to 24H of PSA 1993

“ 2 4A Conversion of guaranteed minimum pension into other benefits: introduction

In this section and sections 24B to 24H–

(a) the rules specified in sections 13(1)(a) and (b) and 17(1) are referred to as the “guaranteed minimum pension rules” ,

(b) “GMP conversion” means amendment of the scheme in relation to an earner so that it no longer contains the guaranteed minimum pension rules,

(c) a “ GMP-converted scheme ” is a scheme which has been subject to GMP conversion,

(d) “the conversion date” means the date on which that amendment takes effect,

(e) “the pre-conversion benefits” means the benefits provided under the scheme immediately before the conversion date (disregarding money purchase benefits),

(f) “the post-conversion benefits” means the benefits which are provided under the converted scheme (disregarding money purchase benefits),

(g) “the converted scheme” means the scheme as it has effect immediately after conversion, and

(h) “the trustees” in relation to a scheme means the trustees, managers or other persons responsible under the scheme for effecting amendments of it.

24B The conversion conditions

(1) This section specifies the conditions referred to in sections 13(1A) and 17(1A) (for exemption from the requirement to guarantee a minimum pension).

(2) Condition 1 is that the post-conversion benefits must be actuarially at least equivalent to the pre-conversion benefits.

(3) Condition 2 is that if the earner was entitled immediately before the conversion date to the payment of a pension under the scheme, the converted scheme does not provide for a reduction of, or have the effect of reducing, the amount of that pension immediately after conversion.

(4) Condition 3 is that the post-conversion benefits must not include money purchase benefits, apart from any money purchase benefits provided under the scheme immediately before the conversion date.

(5) Condition 4 is that the converted scheme provides survivors' benefits in accordance with section 24D in such circumstances, and during such periods, as are prescribed by regulations.

(6) Condition 5 is that the procedural requirements of section 24E have been complied with.

(7) In applying these conditions to a scheme in respect of an earner–

(a) it is immaterial whether or not on the conversion date the scheme was also converted in respect of other earners, and

(b) it is immaterial (except for Condition 2) whether or not on the conversion date the earner was entitled to the payment of a pension under the scheme.

24C Actuarial equivalence

Regulations may make provision for determining actuarial equivalence for the purpose of Condition 1 of section 24B.

24D Survivors' benefits

(1) This section specifies the benefits mentioned in Condition 4 of section 24B.

(2) The first benefit is that if the earner dies is a man married to a woman or a woman married to a woman in a relevant gender change case, and the earner dies (whether before or after attaining normal pension age) leaving a widow, she is entitled to a pension of at least half the value of the pension to which the earner would have been entitled by reference to employment during the period–

(a) beginning with 6th April 1978, and

(b) ending with 5th April 1997.

(3) The second benefit is that if the earner is a married woman (other than in a relevant gender change case), a man married to a man, or a civil partner, and the earner dies (whether before or after attaining normal pension age) leaving a widower or surviving civil partner, he or she is entitled to a pension of at least half the value of the pension to which the earner would have been entitled by reference to employment during the period–

(a) beginning with 6th April 1988, and

(b) ending with 5th April 1997.

(4) In relation to an earner who is a woman, a reference in this section to a relevant gender change case is a reference to a case where-

(a) the earner is a woman by virtue of a full gender recognition certificate having been issued under the Gender Recognition Act 2004, and

(b) the marriage of the earner and her widow (that ends with the earner’s death) subsisted before the time when the certificate was issued.

(5) This section is subject to regulations under section 38A.

                       24E Procedural requirements

(1) This section specifies the procedural requirements that must be complied with in order to satisfy Condition 5 of section 24B.

(2) The employer in relation to the scheme must consent to the GMP conversion in advance.

(3) The trustees must take all reasonable steps to–

(a) consult the earner in advance, and

(b) notify all members, and survivors, affected by the GMP conversion before, or as soon as is reasonably practicable after, the conversion date.

(4) The Commissioners for Her Majesty's Revenue and Customs must be notified on or before the conversion date–

(a) that the GMP conversion will occur or has occurred, and

(b) that it affects the earner.

