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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank Plc & Ors [2018] EWHC 2839 (Ch) (26 October 2018) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2018/2839.html Cite as: [2018] EWHC 2839 (Ch), [2019] Pens LR 5 |
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Neutral Citation Number: [2018] EWHC 2839 (Ch)
Case No: HC-2017-001399
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (CHD)
Royal Courts of Justice
7 Rolls Building, Fetter Lane,
London, EC4A 1NL
Date: 26 th October 2018
Before :
MR JUSTICE MORGAN
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Between:
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LLOYDS BANKING GROUP PENSIONS TRUSTEES LIMITED |
Claimant
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|
- and - |
|
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(1) LLOYDS BANK PLC (2) HBOS PLC (3) ANGELA SHARP (4) JUDITH CAIN (5) SUSAN DIXON (6) SECRETARY OF STATE FOR WORK AND PENSIONS (7) HER MAJESTY’S TREASURY |
Defendants |
- - - - - - - - - - - - - - - - - - - - -
Andrew Simmonds QC and Edward Sawyer (instructed by Allen & Overy LLP ) for the Claimant
Keith Rowley QC, John Cavanagh QC and Andrew Mold (instructed by Herbert Smith Freehills LLP ) for the First and Second Defendants
Andrew Short QC and Nicholas Hill (instructed by Walkers Solicitors ) for the Third to Fifth Defendants
Holly Stout (instructed by Government Legal Department) for the Sixth and Seventh Defendants
Hearing dates: 5, 6, 9-13, 16-18 July 2018
- - - - - - - - - - - - - - - - - - - - -
Judgment Approved
MR JUSTICE MORGAN:
Heading |
Paragraph No. |
PART I: INTRODUCTORY MATTERS |
|
Introduction | |
The parties | |
Representation orders | |
Procedural background | |
A summary of the problem | |
PART II: SERPS AND GMPS |
|
SERPS | |
Contracting out of SERPS | |
GMPs | |
GMPs: the Legislation | |
Other rules applicable to GMPs | |
GMP Inequalities between men and women | |
Effect of the different GMPs | |
PART III: THE SCHEMES |
|
The Schemes – an introduction | |
Lloyds No. 1 Scheme | |
Lloyds No. 1 Scheme – Main Section | |
Lloyds No. 1 Scheme – PIP Section | |
Lloyds No. 2 Scheme | |
HBOS Scheme | |
Some key features of the Schemes | |
Comments on the table in Appendix A | |
The effect of unequal GMPs on the Schemes | |
Other rules of the Schemes | |
PART IV: THE ISSUES |
|
The Issues | |
PART V: ISSUES 1 AND 2 |
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Issues 1 and 2 | |
The EU legislation relevant to Issues 1 and 2 | |
The domestic legislation relevant to Issues 1 and 2 | |
Express sex equality rules | |
Powers to modify the Schemes | |
Case Law relevant to Issues 1 and 2 | |
Issues 1 and 2: Submissions for the Banks | |
Issues 1 and 2: Submissions for the RBs | |
Issues 1 and 2: Submissions for the Crown | |
Issues 1 and 2: Discussion and conclusions | |
PART VI: ISSUES 5 TO 8 |
|
Issues 5 to 8: the methods to be used for equalisation | |
Issues 5 to 8 reviewed | |
The term by term approach | |
The principle of minimum interference | |
The operation of sections 24A to 24H of PSA 1993 | |
The methods appraised in the light of the above | |
PART VII: ISSUE 11 |
|
Issue 11(a) and (b) | |
Issue 11(c) and Interest | |
Issue 11(d) | |
PART VIII: ISSUES 12 AND 13 |
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Issue 12 | |
Issue 13 | |
PART IX: CONCLUSIONS |
|
A summary |
PART I: INTRODUCTORY MATTERS
Introduction
4. On 17 May 1990, the European Court of Justice (the “ECJ” which, where appropriate should be read as referring also to the Court of Justice of the European Union) gave its decision in Barber v Guardian Royal Exchange Assurance Group (C-262/88) [1991] 1 QB 344. That decision made it clear that there was an obligation to treat men and women equally in relation to benefits under an occupational pension scheme. In general terms, it was said that the entitlement to equal treatment arose from the date of that decision.
(1) is there an obligation to equalise benefits?
(2) if so, what method should be adopted in order to equalise benefits?
(3) for what period in the past can a member claim in respect of previously underpaid benefits?
(4) what should be done in relation to benefits which have been transferred into, and out of, the relevant schemes?
The parties
Representation orders
a) the First Defendant be appointed to represent all present, future and former employers and present, future and former beneficiaries of the No. 1 Scheme and the No. 2 Scheme (and those claiming under them) in whose interests it would be for the answers to the Issues to be those set out in Column 2;
b) the Second Defendant be appointed on the same terms as in (a) but in respect of the HBOS Scheme;
c) the Third Defendant be appointed to represent all present, future and former beneficiaries of the No. 1 Scheme (and those claiming under them) in whose interests it would be for the answers to the issues be those set out in Column 3;
d) the Fourth Defendant be appointed on the same terms as in (c) but in respect of the No. 2 Scheme; and
e) the Fifth Defendant be appointed on the same terms as in (c) but in respect of the HBOS Scheme.
Procedural background
A summary of the problem
“3.10 The GMP is the minimum pension that a scheme that was contracted out of the Additional State Pension between 6 April 1978 and 5 April 1997 has to provide to its members. GMP rules were abolished for post 5 April 1997 contracted out service. However past accruals remain subject to them and a scheme must still provide a pension at least as good as the GMP for any time a person was a member of that scheme, up to and including 5 April 1997.
3.11 Legislation requires GMPs to be determined on an unequal basis: under the Pension Schemes Act 1993 (“PSA93”), a woman’s GMP accrues at a greater rate than that of a man in recognition that a woman’s working life for State pension purposes was five years shorter than that of a man. As a result, where a woman and a man have an identical work history, the woman’s overall GMP will be greater than that of the man.
3.12 As a woman is also entitled to receive her GMP at an earlier age (age 60) than a man is entitled to receive his (age 65), further differences can arise for a GMP in payment. This is through the operation of the revaluation provisions of PSA93 applicable up to this GMP pension age and of the indexation provisions of PSA93 after GMP pension age. Whilst the rates of revaluation or indexation do not differ on the basis of sex, a woman will be entitled to indexation in periods during which a man is entitled to revaluation, due to the differing GMP pension ages, and the rate of indexation differs from the rate of revaluation.
3.13 The requirement that GMPs are calculated and paid on an unequal basis flows through to result in an inequality of the overall scheme pension in payment. This is compounded by the requirements for preservation, revaluation and anti-franking legislation in PSA93 that benefits above GMP (“excess benefits”) be determined with reference to this unequal GMP and the fact that revaluation and indexation provided on the excess benefit can and usually differs to that on the GMP element (depending on the legislation and the rules of the scheme).
3.14 As a result, it can become far from clear which sex receives the greater total scheme benefit. It is also possible for the position to change over the course of a lifetime so that an individual who is advantaged on the basis of sex when the GMP is first paid becomes disadvantaged later. In other words, which sex is advantaged may fluctuate over the course of a lifetime.”
“implementing [GMP] equalisation programmes for all private sector contracted out schemes on a basis of equalising actuarial values would add in the region of £13 billion to pension scheme liabilities, and could absorb up to £300 million in implementation costs”.
In response to the same consultation, the Pensions Management Institute estimated the GMP equalisation costs to be “in the region of £10-20 billion …”.
PART II: SERPS and GMPs
SERPS
(1) a basic pension payable at a weekly rate; and
(2) an additional pension payable where there are one or more surpluses in the pensioner's earnings factors for the relevant years or where the pensioner has one or more units of additional pension.
Thus, section 44(3) provides for an additional pension (“AP”) as a part of the state Category A pension.
37. The conditions for entitlement to a basic pension under SERPS are that:
(1) the claimant has reached pensionable age in the period to which the scheme applies, pensionable age being 60 for women and 65 for men: SSCBA 1992, sections 44(1)(a) and 122(1) as originally enacted. For women retiring before 6 April 2016 under SERPS, their State Pension age would range from 60 to 63; and
(2) the relevant contribution conditions are satisfied: SSCBA 1992, sections 44(1)(b), 20(1)(f) and 22 and schedule 3, para 5; in summary, the claimant has to have paid (or been credited with) Class 1, 2 or 3 National Insurance Contributions on earnings between the lower and upper earnings limits for at least nine-tenths of his or her working life; “working life” is from age 16 to retirement or death if earlier: see SSCBA 1992, schedule 3, para 5(8).
(1) in how many years the earner paid Class 1, 2 or 3 National Insurance Contributions;
(2) earnings;
(3) whether the earner topped up their basic State Pension with Class 3A contributions so as to be entitled to ‘additional units’ of pension under SSCBA 1992, section 14A (this was only possible between 12 October 2015 and 5 April 2017); and
(4) the date the earner reaches state pension age.
39. Section 45 of the SSCBA 1992 provides:
“ 45.- The additional pension in a Category A retirement pension.
(1) The weekly rate of the additional pension in a Category A retirement pension in any case where the pensioner attained pensionable age in a tax year before 6th April 1999 shall be the sum of the following— (a) in relation to any surpluses in the pensioner's earnings factors, the weekly equivalent of 1 1/4 per cent. of the adjusted amount of the surpluses mentioned in section 44(3)(b) above; and (b) if the pensioner has one or more units of additional pension, a specified amount for each of those units.
(2) The weekly rate of the additional pension in a Category A retirement pension in any case where the pensioner attained pensionable age in a tax year after 5th April 1999 shall be the sum of the following— (a) in relation to any surpluses in the pensioner's earnings factors for the tax years in the period beginning with 1978-79 and ending with 1987-88, the weekly equivalent of 25/N per cent. of the adjusted amount of those surpluses; and (b) in relation to any surpluses in the pensioner's earnings factors in a tax year after 1987-88 but before the first appointed year, the weekly equivalent of the relevant percentage of the adjusted amount of those surpluses; and (c) in relation to any tax years falling within subsection (3A) below, the weekly equivalent of the amount calculated in accordance with Schedule 4A to this Act; and (d) in relation to the flat rate introduction year and subsequent tax years, the weekly equivalent of the amount calculated in accordance with Schedule 4B to this Act; and (e) if the pensioner has one or more units of additional pension, a specified amount for each of those units. (2A) For the purposes of subsections (1)(b) and (2)(e) the “specified amount” is an amount to be specified by the Secretary of State in regulations.
(3) In subsection (2)(b) above, “relevant percentage” means — (a) 20/N per cent., where the pensioner attained pensionable age in 2009-10 or any subsequent tax year; (b) (20 + X)/N per cent., where the pensioner attained pensionable age in a tax year falling within the period commencing with 1999-2000 and ending with 2008-9.
(3A) The following tax years fall within this subsection– (a) the first appointed year; (b) subsequent tax years before the flat rate introduction year.
(4) In this section— (a) X = 0.5 for each tax year by which the tax year in which the pensioner attained pensionable age precedes 2009-10; and (b) N = the number of tax years in the pensioner's working life which fall after 5th April 1978; but paragraph (b) above is subject, in particular, to subsection (5) and, where applicable, section 46 below.
(5) Regulations may direct that in prescribed cases or classes of cases any tax year shall be disregarded for the purpose of calculating N under subsection (4)(b) above, if it is a tax year after 5th April 1978 in which the pensioner— (a) was credited with contributions or earnings under this Act by virtue of regulations under section 22(5) above, or (b) was precluded from regular employment by responsibilities at home, or (c) in prescribed circumstances, would have been treated as falling within paragraph (a) or (b) above, but not so as to reduce the number of years below 20.
(6) For the purposes of subsections (1) and (2) above, the weekly equivalent of any amount shall be calculated by dividing that amount by 52 and rounding the result to the nearest whole penny, taking any 1/2p as nearest to the next whole penny.
(7) Where the amount falling to be rounded under subsection (6) above is a sum less than 1/2p, the amount calculated under that subsection shall be taken to be zero, notwithstanding any other provision of this Act or the Administration Act.
(8) The sums which are the weekly rate of the additional pension in a Category A retirement pension are subject to alteration by orders made by the Secretary of State under section 150 of the Administration Act.”
“2.5.19 … Entitlement is based on earnings between the LEL [lower earnings limit] and the UEL [upper earnings limit], which are recorded each year. At retirement age, the relevant earnings for each year are revalued in line with the growth of average earnings. The pension payable is calculated in two stages. The total revalued amount is first divided by the number of years in the individual's working life since 6 April 1978. The result is then multiplied by a percentage which for a person reaching state pension age before 6 April 1999 is 25 per cent, and for a person reaching that age after 5 April 2009 is twenty per cent, with a sliding scale for the intervening years. For those retiring before 1999, SERPS is effectively the equivalent of a scheme accruing at n/80 for the twenty-year period since 1978, (though of revalued average, rather than final earnings). When the transition is complete, the effective accrual rate will drop to as little as n/245 for a man with a 49-year working life. As for basic pension, pensions in payment are indexed by retail prices.”
44. Finally, the inequalities in the state pension as between men and women are lawful under the Human Rights Act 1998, Article 14 of the European Convention on Human Rights (“ECHR”) and the jurisprudence of the European Court of Human Rights (“ECtHR”) because, in summary, the ECtHR has accepted that historic differences in the position of men and women justified treating them differently and that, although social conditions have now changed, the UK’s gradual transition to pension equality (with the state pension ages for men and women due to equalise for the first time in November 2018 at 65) is objectively reasonable and justified. In this respect the principally relevant authorities are Stec v UK (65731/01) (2006) 43 EHRR 47 and Walker v UK (37212/02) [2008] STC 786.
“61. Differential pensionable ages were first introduced for men and women in the United Kingdom in 1940, well before the Convention had come into existence, although the disparity persists to the present day (see paragraph 32 above). It would appear that the difference in treatment was adopted in order to mitigate financial inequality and hardship arising out of the woman’s traditional unpaid role of caring for the family in the home rather than earning money in the workplace. At their origin, therefore, the differential pensionable ages were intended to correct “factual inequalities” between men and women and appear therefore to have been objectively justified under Article 14 (see paragraph 51 above).
