UK - Six test cases are being planned by leading pension lawyers to end confusion over how guaranteed minimum pension payments are calculated on wind-ups.
Lawyers say that trustees are unsure whether contracted-out benefits should be paid at state pension age – 65 for men and 60 for women – as specified in UK statute or equalised in line with private pensions, as stated in European law.
Eversheds and Dickinson Dees are bringing the test cases to court in a bid to resolve the issue.
Eversheds head of pensions Giles Orton said trustees are currently open to compensation claims from groups of men or women who have received a smaller pension as a result of using either legal option.
He explained: “In a non-equalised GMP wind-up, women will get more money than men because GMPs rank higher in the priorities than other benefits.
“But under the Pensions Act pensions are considered as deferred pay and should be equal.
“This is a big problem for independent trustees who are being told by OPRA to speed up wind-up, but it is not giving any guidance about the equalisation of GMPs.”
The test cases – which are being prepared for court – are intended to generate guidance on this matter.
Orton added the government was supposed to have clarified the issue in the Pensions Act 1995 but “ducked” out.
Dickinson Dees head of pensions Martin Jenkins agreed there was no indication as to which was the legal precedent for GMP equalisation.
“The prevailing legal view is that GMPs should be equalised, but this comes at a potentially avoidable cost to the scheme and its members.”
HighamNobbs Consulting partner Russell Agius added that for underfunded schemes in wind-up, the cost of equalising GMPs – through professional advice – could leave members worse off.
He said: “Members are unlikely to be impressed by theoretical arguments being debated at a cost to the scheme and delaying the completion of the wind-up exercise.”
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