24F Transfer out

(1) Regulations may prescribe–

(a) restrictions on the transfer of the earner's accrued rights under a GMP-converted scheme;

(b) conditions which must be complied with on the transfer of the earner's accrued rights under a GMP-converted scheme.

(2) Section 20(2) and (5) shall apply to regulations under this section.

(3) Where a member of a non-GMP-converted scheme makes an application under section 95(1), the trustees may with his consent adjust any cash equivalent so as to reflect rights that would have accrued if the scheme had been subject to GMP conversion in accordance with Conditions 1 to 4 of section 24B.

24G Powers to amend schemes

(1) The trustees of an occupational pension scheme may by resolution modify it so as to effect GMP conversion (whether in relation to present earners, pensioners or survivors) in accordance with the conditions in section 24B.

(2) The subsisting rights provisions within the meaning of section 67 of the Pensions Act 1995 (c. 26) shall not apply to a power conferred by an occupational pension scheme to modify the scheme in so far as the power enables GMP conversion in accordance with the conditions in section 24B.

(3) Where a scheme is amended to effect GMP conversion the trustees may include other amendments which they think are necessary or desirable as a consequence of, or to facilitate, the GMP conversion.

(4) Where an occupational pension scheme is being wound up, the trustees may, before the winding up is completed, adjust rights under the scheme so as to reflect what would have happened if the scheme had been subject to GMP conversion in accordance with Conditions 1 to 4 of section 24B.

(5) In the application of section 24E by virtue of subsection (1) above, a reference to the earner includes a reference to a pensioner or survivor whose pension is subjected to GMP conversion.

24H Enforcement of GMP conversion conditions

(1) If the Regulatory Authority thinks that the conditions of section 24B have not been satisfied in relation to an amendment, modification or adjustment effected in accordance with any of sections 13(1A), 17(1A), 24F and 24G, the Regulatory Authority may make an order declaring the amendment, modification or adjustment void–

(a) in respect of a specified person or class of person,

(b) to a specified extent, and

(c) as from a specified time.

(2) Where the Regulatory Authority makes an order under subsection (1) it may–

(a) require the trustees of the scheme concerned to take specified steps;

(b) declare that specified action of the trustees shall not be treated as a contravention of the scheme if it would not have been a contravention if the order under subsection (1) had not been made.

(3) An order may be made under subsection (1) before or after the amendment, modification or adjustment takes effect.

(4) If the Regulatory Authority thinks that the process of effecting a GMP conversion of a scheme has been commenced and that a relevant condition of section 24B is not being complied with, or may not be complied with, the Regulatory Authority may by order–

(a) prohibit the taking of further steps in the GMP conversion (whether generally or in relation to specified steps), and

(b) require the trustees of the scheme to take specified steps before resuming the process of GMP conversion.

(5) Section 10 of the Pensions Act 1995 (civil penalties) shall apply to a trustee who has failed to take all reasonable steps to secure compliance with the conditions of section 24B in relation to an amendment, modification or adjustment effected in accordance with any of sections 13(1A), 17(1A), 24F and 24G.”

(1)                the fact that “guaranteed minimum pension rules” was defined in section 24A(1)(a) to refer to the rules in sections 13 and 17 and section 17 dealt with survivors;

(2)                the argument that “in relation to” an earner (in section 24A(1)(b)) could be read so as to include the rights of a survivor which would be “in relation to” an earner;

(3)                references to Hansard where there was a discussion of the amendment of section 17 (by introducing section 17(1A)).

(1)                the relevant provisions contain many references to the position of survivors;

(2)                the reference in section 24B(1)(b) “in relation to an earner” does not restrict the power so as to exclude persons who are survivors at the time of conversion because section 24B(1)(b) refers to the scheme following conversion no longer containing “the guaranteed minimum person rules” and this phrase is defined to include the rules specified in section 17, dealing with survivors;

(3)                a survivor’s pension is “in relation to an earner”; there is no independent entitlement to a survivor’s pension and see also section 8(2) which explains the relationship between the survivor’s pension and the position of an earner;

(4)                section 24B(1)(b) is in a definition section, whereas the power to amend is conferred by section 24G which makes it clear that the power applies to enable conversion in relation to “present earners, pensioners or survivors”;

(5)                section 24E(3) read together with section 24G(5) requires consultation with survivors before conversion;

(6)                the purpose of the provisions would be advanced by the Crown’s interpretation but not by the rival interpretation;

(7)                the fact that condition 2 in section 24B does not provide a safeguard for survivors will not necessarily create a practical problem but even if it did that would not justify reading the statutory provisions in such a way that made it impossible to convert a pension of a person who is a survivor at the time of conversion;

(8)                Ms Stout also relied on a statement in Hansard as to the amendment which was made to section 17 of the PSA 1993.