62. It follows that the difference in pensionable ages continued to be justified until such time that social conditions had changed so that women were no longer substantially prejudiced because of a shorter working life. This change, must, by its very nature, have been gradual, and it would be difficult or impossible to pinpoint any particular moment when the unfairness to men caused by differential pensionable ages began to outweigh the need to correct the disadvantaged position of women. Certain indications are available to the Court. Thus, in the 1993 White Paper, the Government asserted that the number of women in paid employment had increased significantly, so that whereas in 1967 only 37% of employees were women, the proportion had increased to 50% in 1992. In addition, various reforms to the way in which pension entitlement was assessed had been introduced in 1977 and 1978, to the benefit of women who spent long periods out of paid employment. As of 1986, it was unlawful for an employer to have different retirement ages for men and women (see paragraph 33 above).
63. According to the information before the Court, the Government made a first, concrete, move towards establishing the same pensionable age for both sexes with the publication of the Green Paper in December 1991. It would, no doubt, be possible to argue that this step could, or should, have been made earlier. However, as the Court has observed, the development of parity in the working lives of men and women has been a gradual process, and one which the national authorities are better placed to assess (see paragraph 52 above). Moreover, it is significant that many of the other Contracting States still maintain a difference in the ages at which men and women become eligible for the State retirement pension (see paragraph 37 above). Within the European Union, this position is recognised by the exception contained in the Directive (see paragraph 38 ...).
64. In the light of the original justification for the measure as correcting financial inequality between the sexes, the slowly evolving nature of the change in women’s working lives, and in the absence of a common standard amongst the Contracting States (see Petrovic , cited above, §§ 36-43), the Court finds that the United Kingdom cannot be criticised for not having started earlier on the road towards a single pensionable age. 65. Having once begun the move towards equality, moreover, the Court does not consider it unreasonable of the Government to carry out a thorough process of consultation and review, nor can Parliament be condemned for deciding in 1995 to introduce the reform slowly and in stages. Given the extremely far-reaching and serious implications, for women and for the economy in general, these are matters which clearly fall within the State’s margin of appreciation.”
Contracting out of SERPS
“ Contracting out of SERPS
The concept of contracting out
2.3.26 Instead of receiving the benefits provided by SERPS, an option may be exercised to pay reduced national insurance contributions, on condition that alternative arrangements are made either to receive benefits broadly equivalent to SERPS or to pay minimum contributions related to the cost of providing such benefits. The option may be made on behalf of an entire scheme and all those who choose to be members of it, it may be made by an individual through a personal pension arrangement. This process is known as contracting out, and the regulation of the alternative benefits provided by contracted-out schemes is one of the main driving forces behind social security legislation.
2.3.27 Before the passage of the 1986 Social Security Act, it was possible to contract out only if the occupational scheme provided a GMP. The reduction in the rate of national insurance contributions given to employers and employees who were members of such schemes, known as the contracted-out rebate, was set at a level based on the cost to those schemes of providing GMPs. Schemes which contract out on this basis are known as contracted-out salary related schemes (COSRS). The effect of this was that money purchase schemes could contract out only if the employer was prepared to offer an earnings-related underpin which was at least as good as the GMP.
2.3.28 Since 1988, it has been possible to contract out directly on a money purchase basis. … [Note: a scheme contracted out on a money purchase was known as a COMPS. The present claim is only concerned with COSRS. COMPS were not required to provide GMPs.]
2.3.29 Over 30,000 schemes are presently contracted out, of which some 13,500 are COSRS and the remainder COMPS. …”
GMPs
47. GMPs are part of the former system of contracting out of SERPS. By way of overview:
(1) employers who provided occupational pension schemes were permitted to “contract out” of SERPS so long as a minimum level of benefits was guaranteed under the occupational pension scheme; in return, the employer and its employees paid a lower level of National Insurance contributions;
(2) from 6 April 1978 to 5 April 1997, contracting out of SERPS was permitted if the occupational pension scheme provided GMPs;
(3) from 6 April 1997, contracting out on a GMP basis was replaced by a new system of salary related contracting out known as the “reference scheme test”; this new system does not give rise to any GMP equalisation issues and is not relevant to the present claim; the “reference scheme test” did not involve GMPs but a scheme quality test (under which the retirement age was equal at 65 for men and women: s 12B(3)(a) of the Pension Schemes Act 1993 (“PSA 1993”) as in force from 6 April 1997;
(4) from 6 April 2002, SERPS was itself replaced by the State Second Pension (“S2P”);
(5) salary related contracting out was finally abolished with effect from 6 April 2016 by the Pensions Act 2014; this Act also replaced the two-tier basic State pension and S2P with a new flat-rate payment (the “single-tier pension”) for those reaching State pension age on or after 6 April 2016; however, accrued GMPs were left intact;
(6) from 1988 until 2012, there was another system of contracting out known as contracting out on a “money purchase” basis, but this did not involve GMPs and is irrelevant to the present claim.
“GMPs are calculated in broadly the same manner as the SERPS benefits they replace. The effect of revaluing a preserved GMP for an early leaver cannot precisely mirror what the SERPS benefit would have been, since the latter is calculated over the individual's whole working life. Schemes are required to index the GMP after it has come into payment only by growth in prices up to a maximum of three per cent. These two effects taken together mean that the initial level of GMP is not the same as the equivalent SERPS pension would have been, and that after retirement if prices grow more quickly than three per cent a year, the two will steadily diverge. In these circumstances, the member will be paid both the GMP from the scheme and any shortfall between this and his or her SERPS entitlement directly from the National Insurance Fund. Statutory increases in the value of GMP rights may not be offset against the overall level of benefits from the scheme.”
GMPs: the legislation
(1) by s 7B(2) PSA 1993 (in its current form)
“(2) An occupational pension scheme was “contracted-out” at a time if, at that time, there was in force a certificate under section 7 (as it then had effect) stating that the employment of an earner in employed earner's employment was contracted-out employment by reference to the scheme. …
(4) An occupational pension scheme was a “salary related contracted-out scheme” at a time if, at that time, the scheme was contracted-out by virtue of satisfying section 9(2) (as it then had effect).”
(2) in order for the employment of an “earner” to be contracted out, it was necessary for the employer to obtain a contracting out certificate from the Occupational Pensions Board stating that the employment of the earner was contracted out by reference to an occupational pension scheme (s 7 PSA 1993);
(3) the employment of an earner was “contracted out employment” (on a salary related basis) if his service qualified him for “a guaranteed minimum pension provided by an occupational pension scheme” and a contracting out certificate was in force (section 8(1) PSA 1993);
(4) a “guaranteed minimum pension” was originally defined in section 8(2) PSA 1993 as:
“any pension which is provided by an occupational pension scheme in accordance with the requirements of sections 13 and 17 to the extent to which its weekly rate is equal to the earner's or, as the case may be, the earner's widow's or widower's guaranteed minimum as determined for the purposes of those sections respectively”:-
(5) a “guaranteed minimum pension” is now defined in very similar terms in section 8(2) PSA 1993 (as amended) as:
“any pension which is provided by a scheme that was a salary related contracted-out scheme, in accordance with the requirements of sections 13 and 17 to the extent to which its weekly rate is equal to the earner's or, as the case may be, the earner's widow's, widower's, surviving same sex spouse's or surviving civil partner's guaranteed minimum as determined for the purposes of those sections respectively”:-
(6) in order to be contracted out on a salary related basis, the occupational pension scheme had to satisfy section 9(2) PSA 1993 in its then form; this stipulated that the scheme had to comply with the provisions of sections 13-24 PSA 1993 and various prescribed requirements;
(7) the requirements of sections 13-24 PSA 1993 included minimum pensions for earners (sections 13-14), revaluation (section 16) and minimum pensions for survivors (section 17); these points are of particular relevance for present purposes.
“(1) Subject to the provisions of this Part, the scheme must –
(a) provide for the earner to be entitled to a pension under the scheme if he attains pensionable age; and
(b) contain a rule to the effect that the weekly rate of the pension will be not less than his guaranteed minimum (if any) under sections 14 to 16. …
(3) Subject to subsection (4) [postponement of GMPs], the scheme must provide for the pension to commence on the date on which the earner attains pensionable age and to continue for his life.”
“so far as any provisions (other than sections 46 to 48) relate to guaranteed minimum pensions, means the age of 65 in the case of a man and the age of 60 in the case of a woman …”.
61. In its current form, section 14 provides:
“(1) An earner has a guaranteed minimum in relation to the pension provided by a scheme that was a salary related contracted-out scheme if in any tax week in a relevant year –
(a) earnings were paid to or for the earner's benefit in respect of employment which was contracted-out by reference to the scheme; and
(b) those earnings were in excess of the lower earnings limit for that tax week (or the prescribed equivalent if the earner was paid otherwise than weekly).
(2) Subject to section 15(1) [postponement of GMPs], the guaranteed minimum shall be the weekly equivalent of an amount equal to the appropriate percentage of the total of the earner's earnings factors for the relevant years, so far as derived from excess earnings mentioned in subsection (1)(b) upon which primary Class 1 contributions have been paid or treated as paid.
…
(5) In subsection (2) the "appropriate percentage" means –
(a) in respect of the earner's earnings factors for any tax year not later than the tax year 1987-88 –
(i) if the earner was not more than 20 years under pensionable age on 6th April 1978, 1.25 per cent.;
(ii) in any other case 25/N per cent.;
(b) in respect of the earner's earnings factors for the tax year 1988-89 and for subsequent tax years –
(i) if the earner was not more than 20 years under pensionable age on 6th April 1978, 1 per cent.;
(ii) in any other case 20/N per cent.;
where N is the number of years in the earner's working life (assuming he will attain pensionable age) which fall after 5th April 1978.
…
(7) For the purposes of subsection (2) the weekly equivalent of the amount there mentioned shall be calculated by dividing that amount by 52.
(8) In this section "relevant year" means any tax year in the earner's working life (not being earlier than the tax year 1978-79 or later than the tax year ending immediately before the principal appointed day [which was 6 April 1997]).”
(1) revaluation in accordance with section 148 of the SAA 1992: see section16(1) PSA 1993;
(2) fixed rate revaluation: see section 16(2) PSA 1993 and regulation 62 of the CO Regs 1996 and regulation 24 of The Occupational Pension Schemes (Schemes that were contracted-out) (No. 2) Regulations 2015 (2015/1677); the fixed rate depends on when the earner left service; the rate ranges from 3.5% to 8.5% pa compound;
(3) limited rate revaluation: see section 16(3) PSA 1993 in its pre-6 April 1997 form; this provided for revaluation for pre-6 April 1997 leavers in accordance with the lesser of (i) 5% compound for each year after leaving service and (ii) national average earnings growth.
(1) the basic purpose of the anti-franking provisions is to ensure that where the earner leaves pensionable service before his GMP commences, he gets the full benefit of the revaluation on his GMP as well as the Excess;
(2) the provisions are intended to prevent the Excess being used to offset the revaluation on the GMP, i.e. to stop the Excess being “franked” by GMP revaluation;
(3) the provisions operate by applying a statutory minimum which the pension must exceed; the provisions are to be applied when the GMP commences (65/60 for men/women);
(4) the Goode Report gives a useful summary of the rationale for the anti-franking provisions:
“4.18.61 The anti-franking requirements came into effect from 1 January 1985. They were needed because scheme members in a contracted-out earnings related scheme effectively accrue rights to two benefits: the GMP, and the benefits accrued under the scheme rules, within which the GMP rights are subsumed. These two benefits are treated differently for the purposes of preservation and revaluation of accrued rights. The GMP element must be revalued in one of a number of ways laid down in legislation. The preservation requirements for the overall pension are less advantageous to the member than those for the GMP. Where the overall rights exceed the GMP rights, it would be possible for the increases to the GMP to be absorbed within the overall ceiling on the individual's scheme benefits. In effect, the individual would lose the advantage of the GMP revaluation requirements. Under the anti-franking requirements such practices are forbidden, and the full effect of the GMP revaluation must be given as an addition to the overall scheme benefits.”
(1) the anti-franking test applies if, broadly, (a) there is an interval between the earner ceasing to be in pensionable service (the “cessation date”) and the date the GMP commences (at age 65/60 but subject to the possibility of postponement under section 13(4) PSA 1993), (b) there was an Excess at the cessation date, and (c) the GMP has increased between the cessation date and GMP commencement date (which it will do through GMP revaluation if the interval is long enough and GMP could also increase after GMP pensionable age through postponement): section 87(1) PSA 1993;
(2) the test applies “at any time when that pension is required to be paid” (section 87(3)); this means at the GMP commencement date (65/60) since the test can only be engaged once the commencement date has been reached;
(3) the test requires that the pension shall be not less than the amount specified in section 87(3); in general, the minimum level is the “relevant aggregate” (section 87(3)(b));
(4) the “relevant aggregate” is composed of four elements: sections 87(4) and 88-90; these are technical provisions which defy easy explanation but broadly, the elements are (a) the pension accrued at the cessation date, (b) GMP revaluation between the cessation date and the GMP commencement date, (c) other benefits accrued in the scheme after the cessation date, and (d) an uplift on the Excess accrued at the cessation date; the net effect is to ensure that the earner receives the benefit of GMP revaluation on top of the Excess.
Other rules applicable to GMPs
GMP inequalities between men and women
80. The two key causes of the inequality are:
(1) the different GMP pensionable ages of 65 and 60 for men and women;
(2) the formula for calculating post-88 GMP.
81. The first of these is self-explanatory. A woman is entitled to her GMP earlier than a man.
“(i) if the earner was not more than 20 years under pensionable age [i.e. 65/60] on 6th April 1978, 1 per cent.;
(ii) in any other case 20/N per cent.;
where N is the number of years in the earner's working life (assuming he will attain pensionable age) which fall after 5th April 1978.”
“… the period beginning with the tax year in which the person attains the age of 16 and ending with –
(a) the tax year before the one in which the person attains the age of 65 in the case of a man or 60 in the case of a woman, or
(b) if earlier, the tax year before the one in which the person dies.”
“13. … The divisor [N] will therefore be smaller for a woman than for a man, and the corresponding percentage [i.e. the “appropriate percentage”] will be greater, but having regard to the differing lengths of their respective working lives the overall object and effect are that the GMP of a person working to the statutory pensionable age with a full service record of contracted-out employment is calculated by reference to the same percentage of earnings whatever the sex of that person. At the end of their respective working lives, again with a full service record of contracted-out employment, the percentage will still be the same, although the man who retires at 65 will have a higher GMP than a woman who retired at 60, but only because he has worked an extra five years and will therefore have more earnings to which the appropriate percentage will apply. In order to achieve this result, and bearing in mind the shorter working life of the woman, the woman's accrual rate is necessarily slightly higher than the man's.
