Pension scheme: New ruling may see those contracted out of state pensions get ‘thousands’
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Pension rules may be dramatically altered in the coming months courtesy of a new court ruling on GMPs. Today, Mr Justice Morgan delivered a verdict on the case between Lloyds Banking Group Pensions Trustees Limited and Lloyds Bank PLC, HBOS PLC, the Secretary of State for Work and Pensions and Ivan Walker.
The judgement itself is very complex but fortunately, Ian Brown, a retirement planning expert at Quilter, broke down what the results of the case mean: “The devilishly complicated judgement relates to Guaranteed Minimum Pensions (GMP) and applies to pension schemes where members were opted out of contributing to the state earnings-related state pension (SERPS), normally known as ‘contracting-out’.
“A GMP effectively protected contracted-out pension scheme members, ensuring that they would receive at least as much from the private pension as they would have got from SERPS.
“It set the minimum pension which a pension scheme had to provide as a condition of contracting-out.
“People that were working in the early to mid-90s for an employer with a defined benefit pension scheme that was contracted out of the second state pension may be eligible for compensation following today’s ruling.
“Ultimately, for some people, it will mean that they receive thousands of pounds as an additional payment, and employers that still hold a duty to fund an affected pension scheme will need to find the money to cover these costs.”
While those affected may be keen to receive any additional payments from their set-ups, it may be some time before any significant changes are seen.
This is due to the complexity of the situation, as Ian went on to explain: “The complexity arises because of pension equalisation. Following a 1990 court ruling, pension scheme benefits that differed for men and women had to be equalised.
“However, at the time the state pension age still remained different for men and women, and as a result GMPs were not equalised, and became an anomaly in the pension system.
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“A ruling in 2018 means that schemes should already be in the process of resolving the matter for members still in receipt of a GMP benefit, and today’s judgement means they will now need to re-evaluate payments made to members that transferred out.
“This is going to be a complete minefield as schemes will need to sort through the archives to find records up to three decades old.
“Having blown the dust off they will need to identify which scheme members would have benefited had GMP equalisation taken place when calculating their transfer value, and either reach out to those people to make them whole, or ensure that they can at least do so in the event of a claim.
“There is no doubt that this process is going to take time and will leave a lot of pension schemes reeling.
“The hugely complex process will be both costly and time consuming for the schemes and their sponsoring employers.
“For the public it will undoubtedly leave pension scheme members, many of whom will now be retired and who may have long-forgotten the terms of their pension 20-30 years ago, scratching their heads at home wondering whether they might be due a payment.”
Some of these issues around length and forgotten pensions may be somewhat rectified in the coming years thanks to government intervention.
Currently, the government is working on introducing “pensions dashboards” which will not only allow people to manage all of their private pensions in a single place, but will also allow savers to track down any lost or forgotten schemes.
Recently, the Money and Pensions Service, the public body responsible for launching the service, confirmed initial standards for the dashboard will be laid out in December.
From there, testing onboarding and transitions will be done over the coming years, with completion expected from 2023.
As these plans were revealed, Chris Curry, the Principal of the Pensions Dashboards Programme at the Money and Pensions Service, provided the following comments: “As we set out a timeline for the delivery of pensions dashboards, which will enable people to see their pensions information online, securely and in one place, we are grateful for the industry’s valuable input to date which has helped us develop a robust roadmap for development.
“While dashboards are a simple concept, the delivery of dashboards will be complex and is reliant on collaboration between the PDP and many other organisations across Government, regulators, dashboard providers, pension schemes and providers to complete actions at a specific time.
“Already, through qualitative research and the call for Input, the industry has provided useful insight into the challenges of verifying people’s identities and matching them to pensions. We are working on defining our requirements for this, which will provide greater clarity. We will continue to work with the industry to find and develop robust solutions to these and other challenges.
“The first version of the data standards, which will be published in December, will enable the industry to take action and take the next steps in making pensions dashboards a reality.”
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