(1)                the GMP rules apply to both earners and survivors;

(2)                it would have been well understood at the time these provisions were enacted that there would be many schemes where the beneficiaries included a number of present survivors;

(3)                there is no obvious reason why Parliament would have wished to permit GMP conversion for earners but not for persons who were survivors at the time of conversion; indeed, the opposite is likely to be that case, in that Parliament would have wished to have GMP conversion for all persons receiving pensions under the scheme;

(4)                the power to convert is conferred by section 24G in terms which readily appear to permit conversion in relation to persons who are survivors at the time of the conversion;

(5)                the interpretation put forward by the Crown advances the apparent purpose of the provisions and the rival interpretation does not;

(6)                although there may be questions arising as to the operation of the provisions in relation to persons who are survivors at the time of conversion, there is no question which, if answered in a particular way, would make it impossible to have conversion in relation to persons who are survivors at the time of conversion;

(7)                any difficulties in interpreting section 24B(7) would not seem to be sufficient to justify reading the provisions so that they do not apply to persons who are survivors at the time of conversion;

(8)                the fact that Condition 2 appears only to apply to the pensions of earners is not a sufficient reason to read the provisions so that they do not apply to persons who are survivors at the time of conversion.

The methods appraised in the light of the above

PART VII: ISSUE 11

Issue 11(a) and (b)

(1)                Is the Claimant as trustee obliged to make back-payments to the member?

(2)                If so, should back payments be made (i) going back 6 years (and if so, 6 years before what date), (ii) going back to 17 May 1990, or (iii) going back to some other date?

(3)                Should interest be added to the back-payments, and if so at what rate?

(4)                Should the calculation of cumulative benefits under Method C and Method D take into account only those back payments as allowed for under (b)-(c) above?”

(1)                “Rule 1” is rule 62.9 of the Lloyds Bank Pension Scheme No. 2 Rules dated 21 December 1995;

(2)                “Rule 2” is rule 9.5 of Part III (Capital Bank Section Specific Rules) of the Rules of the legacy Bank of Scotland 1976 Pension Scheme;

(3)                “Rule 3” is rule 24.1 of Part IV (Bank of Wales Section Specific Rules) of the Rules of the legacy Bank of Scotland 1976 Pension Scheme;

(4)                “Rule 4” is rule 16.3 of the HBOS FSPS;

(5)                “Rule 5” is rule 8.2 of the Lloyds Bank No 1 scheme.

“62.9 Failure to claim benefit

No beneficiary shall be entitled to claim any instalment of pension or other benefit to which he is entitled under the Scheme more than 6 years after that instalment has fallen due for payment.”

“9.5 Forfeiture of unclaimed benefits

Any sum which may have become due to a Member or other person entitled to benefit under the Rules shall be forfeited if it has not been claimed during a period of at least six years from the date upon which that sum became due, but, if the sum formed one payment of a pension or annuity the right to such pension or annuity shall not thereby be extinguished.”

“24 Unclaimed benefits

24.1 If any pension or benefit or any instalment remains unpaid to and unclaimed by the person to whom it is payable for a period of six years from the date it became payable, then the entitlement to it shall be extinguished and it shall be retained by the Trustees in the Fund.

24.2 Any unclaimed AVC Interest shall be held by the Trustees on trust for the AVC Member or his estate as the case may be.”

[An AVC was an Additional Voluntary Contribution paid by a Member under Rules 19 or 20 of these Rules. An AVC Interest was the interest in the Fund which a Member had in respect of his AVCs.]      

“16.3 Benefits not assignable

Benefits under the Scheme are subject to restrictions imposed by Sections 91 to 93 of the Pensions Act 1995 (assignment and forfeiture, etc). These restrictions are intended generally to ensure that benefits are paid only to the person entitled under these Rules, rather than to any other person. The restrictions prevent benefits from being assigned, commuted, surrendered, charged, or forfeited, except in specified circumstances.

