Pensions Ombudsman determination allows Trustees continued deferral on decision for equalisation of GMPs

This article looks at the Ombudsman’s consideration and determination of a recent member complaint regarding a failure to equalise his Guaranteed Minimum Pension.

11 August 2015

The Pensions Ombudsman, Anthony Arter, has dismissed a complaint by a deferred member against the trustees of the Campden R. A. Pension Scheme, a defined benefit occupational pension scheme, the scheme administrators and the scheme actuary for not equalising the member’s Guaranteed Minimum Pension (GMP).

Dr Gordon Kenworthy, the scheme member who complained to the Ombudsman, had 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.

Dr Kenworthy had contended that, the “Barber window” equalisation requirements contained in the rules of the Scheme and the overriding Equality Act 2010 provisions, meant that,

  • He should have been entitled to have been given a late retirement factor which would have been applied to his GMP benefits right up to age 65
  • The scheme actuary should, as part of a test for checking that equalisation of benefits between men and women had been properly carried out, have calculated an actuarial enhancement for all of his pensionable service before the NRA increased to 65, including GMP.   This actuary had carried out such an underpin  calculation, but the interpretation of the test carried out by the actuary had excluded any GMP that was attributable to pre-2003 service.  Dr Kenworthy 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 2010 Equality Act.

The Ombudsman determined that:

  • It was for the current scheme actuary to recommend and certify as reasonable to the trustees the method in which a calculation for equalising benefits between men and women was to be carried out.   The Trustees and scheme actuary were fully entitled to use a method which calculated a deferred pension at Normal Retirement Date which excluded GMPs.
  • Trustees can continue to defer taking action to equalise GMPs whilst this issue generally remains unresolved and until they were required to take action by law.

Whether there is an overriding requirement, and if so how, to equalise GMPs has been a subject of debate for many years.    Arguments have been made that the legal duty is clear and schemes should have taken the necessary steps to equalise GMPs.  Another view is that, as GMPs are a substitute for an unequalised state benefit, there is no such obligation and schemes should not equalise until required to do so by UK legislation.  Whichever is correct, this pragmatic determination by the Pensions Ombudsman gives support to the position that there is no effective requirement to equalise GMPs as matters stand.

The Ombudsman commented generally on equalisation and GMPs.  Dr Kenworthy had argued that the actuary's calculation method was inconsistent with a determination by a previous Ombudsman, Dr Julian Farrand, in the Williamson case, where it had been ruled that equalisation of GMPs was required.  This ruling had been overturned on appeal by the High Court in Marsh Mercer Pension Scheme v. Pension Ombudsman in 2001 on the grounds that the Ombudsman did not have jurisdiction to make such a determination, and so the current Ombudsman ruled that Dr Kenworthy could not place any reliance on that determination.   The High Court judge in the appeal had, however, left open the question of whether legislation required GMPs to be equalised and if so, how it should be done.  

The Ombudsman further commented that since the Williamson case there had been the pronouncement of the then Pensions Minister in 2010 that equalisation of GMPs was required and that the government would bring forward legislation.  There had been a DWP consultation on draft secondary legislation on the equalisation of GMPs in 2012 which it was hoped would settle the matter.   This consultation had led to concern being expressed by the pensions industry at the DWP’s approach, the lack of clarity as to how GMP equalisation should be achieved and the potentially disproportionate cost of doing so given that the equalisation uplift was likely to be nominal for most members.  He said that further DWP comment was expected with an announcement being first delayed until Spring 2014 and then into 2015.