When is a transfer not a transfer?

When it wasn’t equalised – doh!  OK, yes it was still a transfer, but the latest ruling by Mr Justice Morgan in the Lloyds Bank GMP equalisation saga is bound to cause yet more headaches for schemes already trying to grapple with the outcome of the first judgment over two years ago!

GMP equalisation and transfers-out – in a nutshell

There’s a whole set of different considerations for bulk transfers, but looking at individual transfers paid out of a scheme, what did the latest judgment conclude?

For statutory transfers:

  • Trustees owed a duty to those transferring members to pay a CETV which was calculated correctly – essentially it should have been paid on an equalised basis
  • Transferring members who received an unequal CETV have a right (which is not time-barred) to make the transferring scheme pay a top-up – ideally to the scheme that received the CETV but it may be possible to agree an alternative form of compensation if that’s not possible
  • Trustees must be “proactive” in addressing the issue.

Conversely, for non-statutory transfers, it may be that the transfer did fully extinguish the transferring member’s rights under the scheme.

So, step 1 for trustees will be to identify individual (unequalised) transfers which were paid out of the scheme on (i) a statutory basis and (ii) a non-statutory basis.

OK, but what does “proactive” even mean?

Well that’s the million-dollar question isn’t it!  In the judgment “proactive” meant taking active steps to identify past transfer shortfalls and then equalising them. No specific timescale was mentioned, but doing nothing, in the hope that no-one would make a claim and the issue would go away, isn’t an option.

But what does that mean in practice? I’m going to sound like a typical lawyer when I say that what’s reasonable and appropriate in the circumstances will be scheme specific.  Industry practice will likely develop over time but, at the very least, trustees should carry out initial fact-finding to work out how many individual transfers-out could be in scope for correction and possible amounts involved.

Once the initial audit of historic transfers has been completed, trustees will need to think about what further action they should take.  Where the information available on scheme records is limited, they might decide to carry out a cost/benefit analysis to reach a conclusion on what next steps are appropriate and proportionate in their circumstances.  In the latest judgment, Mr Justice Morgan was asked not to consider cost/benefit questions, because the parties had agreed that the Trustee should decide what to do.  He went on to say –

“In these circumstances, all that I can usefully say is that the Trustee does need to be proactive in that it must consider the rights and obligations which I have identified, the remedies available to members and the absence of a time bar and then determine what to do.”

The usual principles of good governance will be key here – trustees will need to take account of relevant factors (and ignore irrelevant ones) in their decision-making, and then make sure that they have a clear paper trail recording all decisions reached as part of the process.

As always, we’re here to help trustees navigate this new tricky GMP equalisation path!

< Back to blog