Pensions Ombudsman supports inaction on guaranteed minimum pension equalisation

The ombudsman rejected a complaint brought by Gordon Kentworthy (14-page / 268KB PDF), a member of the Campden RA Pension Scheme, alleging that scheme administrator and actuary Trigon Pensions Ltd did not calculate his pension entitlement in line with the scheme's trust deed and rules and with the 2010 Equality Act.

Defined benefit (DB) pension schemes have been legally required to provide equal benefits to male and female members since the 'Barber' ruling by the Court of Justice of the European Union (CJEU) in 1990. However, this ruling did not extend to state benefits. The UK government has since acted to equalise the male and female retirement date, but has not yet legislated to equalise treatment in relation to certain benefits provided to employees who were contracted out of the state earnings-related pension scheme (SERPS) between 1978 and 1997. Those benefits are known as GMPs.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the ombudsman had "wisely taken a pragmatic line" rather than attempting to provide a definitive ruling on GMPs.

"No one knows what to do about equalising GMPs," he said. "Lawyers and actuaries have different stances on whether, to what extent and how they must be equalised.  The previous Pensions Ombudsman - who ruled that they must be equalised - was largely pushed back by the High Court."

"Most schemes have taken no action to equalise GMPs and are waiting until the position is clarified. This is what the pension scheme had done in this case.  The ombudsman decided that this course of inaction was reasonable - much to the relief of other schemes.  The Department for Work and Pensions is yet to come up with its final, long-awaited paper on how GMP equalisation can be achieved," he said.

The GMP is the minimum pension which an occupational pension scheme has to provide for those employees that were contracted out of the SERPS between 1978 and 1997. The GMP was replaced from 6 April 1997 by a Reference Scheme Test for schemes which contract out of the second state pension, which itself replaced the SERPS. Although contracting out will be abolished altogether when the new state pension takes effect next April, pension schemes are still liable to pay GMPs that have been earned for periods of service between 1978 and 1997.

Kentworthy, the scheme member who brought the complaint to the ombudsman in this case, joined the pension scheme on 1 August 1991. At that time, the scheme's normal retirement age (NRA) was 62.5 for male members and 60 for female members. The NRA was equalised at 62.5 for both sexes on 17 November 1999, and increased to 65 on 1 January 2003.

On 1 August 2010, Kentworthy left his job and became a deferred member of the scheme. The scheme's then administrator, Aon Hewitt, provided him with an estimate of the benefits he would receive from the scheme once he turned 65. When Trigon took over the scheme, it performed a 'Barber underpin' check to ensure that Kenworthy's benefits met the equalisation standard set by the CJEU following the Barber case.

Kentworthy argued that, as part of this check, Trigon should have included an actuarial enhancement for all of his pensionable service before the NRA increased to 65. Aon had used this enhancement in its calculations, but the method used by Trigon excluded any GMP that was attributable to pre-2003 service. The member said that this interpretation "treats male members less favourably than female members" due to the difference in retirement ages, and was therefore incompatible with the 2020 Equality Act.

However, the ombudsman said in his determination that it was not for him to decide which of the different actuaries' methods was correct. Although Aon appeared to have developed a method that did not require an explicit 'Barber underpin' check, "he would probably have had his reasons for this and only certified his method as reasonable after carefully considering the effect to his method of the Barber judgment and the changes made to the scheme on 1 January 2003", he said.

"Apart from the GMP benefits, the pension benefits available from the scheme have been equalised for men and women," the ombudsman said. "The respondents have explained why they do not currently consider it an appropriate time to equalise GMP benefits and I consider their explanation to be reasonable."

"In my opinion, the respondent can continue to defer taking action to equalise GMPs until this issue has been [resolved]," he said.