Pension schemes need to start “managing the expectations” of their members over the equalisation of guaranteed minimum pensions (GMP), with the decision expected to be handed down over the next month.
Speaking at the Society of Pension Professionals annual conference on Friday, 21 September, Allen & Overy partner, Jane Higgins, said that schemes should be thinking about how they communicate with their members prior to the decision being handed down.
In July, Lloyds Banking Group started its landmark defence against three female members of Lloyds Banking Group’s final salary pension schemes who are claiming sex discrimination because their GMPs increased at a lower rate than male members.
According to Higgins, the decision is expected in either September or October, and should the bank lose the case it could face backdated benefit costs amounting to £508m.
“There are things that schemes can be doing in the meantime, there isn’t a great deal that schemes need to do to prepare for a no judgement, that says we don’t need to equalise … but if the answer is yes then that’s quite a big job and it does make sense to be thinking now about what you would be doing,” Higgins said.
“From day one … actually thinking about communications to members and starting to manage expectations to the extent you can, because it’s not going to be a day one simple answer as to how it impacts members, you are going to have to go through quite a long process with the answers and then you’ll find a way to do it.
“Schemes need to start thinking about how they are going to manage member expectations.”
Despite the impending ruling, Higgins warned that any possible decision may leave “unanswered questions”, and the possible appeal process means that it could be years before the case offers full clarity.
“We don’t know if it will address all the points, there are a couple of points in particular that we might not get clarity on, so it's unclear whether we’re at the end or the start of the end,” she added.
It has estimated that if Lloyds were to lose the case then the cost of equalizing GMPs across the board could be as much as £20bn. The trade union BTU has said that there are 6,000 contracted-out pension schemes in the UK with over 7.8 million members.
With the implications of the case for public policy being far-reaching, the Department of Work and Pensions and the Treasury have both joined the action and are making submissions on behalf of the government.