14. The result of this formula is that the GMPs of a man and a woman retiring at their respective pensionable ages of 65 and 60 will, assuming their working history to be otherwise similar, be non-discriminatory. However, their GMPs will or may become discriminatory if one or other or both of them leave the scheme before those respective ages, for example by taking early retirement, becoming redundant or moving to another employer. If, for example, both leave the scheme at 55 they will, by reason of their different rates of accrual, have accrued different GMPs.”
Effect of the different GMPs
PART III: THE SCHEMES
The Schemes – an introduction
Lloyds No. 1 Scheme
Lloyds No. 1 Scheme – Main Section
i) Special Rules B - the Main Final Salary Section (Post 1974 joiners)
Broadly, this section provides final salary benefits to all pre 1 January 1996 Members who are not covered by one of the other sections/Special Rules.
ii) Special Rules C - Lewis’s Scheme Members
These rules provide final salary benefits to Members who joined the No. 1 Scheme on 1 July 1989 and were formerly members of the Lewis’s Bank Staff Pension Scheme.
iii) Special Rules D - Pre-1974 joiners
These rules apply to Members who joined the No. 1 Scheme or the Lloyds Bank Women’s Retirement Benefits Scheme before 1 July 1974.
iv) Special Rules E - LBI Members
These rules apply to Members who joined the No. 1 Scheme on 1 July 1989 and were formerly members of the LBI Pension Scheme.
v) Special Rules F - C&G Members
These apply to Members who joined the No. 1 Scheme on 1 June 2001 and who were members of the Cheltenham & Gloucester Plc Pension Fund immediately before joining the No. 1 Scheme.
vi) Special Rules G - Factors Members
These rules apply to members of the Lloyds Bank Factors Pension Scheme immediately before joining the No. 1 Scheme.
vii) Special Rules H - Your Tomorrow Section
These rules govern a money purchase section within the No. 1 Scheme established with effect from 1 August 2011. The rules apply to Members who were entitled to benefits under the PIP Section before 1 August 2011 and in respect of pensionable service on or after the Effective Date. [The Effective Date depends on a number of circumstances.]
viii) Lloyds TSB Asset Finance Divisions
On 21 May 2012 the assets and liabilities of the Lloyd TSB Asset Finance Division Pension Scheme were transferred to the No. 1 Scheme. The transferring assets were allocated to the Main Section of the No. 1 Scheme and benefits for transferring members are provided under the Main Section of the No. 1 Scheme.
Lloyds No. 1 Scheme – PIP Section
Lloyds No. 2 Scheme
110. The rules of the No. 2 Scheme are divided into various sections:
i) Section B - TSB Division
This is applicable to a TSB Member who (i) was either admitted to membership of the No. 2 Scheme before 31 December 1991; or (ii) admitted to membership of the No. 2 Scheme on or after that date pursuant to the rules.
ii) Section C - Senior Executive Division
This section applies to a person who has become an SE Member pursuant to Rule 18.
iii) Section D - Hill Samuel Division
This applies to a person who has become a HS Member pursuant to Rule 22 or 49.
iv) Section E - Swan National Division
This section is applicable to a person who (i) is admitted to membership pursuant to Rule 34; or (ii) (subject to the other conditions) was an employee of the Swan National Companies on 1 April 1990.
v) Section F - UDT Closed Section
This applies to a person who was an employee on 1 April 1990 and who was, prior to that date, a member of the UDT Scheme.
HBOS Scheme
a) the Bank of Scotland 1976 Pension Scheme (originally known as the Bank of Scotland Staff Pension Fund) established by a trust deed dated 30 June 1936;
b) the Birmingham Midshires Pension Scheme established by an interim trust deed dated 9 December 1958;
c) the Clerical Medical Staff Superannuation Fund (originally known as the Clerical, Medical and General Staff Superannuation Fund) established by a definitive trust deed and rules dated 1 January 1958; and
d) the Halifax Retirement Fund (originally known as the Halifax Building Society Staff Retirement Fund (1974)) established by an interim trust deed dated 21 November 1973.
together “the HBOS Former Schemes”.
116. The HBOS Scheme was contracted-out on a salary related basis.
Some key features of the Schemes
Comments on the table in Appendix A
122. I make the following comments on the table in Appendix A
(1) the rates of increase are the same for men and women so there is no discrimination on the face of things;
(2) however, the rates of increase to pensions in payment differ for GMP and Excess (rows 3 and 4) and the rates of revaluation in deferment differ for GMP and Excess (rows 5 and 6); in the HBOS Scheme, some of these rates are discretionary rather than written into the rules;
(3) to an extent, the Schemes follow the typical pattern of revaluation rates being higher for GMP than the Excess, and vice versa for pensions in payment. However, the Schemes contain a number of bespoke provisions that reduce the effect of the usual GMP-driven inequalities that arise. These include, for example: (a) underpins applicable under the rules to GMP pension increases, which help reduce the difference between increases to GMP and Excess in payment; (b) Excess pension increases for most members of the No 2 Scheme that are calculated using CPI, which is the same inflation measure as used for statutory GMP increases (albeit with different caps), which again helps reduce the difference, at least in a low inflation environment.
(1) normal retirement pensions are payable to both men and women in accordance with the rules of the Schemes from age 60 but GMP pensionable age remains 65 and 60 in accordance with section 181 PSA 1993;
(2) for a woman, part of the pension paid from age 60 will be GMP (as she has reached her statutory GMP pensionable age) and the rest Excess; the total pension will be increased in payment thereafter at the rates of pension increase applicable to the GMP and to the Excess;
(3) for a man, a normal retirement pension from age 60 will be all non-GMP until age 65 when part of the total pension will be treated as GMP; this means that from age 60 to 65, the whole pension is increased in payment at the rate applicable to the Excess, and from 65 it will be increased at the rates applicable to the GMP and to the Excess (plus receiving any anti-franking uplift that applies at 65);
(4) for some sections, the normal retirement age is 62 or 63 rather than 60; the position here is the same as in the preceding sub-paras, substituting 62 or 63 for 60; in such a case, the female GMP will be postponed for 2/3 years from 60 to 62/63, and therefore increased pursuant to section 15 PSA 1993 during those 2/3 years; the statutory rate is likely to be different from the revaluation rate applicable to the Excess in a typical scheme; (I will later refer to certain worked examples in Appendix B to this judgment; these worked examples are for a DB member with a normal retirement age of 62).
The effect of unequal GMPs on the Schemes
127. As is apparent from the projections:
(1) in many cases the female member is disadvantaged compared to a comparable male member, though in some cases it is the male who is disadvantaged;
(2) there are also examples where the advantage switches from one sex to another after the pension has been in payment for some time;
(3) the amount of the advantage/disadvantage is relatively small compared to the total pension.
(1) the results of the projections are dependent on the assumptions used, in particular regarding inflation; the inequality can reverse or disappear if different inflation assumptions are used;
(2) the outcome can be dependent on member choices, such as whether to leave service early which can favour females (insofar as GMP revaluation in deferment is more favourable than revaluation of the Excess under the rules); likewise, the outcome is affected by discretionary practices where increases are discretionary (as in some sections of the HBOS Scheme).
Other rules of the Schemes
PART IV: THE ISSUES
The issues
134. Issue 2(b) Is it lawful to pay unequal total benefits under the Schemes where the inequality is the effect of the differences between the GMPs of males and females with equivalent age, service and earnings histories, on the ground that there is an objective difference between the position of males and females arising from the GMP legislation (see by analogy Roberts v Birds Eye Walls [1994] ICR 338)
(1) Method A (in one of its variants identified in the agreed specification);
(2) Method B;
(3) Method C (either variant C1 or C2);
(4) Method D (either variant D1 or D2, and either implemented (i) at a single conversion date for all members or (ii) for each member at the point of retirement, transfer out or death and following any exercise of benefit options).
(1) Method A (in one of its variants identified in the agreed specification);
(2) Method B;
(3) Method C1 or C2;
(4) Method D (either variant D1 or D2, and either implemented (i) at a single conversion date for all members or (ii) for each member at the point of retirement, transfer out or death and following any exercise of benefit options).
(1) Is the Claimant as trustee obliged to make back-payments to the member?
(2) If so, should back payments be made (i) going back 6 years (and if so, 6 years before what date), (ii) going back to 17 May 1990, or (iii) going back to some other date?
(3) Should interest be added to the back-payments, and if so at what rate?
(4) Should the calculation of cumulative benefits under Method C and Method D take into account only those back payments as allowed for under (2)-(3) above?
(1) Does the Claimant's obligation apply to benefits accrued in other schemes during the Barber window which have been transferred in to any of the Schemes?
(2) Leaving aside the effect of any contractual obligation that may have been undertaken in relation to particular transfers out of the Schemes, does the Claimant's obligation apply in relation to benefits accrued in any of the Schemes during the Barber window which have been transferred out of the Schemes, and if so what does that obligation require?
(3) If the answer to Issue 13(2) is that such an obligation applies, is that “in principle” obligation discharged (and thus not enforceable by relevant Scheme members) either
(i) under s 99 PSA 1993 and/or by reason of s 73(2) and (4) PSA 1993?
(ii) under transfer out provisions in the relevant Scheme rules?
149. In the remainder of this judgment, I will discuss and determine the Issues as follows:
(1) Issues 1 and 2 as to any obligation to equalise benefits;
(2) Issues 5 to 8 as to the possible methods of equalisation; and
(3) Issue 11 as to underpayment in the past.
PART V: ISSUES 1 AND 2
Issues 1 and 2
The EU legislation relevant to Issues 1 and 2
“1. Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied.
2. For the purpose of this Article, 'pay' means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer.
Equal pay without discrimination based on sex means:
(a) that pay for the same work at piece rates shall be calculated on the basis of the same unit of measurement;
(b) that pay for work at time rates shall be the same for the same job.”
“The principle of equal pay for men and women outlined in article 119 of the Treaty, hereinafter called “principle of equal pay”, means for the same work or for work to which equal value is attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and conditions of remuneration.”
“For the same work or for work to which equal value is attributed, direct and indirect discrimination on grounds of sex with regard to all aspects and conditions of remuneration shall be eliminated.”
165. Article 5 of the recast Directive provides that, without prejudice to Article 4:
“ … there shall be no direct or indirect discrimination on grounds of sex in occupational social security schemes, in particular as regards:
(a) the scope of such schemes and the conditions of access to them;
(b) the obligation to contribute and the calculation of contributions;
(c) the calculation of benefits … ”.
“schemes not governed by Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security whose purpose is to provide workers … in an undertaking or group of undertakings, area of economic activity, occupational sector or group of sectors with benefits intended to supplement the benefits provided by statutory social security schemes or to replace them, whether membership of such schemes is compulsory or optional.”
“1. This Directive shall apply to:
(a) statutory schemes which provide protection against the following risks:
- sickness,
- invalidity,
- old age,
- accidents at work and occupational diseases,
- unemployment;
(b) social assistance, in so far as it is intended to supplement or replace the schemes referred to in (a).”
168. Article 7(1)(a) of Directive 79/7/EEC provided:
“1. This Directive shall be without prejudice to the right of Member States to exclude from its scope:
(a) the determination of pensionable age for the purposes of granting old-age and retirement pensions and the possible consequences thereof for other benefits;
… ”
The domestic legislation relevant to Issues 1 and 2
175. The core of the ETR, as set out in the PA 1995, was as follows:
“ 62 The equal treatment rule
(1) An occupational pension scheme which does not contain an equal treatment rule shall be treated as including one.
(2) An equal treatment rule is a rule which relates to the terms on which –
(a) persons become members of the scheme, and
(b) members of the scheme are treated.
(3) Subject to subsection (6), an equal treatment rule has the effect that where-
(a) a woman is employed on like work with a man in the same employment,
(b) a woman is employed on work rated as equivalent with that of a man in the same employment, or
(c) a woman is employed on work … of equal value to that of a man in the same employment,
but (apart from the rule) any of the terms referred to in subsection (2) is or becomes less favourable to the woman than it is to the man, the term shall be treated as so modified as not to be less favourable.
(4) An equal treatment rule does not operate in relation to any difference as between a woman and a man in the operation of any of the terms referred to in subsection (2) if the trustees or managers of the scheme prove that the difference is genuinely due to a material factor which-
(a) is not the difference of sex … ”
(1) a man receiving a larger sum than a woman to take account of the fact that he had not reached State pension age (“SPA”) and so is not yet entitled to receive a basic state pension, whereas he would have reached SPA and been so entitled if he were a woman (referred to as a “bridging pension”);
(2) indexation of benefits under a salary-related contracted-out scheme where the pension of one person (‘A’) may be increased at a rate greater than that applicable to a person of the other sex (‘B’) provided the difference does not exceed the amount by which increases to the State additional pension of B exceed the increases to the State additional pension of A;
(3) arising from the use of sex-specific actuarial factors in certain circumstances identified in the regulations (e.g. in the factors used when commuting periodical pension for a lump sum).
“ 67 Sex equality rule
(1) If an occupational pension scheme does not include a sex equality rule, it is to be treated as including one.
(2) A sex equality rule is a provision that has the following effect—
(a) if a relevant term is less favourable to A than it is to B, the term is modified so as not to be less favourable;
(b) if a term confers a relevant discretion capable of being exercised in a way that would be less favourable to A than to B, the term is modified so as to prevent the exercise of the discretion in that way.
(3) A term is relevant if it is—
(a) a term on which persons become members of the scheme, or
(b) a term on which members of the scheme are treated.
(4) A discretion is relevant if its exercise in relation to the scheme is capable of affecting—
(a) the way in which persons become members of the scheme, or
(b) the way in which members of the scheme are treated.
(5) The reference in subsection (3)(b) to a term on which members of a scheme are treated includes a reference to the term as it has effect for the benefit of dependants of members.
(6) The reference in subsection (4)(b) to the way in which members of a scheme are treated includes a reference to the way in which they are treated as the scheme has effect for the benefit of dependants of members.