However, there are exceptions to the restrictions imposed by Section 91 to 93. To the extent permitted by those exceptions:

…

16.3.4 the Trustees will forfeit any benefit if the person entitled to the benefit does not claim it within six-years of the date on which it becomes due.”

“8.2 Assignment, forfeiture, etc

Benefits under the Scheme are subject to restrictions imposed by Sections 91 to 93 of the Pensions Act 1995 (assignment and forfeiture, etc). These restrictions are intended generally to ensure that benefits are paid only to the person entitled under these Rules, rather than to any other person. The restrictions prevent benefits from being assigned, commuted, surrendered, charged, or forfeited, except in specified circumstances.

However, there are exceptions to the restrictions imposed by Sections 91 to 93. To the extent permitted by those exceptions:

…

8.2.5 the Trustee may also reduce a person’s benefits, or decide that a person’s benefits will be forfeited, in any other circumstances allowed by sections 91 and 92 of the Pensions Act 1995.

However, General Rules 8.2.1 and 8.2.4 do not apply to GMPs, and this General Rule 8.2 does not apply to any lump sum or instalment of pension that falls due for payment before the benefit otherwise ceases to be payable.”

“92.-  Forfeiture, etc.

“21.- Time limit for actions in respect of trust property.

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action —

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee , or previously received by the trustee and converted to his use.

…

(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six-years from the date on which the right of action accrued.

For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

… ” (emphasis added)

(1)                a member who has been underpaid does not have a proprietary claim to any specific asset in the possession of the trustee and a claim for arrears of underpayments is not a claim to recover trust property;

(2)                if a scheme is in deficit, as many often are, then the trustee may not have any assets with which to meet the claim for arrears of payment (other than the trustee’s ability to call upon the employer to fund the obligation).

(1)                it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law;

(2)                it is compatible with Community law for national rules to prescribe, in the interests of legal certainty, reasonable limitation periods for bringing proceedings; normally, reasonable limitation periods do not infringe the principle of effectiveness as it cannot be said that this makes the exercise of rights conferred by Community law either virtually impossible or excessively difficult, even though the expiry of such limitation periods entails by definition the rejection, wholly or in part, of the action brought;

(3)                the rules laid down by the domestic legal system must not be less favourable than those governing similar domestic actions (the principle of equivalence);

(4)                it is for the national courts to ascertain whether the procedural rules intended to ensure that the rights derived by individuals from Community law are safeguarded under national law comply with the principle of equivalence;

(5)                the Court of Justice can provide the national court with guidance as to the interpretation of Community law, which may be of use to it in undertaking such an assessment;

(6)                the principle of equivalence requires that the rule at issue be applied without distinction, whether the infringement alleged is of Community law or national law, where the purpose and cause of action are similar;

(7)                the principle is not to be interpreted as requiring member states to extend their most favourable rules to all actions brought in the relevant area of law;

(8)                in order to determine whether the principle of equivalence has been complied with in a particular case, the national court must consider both the purpose and the essential characteristics of allegedly similar domestic actions;

(9)                whenever it falls to be determined whether a procedural rule of national law is less favourable than those governing similar domestic actions, the national court must take into account the role played by that provision in the procedure as a whole, as well as the operation and any special features of that procedure before the different national courts.

(1)                the question whether any proposed domestic claim was a true comparator with an EU law claim was context-specific (at [9]);

(2)                the court must focus on the purpose and essential characteristics of allegedly similar claims (at [10]);

(3)                it was wrong to address the question of similarity at too high a level of generality (at [12] and [28]).

“45 First, the Proviso should not be regarded as some free-standing rule, separate from the principle of equivalence. Rather it is part of the Court of Justice's expression of the principle of equivalence itself, directed to explaining the standard of treatment which that principle imposes upon member states when providing procedures for the vindication of rights based in EU law. What is required is that the procedure should be broadly as favourable as that available for truly comparable domestic claims, rather than the very best available.

46 Secondly, the Proviso is, like the principle of equivalence of which it forms part, best understood in the light of its purpose.”

