On 26th October 2018, the High Court ruled that contracted-out defined benefit schemes must equalise Guaranteed Minimum Pensions (GMPs) between men and women and make back payments, with interest, where there have been historic underpayments. Most schemes with GMP will be final salary but there will also be a significant number of DC schemes contracted out on a GMP basis that are affected too. It also proposed a favoured method whereby administrators are required to carry out an annual assessment of the GMP entitlements of men and women and equalise them where necessary.
The market view is that GMP equalisation could add 1%-4% of liabilities to each pension scheme.
It is possible that the case will be appealed and therefore there will still be some uncertainty for a while yet. However, this is likely to only delay the inevitable and Schemes will need to speak to their advisors to establish what their next steps should be and what their options are. The cost of equalising the member’s benefits is likely to be substantial and Schemes should look to make practical and proportionate decisions where they are able to. This work is also unlikely to be covered by any fixed fee arrangements and Schemes may, therefore, want to get a second opinion on what costs might be reasonable for both the rectification exercise and any additional ongoing costs involved in carrying out the annual comparisons.
Finally, it will be interesting to see if the ruling on the requirement to add interest to the back payments will have implications for other adjustments that might have been made or will need to be made to benefits.