'Dirty secret' of inequality in GMP pension schemes taken to Employment Tribunal

This has been a "dirty little secret" of pension schemes for many years, and responding to it will cause headaches across the sector, an expert has said.

The issue lies in unequal payments made to men and women who had guaranteed minimum pension (GMP) schemes in the 1990s. Pensions for women tended to be lower on the basis that they received their state pension five years earlier than men.

"That is discriminatory on the grounds of sex," Lloyds Trade Union (LTU) said in a newsletter to members. LTU is putting together a class action lawsuit to present to the Employment Tribunal on behalf of female members.

GMP equalisation will affect up to 2,400 pension schemes and millions of women, and could cost UK companies up to £13 billion, Lloyds Trade Union said.

Pensions expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law.com said: "Inaction on GMP equalisation has been a dirty secret of ongoing pension schemes for many years, and it looks as if the carpet may well be lifted shortly."

"However, it will not be enough to get an answer as to whether GMPs need to be equalised: pension schemes will also need to know how they are expected to do so. The government consulted on possible methods in January 2012 and was swamped by the nearly-universal horror of respondents at the impracticability," he said.

"Quite apart from the cost involved in increasing benefits if they are to be equalised, the administrative aspects are potentially fearsomely complicated. It isn’t as simple as uplifting benefits by a given percentage – the calculation is specific to each individual according to when they retired and the circumstances of their retirement. This will provide schemes with an administration headache. For smaller schemes the admin costs may well dwarf the costs of the benefits," Meeks said.

The UK government said in 2012 that companies that contracted employees out of the State Earnings-Related Pension Scheme must make sure the same benefits are paid to men and women.

The Department for Work and Pensions (DWP) published draft regulations making it clear that the same normal retirement date must be applied to both men and women receiving GMPs. It also proposed a methodology (39-page / 283KB PDF) that schemes could use to make this calculation.