(7) If the effect of a relevant matter on a person (A) differs according to the effect it has on a person of the same sex as A, according to whether A is married, in a civil partnership, or for some other reason due to A's family status, a comparison for the purposes of this section of the effect of that matter on persons of the opposite sex must be with a person of the opposite sex to A who is in the same position as A and in particular—
(a) where A is married to someone of the opposite sex, A is to be compared to a person of the opposite sex to A (“B”) where B is married to someone of the opposite sex to B;
(b) where A is married to someone of the same sex as A or is in a civil partnership, A is to be compared to B where B is married to someone of the same sex as B or is in a civil partnership.
(8) A relevant matter is—
(a) a relevant term;
(b) a term conferring a relevant discretion;
(c) the exercise of a relevant discretion in relation to an occupational pension scheme.
(9) This section, so far as relating to the terms on which persons become members of an occupational pension scheme, does not have effect in relation to pensionable service before 8 April 1976.
(10) This section, so far as relating to the terms on which members of an occupational pension scheme are treated, does not have effect in relation to pensionable service before 17 May 1990.”
180. Section 68 permits consequential alterations to an occupational pension scheme and provides:
“ 68 Sex equality rule: consequential alteration of schemes
(1) This section applies if the trustees or managers of an occupational pension scheme do not have power to make sex equality alterations to the scheme.
(2) This section also applies if the trustees or managers of an occupational pension scheme have power to make sex equality alterations to the scheme but the procedure for doing so—
(a) is liable to be unduly complex or protracted, or
(b) involves obtaining consents which cannot be obtained or which can be obtained only with undue delay or difficulty.
(3) The trustees or managers may by resolution make sex equality alterations to the scheme.
(4) Sex equality alterations may have effect in relation to a period before the date on which they are made.
(5) Sex equality alterations to an occupational pension scheme are such alterations to the scheme as may be required to secure conformity with a sex equality rule.”
“ 69 Defence of material factor
(1) The sex equality clause in A's terms has no effect in relation to a difference between A's terms and B's terms if the responsible person shows that the difference is because of a material factor reliance on which—
(a) does not involve treating A less favourably because of A's sex than the responsible person treats B, and
(b) if the factor is within subsection (2), is a proportionate means of achieving a legitimate aim.
(2) A factor is within this subsection if A shows that, as a result of the factor, A and persons of the same sex doing work equal to A's are put at a particular disadvantage when compared with persons of the opposite sex doing work equal to A's.
(3) For the purposes of subsection (1), the long-term objective of reducing inequality between men's and women's terms of work is always to be regarded as a legitimate aim.
(4) A sex equality rule has no effect in relation to a difference between A and B in the effect of a relevant matter if the trustees or managers of the scheme in question show that the difference is because of a material factor which is not the difference of sex.
(5) “Relevant matter” has the meaning given in section 67 .
(6) For the purposes of this section, a factor is not material unless it is a material difference between A's case and B's.”
Express sex equality rules
“(a) if a relevant term is less favourable to A than it is to B, the term is modified so as not to be less favourable; (b) if a term confers a relevant discretion capable of being exercised in a way that would be less favourable to A than to B, the term is modified so as to prevent the exercise of the discretion in that way.”
“B12. Calculation of benefits and contributions
In spite of anything else in these Special Rules, benefits and contributions will always be calculated and paid in a way which is consistent with the requirements of: (i) Article 141 of the Treaty of Rome and section 62 of the Pensions Act 1995 … .”
Powers to modify the Schemes
Case law relevant to Issues 1 and 2
190. The early ECJ case of Defrenne (No 1) , Defrenne v Belgian State (C-80/70) [1971] ECR 445) established that state retirement pensions do not provide “pay” within Article 157. That case concerned a state retirement pension, but one which was specifically for certain categories of workers, in particular civil aviation aircrews, and which was funded by employers’ and employees’ contributions. The Court said at [7]-[13]:
“7. Although consideration in the nature of social security benefits is not therefore in principle alien to the concept of pay, there cannot be brought within this concept, as defined in Article 119, social security schemes or benefits, in particular retirement pensions, directly governed by legislation, without any element of agreement within the undertaking or the occupational branch concerned, which are obligatorily applicable to general categories of workers.
8. These schemes assure for the workers the benefit of a legal scheme, the financing of which workers, employers and possibly the public authorities contribute in a measure determined less by the employment relationship between the employer and the worker than by considerations of social policy.
9. Accordingly the part due from the employers in the financing of such schemes does not constitute a direct or indirect payment to the worker.
10. Moreover, the worker will normally receive benefits legally prescribed not by reason of the employer's contribution but solely because the worker fulfils the legal conditions for the grant of benefits.
11. These are likewise characteristics of special schemes which, within the framework of the general system of social security established by legislation, relate in particular to certain categories of workers.
12. It must therefore be found that situations involving discrimination resulting from the application of such a system are not subject to the requirements of Article 119 of the Treaty.
13. It follows from the above that a retirement pension established within the framework of a social security scheme laid down by legislation does not constitute consideration which the worker receives indirectly in respect of his employment from his employer within the meaning of the second paragraph of Article 119.”
191. In relation to occupational pensions, the leading authority on Article 157 is Barber v Guardian Royal Exchange Assurance Group (C-262/88) [1991] 1 QB 344, where the judgment of the ECJ was delivered on 17 May 1990. That case concerned a contracted-out pension scheme with differential retirement ages for men and women (62 and 57 respectively). The ECJ held that benefits under such a scheme were “pay” for the purposes of Article 119 (now Article 157) because the employee received those benefits by reason of the employment relationship. Such benefits did not cease to be “pay” just because they were required to be paid by statute or because they were a substitute for benefits under the statutory scheme.
“[12] … the concept of pay, within the meaning of the second paragraph of article 119, comprises any other consideration, whether in cash or in kind, whether immediate or future, provided that the worker receives it, albeit indirectly, in respect of his employment from his employer … …
[16] … a redundancy payment made by the employer … cannot cease to constitute a form of pay on the sole ground that, rather than deriving from the contract of employment, it is a statutory or ex gratia, payment.
[17] In the case of statutory redundancy payments it must be borne in mind that, as the court held in its judgment of 8 April 1976 in [ Defrenne II ], … para 40, article 119 of the Treaty also applies to discrimination arising directly from legislative provisions. This means that benefits provided for by law may come within the concept of pay for the purposes of that provision.
[18] … the fact that a benefit is in the nature of pay cannot be called in question where the worker is entitled to receive the benefit in question from his employer by reason of the existence of the employment relationship.”
“[25] … first of all … the schemes in question are the result either of an agreement between workers and employers or of a unilateral decision taken by the employer. They are wholly financed by the employer or by both the employer and the workers without any contribution being made by the public authorities in any circumstances. Accordingly, such schemes form part of the consideration offered to workers by the employer.
[26] Secondly, such schemes are not compulsorily applicable to general categories of workers. On the contrary, they apply only to workers employed by certain undertakings, with the result that affiliation to those schemes derives of necessity from the employment relationship with a given employer. Furthermore, even if the schemes in question are established in conformity with national legislation and consequently satisfy the conditions laid down by it for recognition as contracted-out schemes, they are governed by their own rules.
[27] Thirdly, … even if the contributions paid to those schemes and the benefits which they provide are in part a substitute for those of the general statutory scheme, that fact cannot preclude the application of article 119. It is apparent from the documents before the court that occupational schemes such as that referred to in this case may grant to their members benefits greater than those which would be paid by the statutory scheme, with the result that their economic function is similar to that of the supplementary schemes which exist in certain member states, where affiliation and contribution to the statutory scheme is compulsory and no derogation is allowed. In its judgment of 13 May 1986 in Bilka-Kaufhaus G.m.b.H. v. Weber von Hartz (Case 170/84) [1987] ICR 110, the court held that the benefits awarded under a supplementary pension scheme fell within the concept of pay, within the meaning of article 119.
[28] It must therefore be concluded that, unlike the benefits awarded by national statutory social security schemes, a pension paid under a contracted out scheme constitutes consideration paid by the employer to the worker in respect of his employment and consequently falls within the scope of article 119 of the Treaty. …
[30] The answer to the second question submitted by the Court of Appeal must therefore be that a pension paid under a contracted-out private occupational scheme falls within the scope of article 119 of the Treaty.”
“[32] … article 119 prohibits any discrimination with regard to pay as between men and women, whatever the system which gives rise to such inequality. Accordingly, it is contrary to article 119 to impose an age condition which differs according to sex in respect of pensions paid under a contracted-out scheme, even if the difference between the pensionable age for men and that for women is based on the one provided for by the national statutory scheme.”
195. The ECJ clarified the effect of Barber in a series of judgments given on 28 September 1994 in the cases of Ten Oever (C-109/91) [1995] ICR 74. Coloroll Pension Trustees Ltd v Russell (C-200/91) [1995] ICR 179 , Neath v Hugh Steeper Ltd (C-152/91) [1995] ICR 158, and Moroni v Collo GmbH (C-110/91) [1995] ICR 137 as well as Bestuur van het Algemeen Burgerlijk Pensioenfonds v Beune (C-7/93) [1995] 3 CMLR 30 and others.
198. In Coloroll [1995] 2 CMLR 357 at page 439, the ECJ dealt with a number of schemes operated by the Coloroll group. With one exception, these were contracted-out schemes, see at [11]. The ECJ:
(1) applied the same reasoning as in Ten Oever to hold that Article 119 applied to a survivor’s pension because that pension “was vested in the survivor by reason of the employment relationship between the employer and the survivor’s spouse and was paid to the survivor by reason of the spouse’s employment”, see [18];
(2) held that the principles laid down in the Barber judgment applied to non contracted-out occupational schemes as well as contracted-out schemes, see [63]-[71];
(3) held that Article 119 applied to all benefits payable to an employee irrespective of whether the scheme is contributory or non-contributory. Whether contributions are payable by the employer or the employees had no bearing on the concept of pay when applied to occupational pensions, which must conform to the principle of equal treatment in their entirety, whatever the source of their funding, see [88].
The Court continued:
“[89] This is so here a fortiori since the documents show that, as a matter of accounting, once the employer’s and the employees’ contributions have been paid into the scheme, they are managed as a single fund and it is no longer possible to distinguish them.”
(1) the fact that the ABPW was directly governed by statute did not exclude it from the scope of Article 119 given Defrenne (No. 1) and Barber , see [26]-[27];
(2) the need to ensure the uniform application of the Treaty throughout the Community meant that the application of Article 119 could not depend upon whether the unequal treatment arose from legislation or a collective agreement, see [28]-[29];
(3) as Barber had held (and Ten Oever had confirmed) “ schemes such as private occupational contracted-out schemes, resulting either from negotiation between employees and employers or from a unilateral decision taken by the employer … without any contribution being made by the public authorities in any circumstances, form part of the consideration offered to employees by the employer”. Even if the contributions paid to those schemes and the benefits they provide are in part a substitute for those of the general statutory scheme, that fact cannot preclude the application of Article 119”, see [30];
(4) “Benefits awarded under an occupational scheme which, partly or entirely, take the place of the benefits paid by a statutory social security scheme may fall within the scope of Article 119”, see [37];
(5) agreement between employers and employees is not essential for the application of Article 119, see [33];
(6) funding arrangements are not determinative of the application of Article 119, see [38]-[40];
(7) “the only possible decisive criterion is whether the pension is paid to the worker by reason of the employment relationship between him and his former employer”, see [43];
(8) although the employment criterion is not exclusive (because pensions paid by statutory social security schemes may reflect, wholly or in part, pay in respect of work but fall outside Article 119) a scheme established by a national legislature would still fall within the scope of Article 119: “[45] …if the pension concerns only a particular category of workers, if it is directly related to the period of service and if its amount is calculated by reference to the civil servant’s last salary. The pension paid by the public employer is therefore entirely comparable to that paid by a private employer to his former employees.”
200. Pensions calculated by reference to the period of service and salary have repeatedly and consistently been treated as within the scope of Article 119 since Beune . For examples, see Dimosia Epicheirisi Ilektrismoyd (DEI) v Evthimios Evrenopoulos (C-147/95) [1997] 2 CMLR 407 at [21], Griesmar v Ministre De L’Economie, Des Finances Et De L’Industrie and another (Case C-366/99) [2003] 3 CMLR 5 at [30], Pirkko Niemi (C-135/00) [2002] Pens LR 459 at [47] and Maruko v Versorgungsanstalt Der Deutschen Buhnen C-267/06 [2008] 2 CMLR 32 at [48].
(1) the fact that a scheme is determined directly by statute is not in itself sufficient to exclude such a scheme from the scope of Article 119, see [41];
(2) the applicability of Article 119 is in no way conditional upon a pension being supplementary to a benefit provided by a statutory social security scheme, see [42];
(3) “the Court has held that a decisive criterion is the link between the employment relationship and the retirement benefit, and has not regarded the structural elements of a system of pension benefits as playing a decisive role” see [44]-[45];
(4) although that criterion cannot be regarded as exclusive, considerations of social policy, etc cannot prevail “if the pension concerns only a particular category of workers, if it is directly related to the period of service completed and if its amount is calculated by reference to the public servant’s last salary. The pension paid by the public employer is in that case entirely comparable to that paid by a private employer to his former employees …” see [47]; and
(5) “…Article 119 … prohibits any discrimination with regard to pay as between men and women, whatever may be the system which gives rise to such inequality …, see [53].
(13) In its judgment [in Barber ], the Court of Justice determined that all forms of occupational pension constitute an element of pay within the meaning of Article 141 of the Treaty.
(14) Although the concept of pay within the meaning of Article 141 of the Treaty does not encompass social security benefits, it is now clearly established that a pension scheme for public servants falls within the scope of the principle of equal pay if the benefits payable under the scheme are paid to the worker by reason of his/her employment relationship with the public employer, notwithstanding the fact that such scheme forms part of a general statutory scheme. According to the judgments of the Court of Justice in [ Beune ] and [ Pirkko Niemi ] that condition will be satisfied if the pension scheme concerns a particular category of workers and its benefits are directly related to the period of service and calculated by reference to the public servant's final salary. For reasons of clarity, it is therefore appropriate to make specific provision to that effect.”