Issue 11(c) and the rate of interest

Issue 11(d)

PART VII: ISSUES 12 AND 13

Issue 12

Issue 13

(1)                Does the Claimant's obligation apply to benefits accrued in other schemes during the Barber window which have been transferred in to any of the Schemes?

(2)                Leaving aside the effect of any contractual obligation that may have been undertaken in relation to particular transfers out of the Schemes, does the Claimant's obligation apply in relation to benefits accrued in any of the Schemes during the Barber window which have been transferred out of the Schemes, and if so what does that obligation require?

(3)                If the answer to Issue 13(b) is yes, is that such an obligation applies, is that “in principle” obligation discharged (and thus not enforceable by relevant Scheme members) either

(i) under s 99 PSA 1993 and/or by reason of s 73(2) and (4) PSA 1993?

(ii) under transfer out provisions in the relevant Scheme rules?” 

PART IX: CONCLUSIONS

A summary

(1)                The Trustee is under a duty to amend the Schemes in order to equalise benefits for men and women so as to alter the result which is at present produced in relation to GMPs;

(2)                The Trustee is not obliged to adopt method A3 which was argued to be the only method available;

(3)                The Trustee is not entitled to adopt method A (in particular, method A3) because that method infringes the principle of minimum interference judged from the standpoint of the Banks;

(4)                The Trustee is not entitled to adopt method D1 because that method infringes the principle of minimum interference judged from the standpoint of the beneficiaries;

(5)                Method D2 is not at present available to be adopted as the Banks have not consented as required by section 24E(2) PSA 1993.  However, in principle, it is a lawful method to which the Banks could consent and the GMP conversion legislation used in Method D2 does enable conversion of survivor’s benefits;

(6)                Methods B, C1 and C2 all provide for equivalence in relation to benefits but the Banks can require the Trustee to adopt method C2 by relying on the principle of minimum interference, judged from the standpoint of the Banks;

(7)                The rate of interest to be used for method C2 should be 1% over base rate simple interest;

(8)                Beneficiaries are entitled to receive arrears of payments due to them;

(9)                The period for which beneficiaries are entitled to receive arrears of payments is governed by the rules of the Schemes which deal with the period of time more than six years before a claim for payment of arrears; I was shown five examples of rules of the Schemes; four of those examples provide for the beneficiaries not to be entitled to arrears in relation to that period; the fifth example gives the Trustee a discretion in relation to that period;

(10)            The rules of the Schemes are not contrary to section 92(5) of the PA 1995;

(11)            By virtue of section 21(1)(b) of the Limitation Act 1980 there is no relevant limitation period in relation to proceedings to recover arrears;

(12)            Section 134 EA 2010 is not effective in relation to proceedings by beneficiaries to recover arrears of payments where the Trustee is in possession of trust assets, as section 134 offends the principle of equivalence in such a case;

(13)            In equity, arrears of payments should bear simple interest at 1% over base rate.

APPENDIX A

This Appendix highlights the provisions of the Schemes that could give rise to unequal payments arising from GMPs.  These provisions relate to benefits accrued after 17 May 1990 and prior to 6 April 1997 and where reference is made to a total pension in the table below, this refers only to benefits accrued during this period.  For ease of reference, this Appendix only looks at the provisions of the Schemes contained in the most recent Trust Deeds and Rules, and any subsequent amendments.  It is possible that the benefits for certain members are governed by previous Trust Deeds and Rules which contain different provisions.

1.1              For each Scheme, there is a summary of the scheme provisions that are relevant to this Appendix, in that these provisions have an impact on potential or actual inequalities arising from GMPs, and hence might impact on the cost of correcting such inequalities. 

1.2              Given the size and complexity of the arrangements, this analysis does not cover every member of each Scheme, but includes all major categories and sub-categories of member, except where the liabilities covered are very small.  For this purpose the Appendix uses a materiality limit of 1% of scheme liabilities.  In order to identify the relative importance of the different sections and subsections, the percentage of the total scheme liability (as at 30 June 2014, the date of the most recent actuarial valuations of the schemes) represented by each category is stated.  This gives a realistic indication of the relative size and importance of each section, and the percentages are not expected to be noticeably different at a more recent date.

