GMP equalisation

The recent High Court decision in the Lloyds Banking case has finally clarified the need to equalise for the effect of GMPs.

Trustees and employers with GMPs should therefore seek legal and actuarial advice on the implications of the case and next steps.

GMPs – a brief history

From 6 April 1978 to 6 April 1997, individuals could accrue an entitlement to an earnings-related addition to their basic state pension, called the State Earnings Related Pension Scheme (SERPS). An employer could contract its scheme out of SERPS if it was designed to provide a pension at least as good as a statutory minimum, known as the GMP. The GMP is a component of a member’s total scheme pension.

The method for calculating GMPs is set out in legislation and can result in inequality because:

  • GMPs are payable from different ages (65 for men, 60 for women)
  • GMPs consequently accrue at different rates (with a female’s benefits accruing more quickly)
  • different payment ages also create differences in the periods for which GMPs are subject to pre- and post-retirement increases
  • revaluation of GMPs is usually higher than revaluation applicable to non-GMP excess benefits (which is more favourable to women), and
  • statutory increases on GMPs tend to be lower than those applicable under scheme rules to non-GMP excess benefits (which is more favourable to men).


In the Barber case (17 May 1990), the ECJ ruled that occupational pensions were deferred pay and, as such, schemes were required to treat men and women equally. As a result schemes “equalised” their retirement ages, often at age 65, and adjusted their benefits accordingly. However, as the rules governing GMPs are set out under legislation, there was some doubt as to whether Barber applied to GMPs.

The DWP’s view is that European law requires GMPs to be equalised.  To date it has proposed two methodologies for schemes to achieve this.  The first method, consulted on in 2012 (see our Alert), would have required schemes to compare, on a year by year basis, the position of a male against a female and pay the better of the two benefits.  A new consultation was issued in 2016, with a response in 2017 (see our Alert).  The method suggested then involved a one-off calculation and actuarial comparison of the benefits a man and woman would have, with the greater of the two converted into an ordinary scheme benefit under the legislative facility for converting GMPs (see our Alert for details of the current process).  However, the DWP made clear that trustees would not be obliged to use its proposed method for equalising for the effect of GMPs using this method and that it does not consider it appropriate to provide a “safe harbor” in respect of this methodology.

Further work was envisaged, but the Government reserved its position pending the outcome of the Lloyds case.

Lloyds case

On 26 October 2018, the High Court published its highly anticipated decision in Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc and others. The decision provides long-awaited clarification that there is a requirement to equalise for the effect of GMPs and approves methods to achieve this.

The High Court decision is unlikely to be the end of the story. We may not know until early 2019 whether the decision will be appealed and are awaiting a response (and potential legislation) from the Government. In addition, secondary issues, such as the treatment of previous transfers outs, were not addressed and may require a subsequent hearing to resolve.

How we can help

  • prioritising immediate next steps
  • communicating with and helping pensions teams to answer questions from members
  • considering options for achieving equalisation best suited to the scheme’s circumstances
  • drafting changes to scheme rules to reflect the selected method
  • advising on transfer values
  • considering the impact on any member or bulk scheme exercises (such as PIEs, buy-ins / out, closure and winding up).