203. The effect of Barber and some of the later ECJ cases was summarised by the Court of Appeal in Trustee Solutions v Dubery [2008] ICR 101, at [2]-[3], as follows:
“2. The [issue in Dubery ] arises by reason of the impact of art 141 EC (formerly art 119 of the EC Treaty) of the amended Treaty of Rome, as interpreted by the European Court of Justice (the ECJ) in a series of decisions commencing with Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1990] ECR I-1889, on schemes which differentiated between male and female members for the normal retirement date (NRD). Until Barber's decision given by the ECJ on 17 May 1990 British schemes usually mirrored the different ages at which state pensions were payable, namely 65 for males and 60 for females. Article 141 requires that male and female workers should receive equal pay for equal work or work of equal value. In Barber's case the ECJ held that pensions are pay and must be equal for both men and women. Accordingly, schemes which provide for unequal retirement ages as between men and women are unlawful.
3. In further decisions, most notably Coloroll Pension Trustees Ltd v Russell Case C200/91 [1995] All ER (EC) 23, [1995] ICR 179, the ECJ decided further points arising out of Barber's case and in particular that:
(1) for pensionable service prior to 17 May 1990 it was not unlawful for pension benefits to be provided at different NRDs for men and women;
(2) a scheme could be amended so as to equalise benefits up or down, for example to make the NRD for both men and women at age 60 or 65; and
(3) for pensionable service between 17 May and the date of any such amendment (a period known in the pensions industry as the Barber window or corridor) men were entitled to be treated as if their NRD was the same as the NRD for women.
Thus in the usual form of scheme men were to be treated as having their NRD at age 60, but only in respect of benefits accruing from pensionable service in the Barber window.”
206. The effect of the Barber window was described by the Court of Appeal in Safeway v Newton [2018] Pens LR 2, at [36]-[40], where the Court recorded the following uncontentious submissions of counsel with which it “broadly agree[d]”:
… 38. Secondly, employers and pension trustees may take effective measures available to them under domestic law (including the terms and rules of the relevant Scheme) to implement Article 119 [now Art 157] by levelling down, that is reducing the rights of the advantaged class to those of the disadvantaged class, with respect to future pensionable service (i.e. service undertaken after the taking of those effective measures). But in relation to the period from the opening of the Barber window until the taking of those effective measures (generally described as the closing of the Barber window) employers and trustees will be required to confer the same rights upon the disadvantaged class as those enjoyed by the advantaged class: see the Fisscher case , in particular at paragraphs 33 to 37 of the Judgment, the Coloroll case at paragraphs 32 to 36 of the Judgment and the Smith case at paragraph 17 of the Judgment.
39. Thirdly, the benchmark for ascertaining, during the period when the Barber window is open, the rights of the advantaged class is to be found by reference to the trust deed and rules of the relevant scheme, because that provides the sole and exclusive system or frame or point of reference for the purposes of achieving equal treatment. The origins of this principle in the EU authorities are well summarised by Warren J in paragraphs 35 to 41 of the judgment under appeal, by reference to Razzouk v Commission of the European Communities (Cases 75/82) [1984] 3 CMLR 470, The Netherlands v Federatie Nederlandse Vakbeweging (Case 71/85)… [1987] 3 CMLR 767 and Nimz v Freie und Hansestadt Hamburg (Case C-184/89) …[1992] 3 CMLR 699.
40. Fourthly, the objective of Article 119 during the period when the Barber window is open is concerned with levelling up the rights of the disadvantaged class to those enjoyed by the advantaged class, but not with giving either the advantaged class more generous rights than they previously enjoyed, still less giving the disadvantaged class more generous rights than previously enjoyed by the advantaged class. This is, [counsel] submits (and we agree), the effect of the second and third principles described above. It also reflects what may be described as a principle of minimum interference with domestic rights, where a directly applicable EU right is to be applied, as explained by Arden LJ in Foster Wheeler v Hanley [2009] EWCA Civ 651, at paragraph 33:
‘Accordingly, the court should, where possible, give effect to Barber rights by adhering to the provisions of the relevant scheme where it is possible to do so in preference to some other approach. If some departure is required, it should in general, so far as practicable, represent the minimum interference with the scheme provisions.’”
207. In relation to Issues 2(b) and 2(c), I was referred to Roberts v Birds Eye Walls Ltd Case C-132/92 [1994] ICR 338 which was heavily relied upon by the Banks. This case was concerned with bridging pensions for those who had taken ill-health retirement. In particular, a rule in a pension scheme had the effect that the ill-health pensions for women between the ages of 60-65 were lower than the pensions for men at the same age, because women qualified for the state pension at age 60, whereas men only qualified for the state pension at age 65. The amount of the state pension was deducted from the bridging pension. This applied whether or not the individual actually qualified for the state pension. Mrs Roberts did not qualify for the state pension, because she had chosen not to pay the full NIC contributions (although she did qualify for an equivalent state widow’s pension).
“[20] Accordingly, although until the age of 60 the financial position of a woman taking early retirement on grounds of ill health is comparable to that of a man in the same situation, neither of them as yet entitled to payment of the State pension, that is no longer the case between the ages of 60 and 65 since that is when women, unlike men, start drawing that pension. That difference as regards the objective premise, which necessarily entails that the amount of the bridging pension is not the same for men and women, cannot be considered discriminatory.
[21] What is more, given the purpose of the bridging pension, to maintain the amount for women at the same level as that which obtained before they received the State pension would give rise to unequal treatment to the detriment of men who do not receive the State pension until the age of 65.
[22] Furthermore, it is common ground that as from the age of 65 the bridging pension for men is also reduced by the amount of the State pension to which they are entitled. …
[23] It must therefore be held that the mechanism for calculating the bridging pension is neutral, which confirms the absence of any discrimination.”
212. Roberts was considered by Neuberger J in Trustees of Uppingham School Retirement Benefits Scheme for Non-Teaching Staff v Shillcock [2002] Pens LR 229. In that case, there was a connection between the occupational scheme and the state scheme in the sense that employees did not qualify for membership of the occupational scheme unless they earned an annual salary in excess of the lower earnings limit for Class I National Insurance contributions. Neuberger J held that there was no relevant difference in treatment of men and women. However, he went on consider whether any relevant difference in treatment was objectively justified. In that context he discussed the topic of the interrelationship between the occupational pension scheme and the state scheme. In that regard he said at [54]:
“54 In relation to the interrelationship of Article 141 and the integration of occupational pension schemes with the State pension scheme, I should mention two decisions of the ECJ. In Case C-132/92, Roberts v. Birds Eye Walls Ltd [1994] ICR 338, it was held that certain higher, “bridging”, pension payments to men were justifiable as their aim and effect, in general terms, was to equalise pensions between men and women for a period, once the State pension was taken into account. To my mind, this clearly establishes that integration with the State scheme can provide objective justification for even a discriminatory policy, but that does not, of course, mean it always will do so. By contrast, in Beune , the ECJ held that Article 141 was infringed, where different treatment between men and women under an occupational pension scheme was sought to be justified by reference to their respective differential treatment under the State scheme. Although, at first sight, these two decisions may appear hard to reconcile, I believe that they are consistent. The facts of Beune are complicated, but the infringement arose, in essence, because there was no equal treatment between married men and married women, whether one looked at their respective occupational pension rights alone, or at the combination of their respective occupational pension rights and their rights under the State scheme. In other words, unlike in Birds Eye , the discrimination policy in Beune was unlawful, because the occupational pension rights did not achieve, and did not seek to achieve, equality between married men and married women, either taking those rights on their own or taking them together with their State pension rights.”
213. The Banks also heavily relied on Hlozek v Roche Austria GmbH (-19/02) [2005] 1 CMLR 28. Hlozek concerned a payment that was made to redundant employees, called a bridging allowance. This was paid to employees who were 10 years (or les than 10 years) away from their state pension ages. As the state pension age in Austria for men and women, respectively, was 65 and 60, this meant that women received the bridging allowance from the age of 50 and men from the age of 55. Mr Hlozek was aged 54 when he was made redundant and he made an equal pay claim on the basis that if he had been a woman of the same age he would have received the bridging allowance. It was held that the bridging allowance was “pay” for the purposes of Article 141 (now Article 157).
“38. The referring court and the Pensionsversicherungsanstalt emphasise that, having regard to this employment policy objective, the situation of female employees like Dr Kleist who have reached the age of 60 is not comparable to that of male colleagues who are the same age as, unlike male employees, the female employees have already reached the statutory normal pensionable age and they therefore benefit from social security cover resulting from their right to a pension in the event of losing their job.
39. At first glance, it could be tempting to follow this line of argument and to conclude that, merely because a right to a pension exists, there is a decisive material difference which excludes any comparability between male and female employees.
40. It is even possible to find case-law in which the Court appears to take such a position. Thus, in Burton , Birds Eye Walls and Hlozek the Court held it lawful to link certain social benefits granted by employers to a pensionable age that differs for men and women.
41. However, it appears to me that these judgments dealt with isolated cases and cannot in any event be applied more generally. Thus, the bridging payments in Burton and Birds Eye Walls served to cover employees’ loss of income where they took early retirement for operational or health reasons. In Hlozek the bridging allowance was specifically aimed at financially cushioning a special risk of long-term unemployment, a risk which was statistically proven to arise for men and women at different ages and was particularly high as the statutory retirement age drew closer. In the present case however, so far as is apparent from the documents in the case, there are no indications of there being such a specific risk.
42. Quite apart from the specific features of each case, I consider that it would also be an error for reasons of principle to permit employers to differentiate between male and female employees according to the statutory normal pensionable age that is respectively applicable. Such an approach would lead to the differences between men and women in relation to the statutory normal pensionable age that still exist extending to other areas – here to the area of dismissal. Generalising the differences within the framework of statutory social security systems would, however, be contrary to the Court’s settled case-law, according to which the exception that still exists to the principle of equal treatment in relation to the pensionable age under statutory pension schemes (Article 7(1)(a) of Directive 79/7) is to be interpreted strictly.”
217. In its judgment in Kleist , the court said at [35]-[39]:
“35. In the case in the main proceedings, the rules establishing the difference in treatment at issue are designed to govern the circumstances in which employees can lose their job.
36 In the context of that case, contrary to the position in the cases which gave rise to the judgments in Case C-132/92 Roberts [1993] ECR I-5579 (paragraph 20) and in Hlozek (paragraph 48), the advantage accorded to female workers of being able to claim a retirement pension from an age five years younger than that set for male workers is not directly connected with the object of the rules establishing a difference in treatment.
37 That advantage cannot place female workers in a specific situation vis-à-vis male workers, as men and women are in identical situations so far as concerns the conditions governing termination of employment (see, to this effect, Case 151/84 Roberts [1986] ECR 703, paragraph 36).
38 Furthermore, as is apparent from the order for reference, the circumstance referred to in paragraph 33 of the present judgment results from the fact that the Republic of Austria wished to establish, in accordance with the exception laid down in Article 7(1)(a) of Directive 79/7 to the principle of equal treatment, a regime prescribing a different statutory pensionable age for men and women in order to compensate for the disadvantage suffered by women socially, in relation to the family and economically.
39 The Court has repeatedly held that, given the fundamental importance of the principle of equal treatment, the exception to the prohibition of discrimination on grounds of sex, provided for in that provision, must be interpreted strictly, so as to be applicable only to the determination of pensionable age for the purposes of granting old-age and retirement pensions and to the possible consequences thereof for other social security benefits (see, to this effect, Marshall , paragraph 36; Case C-207/04 Vergani [2005] ECR I-7453, paragraph 33; and Case C-423/04 Richards [2006] ECR I-3585, paragraph 36).”
Issues 1 and 2: submissions for the Banks
(1) The key question is whether the treatment at issue comes within the scope of Art 157. Art 157 has direct effect in UK law.
(2) In general, there is no doubt that pensions are ‘pay’ for the purposes of Art 157, and this is so whether or not they are a substitute, in whole or in part, for the state pension scheme. The mere fact that a pension is a substitute for the state pension scheme does not mean that it falls outside the scope of Art 157.
(3) On the other hand, pensions that are part of the state social security scheme are not ‘pay’ and are not within the scope of Art 157.
(4) The question in the present case concerns which side of the line the treatment at issue falls upon.
(5) Although GMPs are not identical in every respect to SERPS or the AP, their function is undoubtedly to fulfil the role of the earnings-related element of the state pension. They are an alternative way of delivering the earnings-related part of the state pension to a large part of the working population, for the mutual benefit of the state, employers and scheme members. They are part of the state social security pensions framework, and are integrated into the state scheme.
(6) The difference in treatment between men and women in relation to SERPS and the AP is not in breach of Art 157, in particular, or EU law in general.
(7) It would, therefore, be illogical for EU law to permit different treatment between the sexes in relation to SERPS and the AP, but not to permit different treatment which results from the legislative provisions relating to the equivalent to SERPS that is delivered via private occupational pension schemes.
(8) EU law does not require such an illogical conclusion.
(9) In considering whether the treatment at issue is within or outside the scope of Art 157, it is necessary to focus upon the factor which gives rise to the disparity at issue.
(10) In the present case, that factor is the direct result of legislation and is a function of the integration with the state pension scheme. The difference in treatment exists because GMPs fulfil the role of the earnings-related part of the state pension.
(11) That is what sets this case apart from an ordinary occupational pensions scheme case: the aspects of GMPs which lead to differential treatment between men and women are the direct results of legislation which provides for the integration of GMPs as part of the state social security pension framework.
(12) Whilst the case law of the ECJ/Court of Justice of the European Union has not dealt directly with the circumstances under consideration, the case law suggests that the treatment at issue in the present case is outside the scope of Art 157.
(13) If, as in cases such as Barber and Beune , the treatment at issue in the present case had nothing to do with the fact that GMPs are providing part of the state pension entitlements, then the treatment would come within Art 157, and would be unlawful. However, this case is different because the rules under challenge are the result of state legislative choices in relation to the state pension framework.
(14) It follows that the treatment at issue is not within the scope of Art 157.
(15) It follows in turn that either GMPs are not ‘pay’ for these purposes, or the difference in the position of men and women arising from the GMP legislation means that the difference in treatment is not unlawful for the purposes of Art 157 (either because the position of men and women is not comparable or because there is a ‘material factor’ defence).
(16) If the above reasoning is correct, so that the treatment at issue does not fall within Art 157, then the treatment will also be outside the scope of domestic equality legislation (the PA 1995 and, now, the EA 2010) as the domestic legislation is intended to implement Art 157 into domestic law. The domestic legislation covers the same ground, no more and no less.