1.3              The position in relation to discretionary pension increases is relevant to the inequalities arising from GMP provisions.  This is an issue for the HBOS Scheme, where for some sections (in particular BOS, Capital Bank and Birmingham Midshires) there is a longstanding practice of discretionary increases being awarded by the sponsor.  With the agreement of the sponsor, allowance for these to continue has been included in funding valuations and transfer values.  This can only be done by taking a view on the future level of those increases – in practice awards by the sponsor are not bound by this allowance. The position in relation to the No. 1 Scheme and the No. 2 Schemes is different, in that some administrative practices are in place which provide benefits which are generally in excess of those set out in scheme rules.  There are some relatively minor aspects of the HBOS scheme where this is also the case.  Except where stated costs in this report reflect the assumption that these discretions and practices will continue. 

1.4              The No. 1 Scheme PIP Section provides DC benefits subject to a DB underpin, including in relation to accrual from 1 January 1996, and hence would be within scope for an exercise to mitigate the impact of GMPs on the No 1 Scheme.  Given the very short period of relevant accrual this has been excluded from further consideration in this report on grounds of materiality.

1.5              It should be noted that where a maximum increase is stated (e.g. in some of the statutory descriptions) the maximum will tend to apply on an annual basis in payment and over the entire period of deferment in terms of revaluation prior to payment.  In other words, where an increase in payment is subject to a maximum of 5%, no single increase will exceed this level.  In deferment, a single revaluation in excess of 5% would not be capped, provided the average revaluation over the whole deferment period did not exceed 5% per annum.  Scheme-specific minimum revaluation provisions will depend on wording of the rules, and these are capped on an annual basis in the case of the No. 1 Scheme and the No. 2 Schemes.  References to CPI in statutory increases reflects the forward-looking position.  In the past, RPI was used as the relevant inflation measure until 2011, and this is reflected in the entitlements considered in this report. 

Notes

(1)       Our understanding is that equalisation provisions result in age 55 being used for all members.  This has been reflected in costings provided in this report.

(2)       Our understanding is that equalisation provisions have been applied where necessary for male members.  This has been reflected in costings provided in this report.

(3)       For the purposes of this report, except where noted otherwise, it is assumed that discretionary practices will continue.

(4)       Prior to GMP payment age the entire pension is increased at the rate applicable to the non-GMP element.

(5)       For the purposes of this report this administration practice has been assumed to continue at a level which is more generous than that required by the rules.

(6)       Fixed revaluation rates depend on date of exit from the scheme and are set out below. 

(7)       This is an administrative practice applying to some members.

(8)       Our understanding is that age 60 is used to reflect equalisation provisions.  This has been reflected in costings provided in this report.

(9)       Due to equalisation provisions, we understand references to age 65 do not apply in practice.  This has been reflected in costings provided in this report.

(10)     Level funded at actuarial valuation.

(11)     Rules provide for 3% minimum only to apply in cases of early retirement.  Administration practices is to apply this to all pensioners.

(12)     Administrative practice more generous than rules.

(13)     Administrative practice (rules state fixed).

Summary

The important points to take from these summaries are set out below.

1.6              For the No. 1 Scheme, the rule that provides for an underpin on pension increases for pre 1 November 1983 joiners will tend to reduce the impact of unequal pension increases arising from unequal GMPs.  This underpin is more likely to bite in an environment where inflation is low, and/or not subject to significant variability.  In these circumstances the 4% cap on the underpin has less relevance.  In this scenario, the non-GMP is subject to RPI increases under both formulae and under the underpin the post 88 GMP is also subject to RPI increases (likely to be higher than the CPI-linked increases required by statute).

1.7              The similar provision that applies in the No. 1 Scheme in terms of revaluation of GMP and non-GMP will tend to reduce the incidence of unequal pensions being paid at NRA following exit from pensionable service. This underpin is more likely to take effect for recent leavers from pensionable service, for whom fixed rate GMP revaluation is likely to be lower.

1.8              For the No. 2 Scheme, pension increases for most members being subject to CPI should result in relatively low levels of inequality arising from pension increases.  For example, if CPI is experienced at less than 3%, there is no difference between pension increases on GMP and on non-GMP. 

