New ruling may see those contracted out of state pensions get 'thousands'

[dutchman]

Pension schemes across the UK may be upended in the coming weeks following a Royal Courts of Justice ruling



A precedent set today concerning Guaranteed Minimum Pensions (GMP) members who opted out of contributing to the state earnings-related state pension (SERPS) could lead to some people receiving thousands of pounds in additional payments.

Pension rules may be dramatically altered in the coming months courtesy of a new court ruling on GMPs. Today, Mr Justice Morgan delivered a verdict on the case between Lloyds Banking Group Pensions Trustees Limited and Lloyds Bank PLC, HBOS PLC, the Secretary of State for Work and Pensions and Ivan Walker.

The judgement itself is very complex but fortunately, Ian Brown, a retirement planning expert at Quilter, broke down what the results of the case mean: “The devilishly complicated judgement relates to Guaranteed Minimum Pensions (GMP) and applies to pension schemes where members were opted out of contributing to the state earnings-related state pension (SERPS), normally known as ‘contracting-out’.

“A GMP effectively protected contracted-out pension scheme members, ensuring that they would receive at least as much from the private pension as they would have got from SERPS.

“It set the minimum pension which a pension scheme had to provide as a condition of contracting-out.

“People that were working in the early to mid-90s for an employer with a defined benefit pension scheme that was contracted out of the second state pension may be eligible for compensation following today’s ruling.

“Ultimately, for some people, it will mean that they receive thousands of pounds as an additional payment, and employers that still hold a duty to fund an affected pension scheme will need to find the money to cover these costs.”

While those affected may be keen to receive any additional payments from their set-ups, it may be some time before any significant changes are seen.

This is due to the complexity of the situation, as Ian went on to explain: “The complexity arises because of pension equalisation. Following a 1990 court ruling, pension scheme benefits that differed for men and women had to be equalised.

“However, at the time the state pension age still remained different for men and women, and as a result GMPs were not equalised, and became an anomaly in the pension system.

“The hugely complex process will be both costly and time consuming for the schemes and their sponsoring employers.

“For the public it will undoubtedly leave pension scheme members, many of whom will now be retired and who may have long-forgotten the terms of their pension 20-30 years ago, scratching their heads at home wondering whether they might be due a payment.”