(17) Again, if the above reasoning is correct, the treatment at issue is not in breach of the occupational pension provisions of the Equal Treatment Directive, as the relevant provisions of the Directive are designed simply to replicate the legal protection given by Art 157, once again, no more and no less.
“The fact that a scheme is statutory is not, in my view, the conclusive test. Legislation may be used for different purposes. If it defines rights and obligations under a social security scheme for all workers, or for groups of workers who are not in any sense 'employed by' the State, it is no doubt based on 'considerations of social policy' rather than on an employment relationship. On the other hand, if by the same machinery, legislation, rules are adopted in respect of those 'employed by' the State, those rules may be an expression of social policy, or they may equally spring from and govern the employment relationship. It is true that the latter may indeed at the same time reflect a State's ideas of social policy, but that factor cannot in my view take away their essential characteristic as rules governing the employment relationship. If it were otherwise, civil servants could not rely upon the principle of equal pay for equal work contained in Article 119, and there seems to be nothing in that Article 119 or in the case law of the Court to justify such a result. The relevant question is thus whether what is done is done by the State essentially as an employer.”
“Admittedly, as regards pay Mr. Newstead was treated differently from his female colleagues and he was understandably offended by the fact. But neither Worringham nor Liefting supports the inference that any treatment which differs according to sex and affects gross or net pay automatically justifies the direct application of Article 119, without any regard for the legal basis on which the difference was made. I consider that such an interpretation exceeds the scope of the judgments delivered in those cases. It would, moreover, conflict with the division of powers imposed by the EEC Treaty and clearly enunciated in Defrenne III .”
225. At [13]-[15] of its judgment, the court said:
“13. As the United Kingdom and the Commission rightly pointed out, however, the difference between the net pay of men and women in the case before the Employment Appeal Tribunal is the result of the fact that only men are required to belong to the widows' pension fund and thus have a deduction made from their salary as a contribution to the fund.
14. It must therefore be concluded that the factor which gives rise to the disparity at issue is neither a benefit paid to workers nor a contribution paid by the employer to a pension scheme on behalf of the employee, which might be regarded as “consideration ... which the worker receives, directly or indirectly” as referred to in Article 119.
15. The disparity at issue is in fact the result of the deduction of a contribution to an occupational pension scheme. That scheme contains some provisions which are more favourable than the statutory scheme of general application and is a substitute for the latter. Such a contribution must therefore, like a contribution to a statutory social security scheme, be considered to fall within the scope of Article 118 of the Treaty, not of Article 119.”
(1) GMPs are ‘a retirement pension established within the framework of a social security scheme laid down by legislation’ ( Defrenne (No 1) );
(2) GMPs are part of ‘the financing of statutory social security systems’ ( Liefting );
(3) GMPs are part of the state pension framework. They are integrated into the state scheme. They are a method of delivering the earnings-related part of the state pension to a large part of the working population which is mutually beneficial to the state, employers and scheme members;
(4) The factors which give rise to the disparity at issue are laid down in legislation and are a direct consequence of the integration of GMPs with the state pension scheme. The difference in treatment exists because GMPs fulfil the role of the earnings-related part of the state pension scheme;
(5) The rules relating to GMPs, and, in particular, to the rates of increase in deferment and payment which give rise to the difference in treatment between the sexes, are set down by Government in statutory instruments. They are not the result of agreement between employers and employees or their representatives;
(6) The rates of increase that the present schemes are required to apply to GMPs are not determined by the employment relationship between the Banks and the members, but by considerations of social policy; the change in 2011, pursuant to which escalation for GMPs has been determined by reference to CPI rather than RPI (subject to a cap at 3%) is a good example of this; this change was made, as a matter of Government policy, by means of GMP Increase Orders, made pursuant to s 109 PSA 93:-
(7) The minor differences between GMPs, on the one hand, and SERPS/ASPs, on the other, are immaterial. They should not be allowed to conceal the central truth that GMPs were the legislature’s chosen mode of delivery for the earnings-related part of the state pension:-
(8) There are two parallel legal routes to this outcome as described in the next two sub-paragraphs:-
(9) The first route to the outcome: GMPs are not ‘pay’ for the purposes of Art 157, when the difference in treatment at issue arises from the legislative rules relating to GMPs and the contracted-out nature of the pension scheme (notwithstanding that, in relation to other types of claim, the whole of a contracted-out occupational pension is ‘pay’): this is the approach suggested by cases such as Defrenne (No 1) and Liefting , and is reflected in Issue 2(a);
(10) The second route to the outcome: there is no breach of Art 157 because there is an objective difference between the position of males and females arising from the GMP legislation, so that (a) they are not in a comparable position and so a difference in treatment cannot be discriminatory; and/or (b) the difference in treatment is objectively justified: this is the approach suggested by Roberts v Birds Eye Walls and Hlozek , and is reflected in Issues 2(b) and 2(c), respectively;
(11) The line of authority represented by Defrenne (No 1) , on the one hand, and Roberts , on the other, are not in conflict with each other. Rather, they complement each other and serve to reinforce the conclusion that it is clear that the treatment under consideration in these proceedings is outside the scope of Art 157;
(12) The arguments advanced on behalf of the Banks in relation to liability are limited in their scope. The Banks do not submit that benefits under contracted-out pension schemes are not ‘pay’ for most purposes. It is clear that they are. But not for the purposes of the treatment under consideration in these proceedings.
230. Mr Cavanagh further submitted that whatever answer was arrived at in relation to the scope of Article 157, the same answer was appropriate as to the scope of the ETR under the PA 1995 and the SER under the EA 2010. He submitted that because the relevant domestic statutory provisions were introduced to give effect to Article 157 and its predecessors, the domestic provisions should be construed so as to have the same scope as Article 157. He cited authorities as to the Marleasing principle, that is, the duty of the court to construe domestic legislation, which had been enacted to give effect to the United Kingdom’s obligations under European law, in a way which conformed to those obligations, so far as it was possible to do so: see for example Alemo-Herron v Parkwood Leisure Ltd [2011] ICR 920 (SC) at [20]. However, he accepted that it was open to a Member State to enact a provision which was wider in its application than the European provision if it wished to do so and it clearly provided for that result; see, for example, what was said by Lord Mackay of Clashfern LC in Hayward v Cammell Laird Shipbuilders Ltd (No 2) [1988] AC 894 at 903B.
Issues 1 and 2: submission for the RBs
232. Mr Short QC summarised his reliance on the various decisions of the ECJ, as follows:
(1) Barber and the subsequent cases expressly state that benefits paid under contracted-out occupational pension schemes are pay for the purposes of Article 157 (see for example Barber );
(2) even if the level of benefits is determined by statute (see Pirkko Niemi ) or the benefits are a substitute for state benefits, this will not preclude the application of Article 157 (see Defrenne II , Barber , Ten Oever , Beune );
(3) the only possible decisive criterion as to whether a sum is pay within the meaning of Article 157 is whether the sum is paid by reason of the employment relationship. That criterion will be satisfied “if the pension scheme concerns a particular category of workers and its benefits are directly related to the period of service and calculated by reference to the worker’s final salary” (see Barber , Beune and Pirkko Niemi and the recast Directive);
233. As to the nature of GMP, Mr Short submitted:
(1) GMP is simply a minimum level of benefit that must be paid in return for the Banks and the members paying reduced National Insurance contributions;
(2) GMP is not a separate pension;
(3) GMP, as a minimum level of benefit, is not a state benefit nor is it to be treated as a state benefit;
(4) the differences in benefits paid from the Schemes to men and women with identical work histories do not arise automatically or necessarily from the differences in their GMPs. The differences arise because the Scheme rules adopted by the Trustee and the Banks treat GMP differently to non GMP;
(5) in any event it is, of course, the inequality in total benefits paid that is in issue in these proceedings. That disparity is not an automatic or inevitable consequence of the differentials between male and female GMP. The disparity occurs primarily because the Schemes provide different rates of revaluation and/or indexation for GMP and non GMP, as appears from the table in Appendix A to this judgment;
(6) where the “better” rate was not required by statute, it was the Banks’ (and Trustee’s) choice to provide that better rate. Even where the better rate was required by statute (as with the impact of anti-franking), the Banks have always been entitled to make up any shortfall in total benefits. They were not forbidden from doing so by statute.
“I agree with [counsel] that the better analysis of GMPs is that they are in the nature of calculation factors rather than pensions themselves or discrete elements of the scheme pension. The scheme pension is one indivisible pension. No doubt an element of it can be regarded as satisfying the minimum benchmark represented by the GMP, but I regard it as incorrect to regard the scheme pension as comprising two elements made up of a GMP and the excess above it.”
235. The second of these cases was Houldsworth v Bridge Trustees [2010] ICR 921 where the court was dealing with a money purchase benefit called “MoneyMatch” which had a defined benefit underpin benefit, namely the members’ GMP. Mummery LJ said at [157]:
“GMPs are notionally satisfied from a money purchase pot. They are not in themselves pension or discrete parts of it. They are a notional pension corresponding to what would be paid under the SERPS. The function of GMP is to identify the minimum below which the pension calculated “by reference to” contribution payments by or in respect of members may not fall: see Marsh & McLennan Cos UK Ltd v Pensions Ombudsman [2001] Pen LR 51 … .”
(1) the treatment in those cases was intended to, and did, remedy an inequality or particular disadvantage that would otherwise be experienced by one sex and not the other; and the men and women were not otherwise in comparable circumstances.
(2) in Roberts , women (but not men) could benefit from a state pension from age 60 to 64;
(3) in Hlozek , women (but not men) were at particular risk of unemployment from age 50 – 54;
(4) in contrast, the treatment in the present case is not intended to and does not remedy any inequality; rather, it introduces, exacerbates and/or perpetuates inequality in the total benefits paid under the Schemes by increasing GMP and excess at different rates and applying different revaluation arrangements to men and women; as a result, the benefits paid to men and women in respect of work carried out from 17 May 1990 are different;
(5) in no sense are the arrangements in the present case a “neutral mechanism”, as the ECJ put it in Hlozek at [49], referring to Roberts at [23];
(6) the mere fact that the GMP legislation treats men differently to women (so that the difference is a proxy for the difference in sex) does not, in itself, mean that they are not in comparable situations for the purposes of Article 157. See for example Beune , Pirkko Niemi and even Barber itself: it is inconceivable that the unequal benefits caused by the differing retirement ages in Barber would have been lawful if the Scheme had provided that Normal Retirement Date was “two-years before State Pension Age” rather than 63 for men and 58 for women;
(7) it was clear in Roberts and Hlozek why men and woman of the same age were in materially different positions; that is not so in the present case; if a man and woman with identical work histories each retire at 60, they are entitled to expect to receive the same amount of deferred pay from their employer in respect of their employment; the fact that their employer agreed to provide pensions of at least a set minimum level in return for reductions in National Insurance contributions does not explain why their total pensions should be different.
Issues 1 and 2: submissions for the Crown
(1) Article 7(1)(a) of Directive 79/7/EEC is concerned with social security benefits not with pay (and pay includes a pension payable under an occupational pension scheme):
(2) Article 7(1)(a) is to be interpreted strictly: see Vergani v Agenzia Delle Entrate Case C-207/04) [2006] 1 CMLR 5, see the judgment of the court at [33]; and also Pensionsversicherunganstalt v Kleist Case C-365/09, judgment of the court at [39];
(3) Article 7(2) requires a Member State to keep a matter within Article 7(1) under review; the United Kingdom has done so in relation to state pension age;
(4) The Crown does not rely on Article 7(1)(a) in relation to the legislation as to GMPs as GMPs are not social security benefits;
(5) the Banks are similarly not able to rely on Article 7(1)(a) to justify the unequal treatment as regards the benefits payable under the schemes;
(6) the United Kingdom has enacted legislation which requires pensions to be equal: see the ETR under the PA 1995 and the SER under the EA 2010; it relies on this legislation and not on Article 7(1)(a) in relation to its legislation in relation to GMPs;
(7) when considering whether a benefit has the character of “pay” for the purposes of Article 157, the person ultimately responsible for paying the benefit is crucial; Article 157 refers to the benefit coming from the employer; compare Vergani , the judgment of the court at [23]-[24];
(8) in the present case, the employer is responsible for paying the benefits under the Schemes; the employer does not receive a subsidy from the state towards those benefits; the state does not pay GMPs to members of the Schemes;
(9) the Bank’s argument in this case is a re-run of the failed argument in Barber ; the Scheme in Barber was a contracted out scheme subject to the legislation as to GMPs; the court rejected the argument that the benefits under the Scheme amounted to social security benefits or were a substitute for a part of the state retirement pension;
(10) in Newstead , the court considered that contracted out occupational pension schemes were social security schemes: see the judgment at [15], [18] and [21]; based on Newstead , the UK government argued in Barber that the occupational pension scheme in that case was a substitute for social security benefits and was not within Article 119; that argument was rejected; the reasoning in Newstead cannot survive the decision in Barber ; it is also relevant to note that the court in Barber rejected the argument that a sum due as statutory minimum redundancy payment was outside the scope of “pay”;
(11) as regards Issues 2(b) and 2(c), generally speaking men and women are in comparable situations are regards pension entitlement; a difference in sex is not a material difference for this purpose; the legislation as to GMPs does make a distinction between men and women but this distinction is not a new difference between men and women as it is just a proxy for the difference in sex: see James v Eastleigh BC [1990] AC 751; Essop v Home Office [2017] ICR 640 at [17] and the judgment of the court in Kleist at [31];
(12) the decisions in Roberts and Hlozek create a narrow exception in the context of there being historic differences in state pension ages for men and women; the exception provides that it is permissible to treat men and women unequally with a view to them ending up with equal benefits overall; the differences between men and women are not relevant where there is no intention to equalise their position overall;
(13) this narrow reading of Roberts and Hlozek is explained in Kleist ; see the opinion of Advocate General Kokott at [38]-[43] and the judgment of the court at [35]-[39];
(14) if necessary, depending on what was decided as to the meaning of “pay” in Article 157, the SER in section 67 of the EA 2010, dealing with occupational pension schemes, could be wider in its operation than Article 157.