1.9              The underpin on the increases in deferment is less likely to apply on the No. 2 Scheme than on the No. 1 Scheme, because being based on the CPI inflation measure (which is expected to be lower than RPI) it is less generous, and in many cases not expected to exceed the impact of the statutory revaluation on the GMP   The impact of this is that females in the No. 2 Scheme who leave to become deferred pensioners are more likely to be advantaged in terms of the pension payable at age 60 than are females in the No. 1 Scheme. 

1.10          The HBOS Scheme exhibits a wide range of provisions for GMP revaluation in deferment and non-GMP increases in payment.  Female members of the Clerical Medical and Halifax sections are almost certain to receive less generous pension increases than males, as the maximum GMP increase is 3% and the minimum non-GMP increase is 3%.  In the Halifax section this is likely to be offset by the (relatively generous) treatment of GMPs for females, to the extent that members retire at that section’s NRA of 62 from deferred pensioner status.  This arises because of the statutory requirements that surround GMPs coming into payment after GMP payment age (60 for a female) – essentially providing a late retirement uplift for a woman retiring after her GMP age that would not apply to a male retiring at age 62 (ie before his GMP payment age of 65).

1.11          The wide range of GMP revaluation rates in the HBOS Scheme will result in a wide range of potential outcomes in terms of inequalities.  The treatment of GMP revaluation for males who leave pensionable service is relatively generous in the HBOS Scheme and this will tend to reduce gains that females would otherwise experience.

1.12          The HBOS Scheme contains some sections that provide for discretionary increases on the non-GMP element of pensions.  The impact of this will be to favour males, as the current practice limits the increase on the non-GMP to 5%, whereas the increase on the GMP is limited to 3% (both being based on CPI).  If no discretionary increases were made, females would benefit, as increases would only be awarded on the GMP (which is higher for females and recognised from age 60 rather than age 65), although a step-up for males would be more likely from age 65.  The discretionary practice of paying increases on the GMP equal to those on the non-GMP in the Birmingham Midshires section will result in no inequality arising from pension increases in that section.

1.13          A scheme provision that tends to reduce the scope for one aspect to be unequal, may result in the overall net inequality being larger than would otherwise be the case.  For example, in a section where females who have been deferred pensioners are expected to have higher pensions from NRA, having no differentiation on pension increases will leave males disadvantaged.  If the usual position of pension increases favouring males was present, this would in a sense compensate for the advantage to females at the point of retirement.  This issue is relevant to the subsequent discussion on Methods and costs of equalisation.

In conclusion, the overall impact of addressing inequalities arising from GMPs is expected to be lower (as a percentage of total liabilities) for these schemes than for many others, although the absolute sizes of the schemes could still result in significant costs in £ terms.  The widely differing provisions between the schemes (and between sections within each scheme) is expected to give rise to differing issues on a scheme-by-scheme (and section-by-section) basis.

APPENDIX B

GMP Equalisation – agreed summary of methods

For Methods D1 and D2, the actuarial value of benefits is calculated as the discounted cash flows payable to the member and to a surviving dependant entitled to benefits.  The comparison could either be carried out (i) at a single conversion date for all members or (ii) for each member at the point of retirement, transfer out or death.

GMP Equalisation – Worked examples

The following examples provide an illustration of the various equalisation methods. 

Illustrations of the impact of the various alternative Methods

The data underpinning these projections relates to a female member of the HRF Section of the HBOS Final Salary Pension Scheme, who left service at age 41 with a pension entitlement of £2,293 per annum relating to the period from 17 May 1990 to 5 April 1997, payable from the Section’s Normal Retirement Age of 62.  The split of this pension (and the analogous split that would have applied had she been a male) is set out below.

The illustrations use the following assumed increases.  Where historical information existed at the time the original projections were prepared (e.g. in relation to historic rates of inflation) this information has been incorporated.

A rate of interest of 3% pa has been assumed in the calculations for Method C2.  Also, the examples assume the member dies aged 92 following the pension increase received when aged 91.  Thus the examples have considered payments received over a 30 year period (from age 62 and ignoring any subsequent payments to contingent spouses and/or dependants) and assumed a discount rate of 4% pa when considering the actuarial values under Methods D1 and D2.

There are some important stages to these projections, as set out below:

Actual entitlement at age 62 (reflecting status as a female)