Issues 1 and 2: discussion and conclusions
“ … I consider it to be of decisive importance that in Barber v. Guardian Royal Exchange Assurance (Case C-262/88) [1990] ICR 616 the court expressly went back on the view it had taken in Newstead that the supplementary pension concerned did not fall under article 119 but under article 118: in Barber , at pp. 670, 673, para. 30 and point 2 of the operative part, the court ruled that “a pension paid under a contracted-out private occupational scheme falls within the scope of article 119 of the Treaty.” ”
257. Different treatment on the ground of sex is prohibited discrimination. The difference in sex is not an objective difference which justifies different treatment. If there is some other suggested objective difference but the suggested difference is just another way of expressing the difference in sex, then the suggested objective difference cannot be relied upon as a justification for discrimination. In truth, in such a case, the substance of the matter is that there is prohibited discrimination on the ground of sex. The position was described by Baroness Hale of Richmond in Essop v Home Office [2017] ICR 640 at [17] in these terms:
“ James v Eastleigh Borough Council also shows that, even if the protected characteristic is not the overt criterion, there will still be direct discrimination if the criterion used (in that case retirement age) exactly corresponds with a protected characteristic (in that case sex) and is thus a proxy for it.”
258. It will be remembered that in James v Eastleigh BC [1990] 2 AC 751 the local authority offered free admission to a leisure centre to people who had reached state pension age. As women (at that time) reached state pension age at 60 and men at 65, the different treatment as to who received free admission was based on a criterion which involved direct discrimination on the ground of sex and the different treatment was therefore on the ground of sex.
264. The answer to Issue 2(b) therefore depends on whether it is appropriate to treat this case as:
(1) one where there is unequal treatment of men and women by reason of the application of the GMP rules which are a proxy for the difference in sex; or
(2) one where the unequal treatment of men and women is justified because men and women are in objectively different circumstances because they are treated differently under the GMP rules.
PART VI: ISSUES 5 TO 8
Issues 5 to 8: the methods to be used for equalisation
275. The approach taken by the various methods can be summarised as follows:
(1) method A: equalise each unequal aspect separately;
(2) method B: provide better of male or female comparator pensions each year;
(3) method C: provide better of male or female comparator pensions each year, subject to accumulated offsetting;
(4) method D: complete one-off actuarial equivalence.
(1) the level of pension required at the scheme’s Normal Retirement Age (“NRA”) (typically, an issue in the case of deferred pensioners who left service before NRA);
(2) the rate at which pensions increase once in payment;
(3) the requirement for a pension payable to a male to observe minimum requirements upon the male pensioner attaining age 65, and to recognise the GMP in pension increase awards from that age.
282. Adopting method A would result in the following anticipated typical approach:
(1) the pension at NRA for males retiring from deferred pensioner status would be increased to equate it to the pension payable to a corresponding female;
(2) from NRA onwards, the pension payable to both a male and a female would increase by the greater amount that would have been awarded on a male or female basis;
(3) at age 65, any increase that would have applied to the pension payable to a male would also be applied to the corresponding pension payable to a female;
(4) from age 65 onwards, the pension would increase by the greater amount that would have been awarded on a male or female basis.
Age |
Unequalised Female |
Unequalised Male |
Equalised Female |
Equalised Male | ||||
|
Annual Pension |
Aggregate payments |
Annual Pension |
Aggregate payments |
Annual Pension |
Aggregate payments |
Annual Pension |
Aggregate payments |
60 |
2,100 |
2,100 |
1,900 |
1,900 |
2,179 |
2,179 |
1,900 |
1,900 |
61 |
2,161 |
4,261 |
1,957 |
3,857 |
2,240 |
4,419 |
1,957 |
3,857 |
62 |
2,223 |
6,483 |
2,016 |
5,873 |
2,302 |
6,721 |
2,016 |
5,873 |
63 |
2,287 |
8,770 |
2,076 |
7,949 |
2,366 |
9,087 |
2,076 |
7,949 |
64 |
2,353 |
11,123 |
2,138 |
10,087 |
2,432 |
11,519 |
2,138 |
10,087 |
65 |
2,421 |
13,543 |
2,697 |
12,785 |
2,500 |
14,019 |
2,697 |
12,785 |
66 |
2,490 |
16,034 |
2,775 |
15,559 |
2,570 |
16,589 |
2,775 |
15,559 |
67 |
2,562 |
18,596 |
2,855 |
18,414 |
2,641 |
19,230 |
2,855 |
18,414 |
68 |
2,636 |
21,232 |
2,937 |
21,351 |
2,715 |
21,945 |
2,937 |
21,351 |
69 |
2,712 |
23,944 |
3,021 |
24,372 |
2,791 |
24,737 |
3,021 |
24,372 |
70 |
2,790 |
26,734 |
3,108 |
27,480 |
2,870 |
27,606 |
3,108 |
27,480 |
Actuarial value |
42,829 |
|
45,603 |
|
45,603 |
|
45,603 |
|
(1) method A: cost for female - £92,004; cost for notional male alternative - £75,598;
(2) method B: cost for female - £31,165; cost for notional male alternative - £14,759;
(3) method C1: cost for female - £20,143; cost for notional male alternative - £3,737;
(4) method C2: cost for female - £16,406; cost for notional male alternative - £ NIL;
Issues 5 to 8 reviewed
(1) is it obligatory to adopt a “term by term” approach in the way contended for by the RBs?
(2) how is the “term by term” approach to be applied?
(3) what is meant by “the principle of minimum interference” in this context?
(4) what is required in the present case by the principle of minimum interference?
(5) how do the provisions of sections 24A to 24H PSA 1993 operate?
(6) in the light of the answers to the foregoing, which of the identified methods are legally permissible?
The term by term approach
309. It seems to me that a number of questions need to be considered:
(1) what is required by European law as to equalisation of benefits?
(2) how is that requirement to be applied in this case?
(3) what is required by English law in relation to equalisation of benefits?
(4) how is that requirement to be applied in this case?
311. Article 1 of the Equal Pay Directive provided:
“Article 1
The principle of equal pay for men and women outlined in Article 119 of the Treaty, hereinafter called "principle of equal pay", means, for the same work or for work to which equal value is attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and conditions of remuneration .
In particular, where a job classification system is used for determining pay, it must be based on the same criteria for both men and women and so drawn up as to exclude any discrimination on grounds of sex.” (emphasis added)
“The Guardian paid Mr. Barber a sum consisting of the cash benefits provided for in the severance terms and an amount equal to the statutory redundancy payment. He thus received a gross cash payment of £14,438 which, after deduction of income tax, has produced a net figure of £11,378. In addition, an ex gratia tax-free payment of £7,219 was made to him on 7 January 1981, making a total net sum of £18,597. As he had not attained the age of 55 at the time of his dismissal, Mr. Barber did not receive an immediate pension but was granted under the pension scheme a deferred pension payable as from 30 September 1990 and amounting to £5,165 per annum.
It is not disputed that a woman aged 52 in the same position as Mr. Barber would have been entitled to an immediate pension plus the statutory redundancy payment. It is also agreed that the value of such compensation would have been greater than the total payments received by Mr. Barber.”
“ (3) Is the principle of equal pay referred to in article 119 and the Equal Pay Directive infringed in the circumstances of the present case if (a) a man and a woman of the same age are made compulsorily redundant in the same circumstances and, in connection with that redundancy, the woman receives an immediate private pension but the man receives only a deferred private pension; or (b) the total value of the benefits received by the woman is greater than the total value of the benefits received by the man?”
317. In his opinion, Advocate General Van Gerven said (at page 387):
“Question 3(b)
45. I would remind the court that the Guardian's severance terms accord redundant employees who are not entitled to an immediate pension a higher terminal payment. The parties to the main proceedings are agreed, however, that the value of an immediate pension - the actuarial value as I understand it - is greater than the amount of the higher terminal payment. In question 3(b) the Court of Appeal wishes to ascertain whether discrimination contrary to Community law exists where the total value of the benefits received by a redundant female employee is greater than the total value of the benefits received by a male employee.
46. In so far as the question relates to the difference established in the total amount of benefits for men and women of the same age it can be answered in the same manner as in paragraph 44 above.
However, the question raises an additional problem, in so far as it suggests that, in the event of article 119 being applicable, the principle of equal pay contained therein is not infringed provided that the total value of the benefits is the same, even though it is made up of components which differ according to sex but are mutually compensating.
In my view the principle of equal pay implies equality at the level of each component of remuneration. If it were otherwise, the enforceability of that principle by the courts would be seriously jeopardized. The courts would then have to evaluate and compare the most diverse advantages which employers confer on their employees. That may call for a complex factual analysis which would not guarantee the equality of total pay as effectively as the equality of each component separately, which is easier to verify.
I therefore suggest supplementing the answer given to the previous question as follows: the principle of equal pay implies equality at the level of each component of remuneration.”
318. There was a footnote to the penultimate paragraph of the quoted text which stated:
“The approach of the British courts is the same. In Hayward v. Cammell Laird Shipbuilders Ltd. (No. 2) [1988] A.C. 894, the House of Lords considered that article 1 of Directive 75/117 cannot be understood as meaning that, where pay as a whole is the same for men and women, it is of no importance that some components of that pay discriminate in favour of women provided that this is compensated for by equally discriminatory pay components in favour of men.”
319. In its judgment at [31]-[35], the court ruled (so far as is now material):
“ The third and fifth questions
31 Secondly, the Court of Appeal wishes to ascertain, in substance, whether equal pay must be ensured at the level of each element of remuneration or only on the basis of a comprehensive assessment of the consideration paid to workers.
32 …
33. As regards the second of those questions, it is appropriate to refer to the judgments of 30 June 1988 in Commission v. France (Case 318/86) [1988] E.C.R. 3559 , 3582, para. 27, and of 17 October 1989 in Handels-og Kontorfunktionaerernes Forbund i Danmark v. Dansk Arbejdsgiverforening (Case 109/88) [1991] I.C.R. 75 , 80, para. 12, in which the court emphasised the fundamental importance of transparency and, in particular, of the possibility of a review by the national courts, in order to prevent and, if necessary, eliminate any discrimination based on sex.
34. With regard to the means of verifying compliance with the principle of equal pay, it must be stated that if the national courts were under an obligation to make an assessment and a comparison of all the various types of consideration granted, according to the circumstances, to men and women, judicial review would be difficult and the effectiveness of article 119 would be diminished as a result. It follows that genuine transparency, permitting an effective review, is assured only if the principle of equal pay applies to each of the elements of remuneration granted to men or women.
35. The answer to the third and fifth questions submitted by the Court of Appeal must therefore be that it is contrary to article 119 of the Treaty for a man made compulsorily redundant to be entitled to claim only a deferred pension payable at the normal pensionable age when a woman in the same position is entitled to an immediate retirement pension as a result of the application of an age condition that varies according to sex in the same way as is provided for by the national statutory pension scheme. The application of the principle of equal pay must be ensured in respect of each element of remuneration and not only on the basis of a comprehensive assessment of the consideration paid to workers.”
321. In his opinion, Advocate General Jacobs said at [30-[35]:
“30 I concur with the Finnish Government's view that it is not possible to lay down an unvarying rule that different elements of pay either should or should not be taken into account in making a pay comparison. However, whereas the Finnish Government submits that the rule will vary depending on factors arising out of the assessment of equal value, I consider that it is rather the nature of the pay structure at issue which will determine how equal pay is to be assessed.
31 Treating each element of remuneration independently for the purpose of an equal pay comparison will in general be the only proper way to ensure equality. It is moreover the only way to achieve transparency and ensure effective judicial review: as the court confirmed in Handels- og Kontorfunktionærernes Forbund i Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss (Case 109/88) [1991] ICR 74 , 79, para 12, and repeated in Barber [1990] ICR 616 , 671, para 34, a lack of transparency would prevent any form of supervision by the national courts. Thus as a general proposition I consider that, in accordance with the statement of the court in Barber , the principle of equal pay should apply to each of the elements of remuneration granted to men and women.
32 Where, however, for historical or other reasons the pay structures are complex, so that individual elements or the bases on which they are granted are difficult or impossible to disentangle, it may be both unrealistic and unprofitable to look at individual components of the pay package in isolation. Moreover, to do so may lead to discrimination against the other sex. In such cases a global assessment may be the only valid—or even feasible—method, pending a restructuring of the system. It is doubtless such circumstances which the court had in mind when it stated in Specialarbejderforbundet i Danmark v Dansk Industri, acting for Royal Copenhagen A/S (Case C-400/93) [1996] ICR 51 that some pay systems were so structured that only a “global assessment” could be made in considering whether there was a breach of article 119 : see p 69, para 18 and p 74, para 43.
33 That does not mean, however, that one element in the overall package can necessarily be set off against another. Thus in Barber itself, in which men who had been made redundant were entitled to an immediate pension if they had attained the age of 55 whereas women who had been made redundant were entitled to an immediate pension if they had attained the age of 50, it is understandable that the court regarded it as inappropriate to seek to offset discriminatory pension rights by taking into account possible differences in redundancy payments.
34 What then is the position here? It will be recalled (see paragraph 16 above) that a woman employee establishes a prima facie case of infringement of the principle of equal pay for work of equal value by showing, first, that she is part of a group of predominantly female employees performing work of equal value to that performed by a group of predominantly male employees and, secondly, that the first group receives lower remuneration than the comparator group. It is then, however, open to the employer to displace that presumption by showing that the difference in pay is based on objectively justified factors unrelated to any discrimination on grounds of sex.
35 In this case it is possible to separate the midwives' basic salary from the supplement and hence to compare the basic salary with that of the comparator. In my view, the correct approach to this and similar cases is to accept that the group receiving lower basic pay, in the present case the midwives, is paid less, so that the second question set out above, namely whether the pay of the two groups is unequal, is regarded as receiving an affirmative answer. I would add that that approach would in this and similar cases ensure greater transparency: the fact that the supplement varies from month to month depending on the time and the day the relevant shifts were worked would make it difficult to make a sensible comparison of, on the one hand, a midwife's aggregate salary and supplement and, on the other hand, the comparator's basic salary.
…
39 It is accordingly my view that, where the pay structure is such that it is in principle possible to extract and compare individual strands, that is what should be done, with the employer preserving the possibility of disproving that inequality on that basis is due to sex. Where however the pay structure is less penetrable, a global assessment will be all that is possible. It is for the national court to determine whether it is possible in a given case to make an item-for-item comparison or whether a global assessment is all that is feasible.”
“43 With regard to the method to be adopted, in making such a comparison, for verifying compliance with the principle of equal pay, the Court of Justice has already held that if the national courts were under an obligation to make an assessment and a comparison of all the various types of consideration granted, according to the circumstances, to men and women, judicial review would be difficult and the effectiveness of article 119 would be diminished as a result. It follows that genuine transparency, permitting effective review, is assured only if the principle of equal pay applies to each of the elements of remuneration granted to men or women: Barber [1990] ICR 616 , 671, para 34.
44 In this case, therefore, in order to ensure greater transparency and guarantee compliance with the requirement of effectiveness underlying Directive 75/117, the midwives' monthly basic salary should be compared with the like salary of clinical technicians.
45 The fact that the inconvenient hours supplement varies from month to month according to the part of the day during which the hours in question were worked makes it difficult to make a meaningful comparison between, on the one hand, a midwife's salary and supplementary allowance, taken together, and, on the other hand, the basic salary of the comparator group.”
323. I derive the following principles and/or guidance from these two decisions of the ECJ:
(1) it is not possible to lay down an unvarying rule that different elements of pay either should or should not be taken into account in making a pay comparison;
(2) the nature of the pay structure will determine how equal pay is to be assessed;
(3) the exercise which is carried out must be designed to produce equality;
(4) the exercise which is carried out must achieve transparency;
(5) the exercise which is carried out must ensure effective judicial review;
(6) in general, treating each element of remuneration independently for the purpose of an equal pay comparison will be the only proper way to produce equality, achieve transparency and ensure effective judicial review;
(7) there will be cases where the general rule will not apply; these cases include those where the pay structures are complex so that a separate comparison of the elements of remuneration is difficult or impossible or unrealistic or unprofitable;
(8) other cases where the general rule will not apply is where its application might lead to discrimination against the other sex.
326. The leading English case in this area is Hayward v Cammell Laird Shipbuilders Ltd (No 2) [1988] AC 894. In that case, Ms Hayward was employed at a shipyard canteen as a cook and was classified as unskilled for the purposes of pay. She claimed under section 1(2)(c) of the EPA 1970 that she was doing work of equal value to male comparators who were shipyard workers paid at the higher rate for skilled tradesmen in the yard. Following an evaluation by an independent expert under section 2A(1)(b) of the EPA 1970, an industrial tribunal held that the applicant's work was of equal value to that of the men. A question arose as to what modification ought to be made to her contract of employment. She contended that it was sufficient to compare her basic pay and overtime rates with that of the male comparators. The employer contended that there should be a comparison of the overall effect of all terms and conditions of her employment. The House of Lords held that section 1(2) of the EPA 1970 should be construed as referring to the specific term or terms of the contract of which complaint had been made notwithstanding that, when looked at as a whole, the complainant's contract may have been no less favourable than the comparators because she was entitled to other benefits to which they were not entitled. The expression "term" was to be given its natural meaning as a distinct provision or part of the contract which had sufficient content for it to be compared with a similar provision or part in other contracts; and that, accordingly, the applicant's contract contained a term as to her basic pay in respect of which she was entitled to relief under the section and the case would be remitted to the industrial tribunal for determination. It was also said that Article 1 of the Equal Pay Directive was to be construed as being consistent with the effect of section 1(2) of the EPA 1970 and that the case would have been decided similarly under European law.
327. In Hayward , at 901 B-D, Lord Mackay of Clashfern LC said:
“It appears to me that it would be natural to compare the appellant's basic salary as set out in her contract with the basic salary determined under the men's contract. I think it would be natural to treat the provision relating to basic pay as a term in each of the contracts.
However, one has to take account of the hours to be worked in order to earn this money and I think this consideration points to the importance of the provision in question being one which is capable of being compared from the point of view of the benefit it confers with a corresponding provision in another contract to see whether or not it is more beneficial than that provision. Accordingly, I am of opinion that the natural application of the word "term" to this contract is that it applies for example, to the basic pay, and that the appropriate comparison is with the hourly rate of basic pay.”
328. Lord Mackay also referred to Article 1 of the Equal Pay Directive and said at 903G:
“In my opinion the terms of article 1 are consistent with the appellant's submission. When elimination of all discrimination on grounds of sex is to be applied to all aspects and conditions of remuneration I consider this requires each of these aspects to be considered and discrimination existing in any aspect to be eliminated irrespective of the other aspects. It does not appear to me to be a natural reading of article l to say that if the remuneration as a whole provides the same result for a man and a woman it does not matter that some aspects of the remuneration discriminate in favour of the woman so long as there are corresponding discriminations in other aspects in favour of the man.”
“ … it imposes upon the word "term" a meaning which I myself do not regard as its natural or ordinary meaning. If a contract contains provisions relating to (1) basic pay, (2) benefits in kind such as the use of a car, (3) cash bonuses, and (4) sickness benefits, it would never occur to me to lump all these together as one "term" of the contract, simply because they can all together be considered as providing for the total "remuneration" for the services to be performed under the contract. In truth, these would include a number of different terms; and in my opinion it does unacceptable violence to the words of the statute to construe the word "term" in sub-paragraph (ii) as embracing collectively all these different terms.”
330. Lord Goff added at 908A-B:
“You look at the two contracts: you ask yourself the common sense question - is there in each contract a term of a similar kind, i.e. a term making a comparable provision for the same subject matter, if there is, then you compare the two, and if, on that comparison, the term of the woman's contract proves to be less favourable than the term of the man's contract, then the term in the woman's contract is to be treated as modified so as to make it not less favourable.”
332. The decision in Hayward has not been doubted in any later case. There are later cases which illustrate how that decision has been applied. These are Degnan v Redcar and Cleveland BC [2005] IRLR 179 (EAT) and [2005] IRLR 615 (CA), Brownbill v St Helens & Knowsley Hospitals NHS Trust [2010] ICR 1383 (EAT) and [2012] ICR 68 (CA) and McNeil v HMRC [2018] IRLR 398 (EAT).
333. The facts in Degnan were complex and called for an evaluation as to whether certain provisions should be considered separately or whether their effect should be aggregated to some extent. The claimants were women employed as a cleaner, a supervisory cleaner, a supervisory assistant in schools, and a home help in the local authority's social services department. They brought equal pay claims comparing their work to that of gardeners, refuse workers and drivers, and road workers. All the male comparators were employed on work rated as equivalent and received the same basic hourly rate as the applicants. However, gardeners also received a fixed bonus of 40%, refuse workers and drivers received a 36% bonus and an attendance allowance of between £33.81 and £34.88 per week, and road workers received a fixed bonus of 33% and an attendance allowance of between £13.91 and £14.61 per week. The employment tribunal held that the terms relating to basic pay and to the bonus payments related to the same subject matter, but that the terms of the attendance allowance were separate. As a result, each of the claimants was entitled to compare herself with the relevant male worker most advantageous to her for the purpose of the bonus element of his pay, and with the most advantageous comparator for the purpose of the attendance allowance. Thus, one particular claimant was entitled to the gardeners' term as to bonus, which resulted in a 40% increase, and she was also entitled to the refuse workers' attendance allowance, at the rate of £33.81 per week. As a result, she would receive more total remuneration than any of the male comparators. The decision as to as to bonus payments was not challenged on appeal to the EAT but the decision on attendance allowances was challenged. The EAT held that that the employment tribunal was wrong to hold that the provision as to attendance allowances related to a different subject matter. Instead the correct view was that the provision as to attendance allowances formed part of the same subject matter as the hourly rate and the bonus. The EAT defined the relevant term of the contract, for the purpose of an equal pay comparison, as the monetary payment an employee receives for the performance of the contract during normal working hours. All monetary payments received by male comparators for normal working hours should be aggregated and divided by the number of hours in the working week, to give an hourly rate. That hourly rate should be compared with the woman's hourly rate; if it was greater, the woman's hourly rate should be increased to eliminate the difference. On that basis, the attendance allowance related to the same subject matter as basic hourly pay and a fixed bonus and was “an element of a distinct part of the contract and not itself a distinct part”. It was part of the monetary payment for performance of the contract, by attending at work and working during normal working hours. The Court of Appeal agreed with the EAT. In his judgement, Maurice Kay LJ (with whom the two the other members of the court agreed) said that section 1 of the EPA 1970 and Hayward required classification in relation to the provisions of the contract and that the EAT’s classification was realistic based on careful analysis. He also said that the decision would have the desirable result of equalisation rather than the upward movement of the women’s rate of monetary pay to a level higher than that of any single male comparator.
334. Degnan was distinguished in the later case of Brownbill where it was explained by Maurice Kay LJ (at [20]) as a case where the men’s terms “had features of artificiality and historical anomaly which tended to disguise the reality”. Brownbill involved a straightforward application of the decision in Hayward . Health service employees of the appellant trust who were employed on shift work received enhanced payments when they worked nights, weekends and bank holidays as part of their normal contracted hours. The enhanced payments for those working in jobs occupied predominantly by women, who included the claimants, were at a lower rate than those working in jobs predominantly occupied by men. The claimants brought claims under section 1(2)(b) and (c) of the Equal Pay Act 1970 , contending that they were engaged on work rated as equivalent or of equal value to that of comparable male employees and, while they received more in basic pay than the comparators, the term in their contracts relating to unsocial hours was less favourable than the corresponding term in the comparators' contracts. The Court of Appeal upheld the decision of the EAT holding that that the focus under section 1(2) of the Equal Pay Act 1970 was on equality of terms, not equality of total pay received. Once the employment judge had found that there were terms in the claimants' contracts and in the comparators' contracts relating to enhanced payments for unsocial hours that were distinct provisions with sufficient content to make it possible to compare the benefits conferred by each provision, he ought to have proceeded to make a comparison between them to determine whether the term in the claimants' contracts was less favourable than the term in the comparators' contracts and the claims were remitted to the employment tribunal for determination. The Court of Appeal held that the decision in Hayward was to the same effect as the decisions of the ECJ, including Barber and Jämställdhetsombudsmannen v Örebro Läns Landsting . The Court of Appeal referred to the concern over mutual enhancement or leap frogging which had been discussed in Hayward and noted that there had not been any move to amend the legislation in that respect.
335. I was also referred to M cNeil v HMRC [2018] IRLR 398 for the statements by Simler J, the President of the EAT, at [53]-[54] where she said:
“ 53 As already indicated, the term relied on by the claimants is that which entitles them and their comparators to basic pay. There is no definition of the word 'term' in the EA 2010 . In Hayward v Cammell Laird Shipbuilders Ltd [1988] IRLR 257 (which concerned different terms relating to both basic pay and the calculation of overtime), Lord Mackay of Clashfern LC addressed the meaning of 'term' in the context of the predecessor section in the Equal Pay Act 1970, at 900G as follows:
'I am of the opinion that the natural meaning of the word “term” in this context is a distinct provision or part of the contract which has sufficient content to make it possible to compare it from the point of view of the benefits it confers with similar provision or part in another contract.'
As Lord Goff in the same case made clear, where the contract makes discrete provision for basic pay, bonus, and other benefits, those discrete provisions cannot be lumped together as one term of the contract merely because they provide for total remuneration. The emphasis must be on the reality of the contractual provisions in the circumstances of the particular case, and it will be a question of fact in each case whether a discrete term exists for these purposes. It is not permissible to seek to off-set one more favourable term against another less favourable one. A term by term analysis is required, as illustrated by Brownbill v St Helens and Knowsley Hospitals NHS Trust [2011] EWCA Civ 903 , [2011] IRLR 815 (CA).
54 I agree with (counsel for the employer) that s 66 EA 2010 dictates that just as an employer cannot lump together or engage in an overall comparison of different terms, a claimant in an equal pay claim cannot subdivide a single term into two or more parts in order to complain about one part only. A term by term analysis is required in equal pay cases. There is no distinct provision or part of the claimants' contracts providing for 'variable pay' above the minimum point in each relevant grade and none is relied on by (counsel for the employee). The reality of the contractual pay provisions in this case is that they are indivisible into sub-terms and to the extent that average pay is considered, average total pay is the only relevant consideration.”
336. I derive the following principles and/or guidance from these authorities:
(1) the position in English law is the same as the position in European law;
(2) the court must adopt a term by term approach when carrying out a comparison in an equal pay case;
(3) the terms to be compared should be identified on what it is natural to compare for the statutory purpose of an equal pay comparison;
(4) the choice as to what is to be compared is a common sense question;
(5) it may be necessary to carry out a careful analysis of the relevant provisions to assist in answering the question as to what is to be compared;
(6) the classification of the relevant provisions should be realistic;
(7) it may sometimes be appropriate to ask whether a provision is an element of a distinct part of the contract rather than itself being a distinct part;
(8) just as it is wrong to lump together or engage in an overall comparison of different terms, it is also wrong to subdivide a single term into two or more parts in order to complain about one part only.
339. Applying the principles of European law and domestic law, I consider that:
(1) methods other than method A3 produce equality of treatment;
(2) methods other than method A3 achieve transparency and ensure effective judicial review;
(3) the benefits structure of the Schemes is undeniably complex;
(4) the matters which are put forward by the RBs as distinct terms or distinct benefits are, in truth, calculation factors which take effect in combination, and not always in a predictable way, to produce the overall result which is an unequal result;
(5) it is unrealistic and unprofitable to compare the individual calculation factors rather than to compare the overall result;
(6) ultimately, one has to decide on what side of the line to place the individual calculation factors; does one say they are separate terms or does one say that they are only the means of calculating the overall benefit, which is the relevant term in the present context;
(7) as a matter of evaluation, having regard to the complexity of the structure of the Schemes and having regard to the purpose of carrying out this evaluation, the relevant term is the overall benefit and not the individual calculation factors;
(8) the result is that method A3 is not the only available method which produces equality of treatment.
The principle of minimum interference
340. The Banks submitted that if it were the case that there was more than one method which produced equality of benefits then the Trustee was obliged to choose the method which produced minimum interference with the rights of any party. When applying that principle, the Banks submitted that as they funded the provision of benefits under the Schemes, the choice of a method which was more expensive than an alternative available method would infringe the principle of minimum interference.
346. I was referred to three cases which were said to establish a principle of minimum interference.
347. In Bestrustees v Stuart [2001] Pens LR 283, there was a reference at [57] to minimum interference by the courts, although there is room for argument as to precisely what point was being made. In the event, the reference to minimum interference in Bestrustees v Stuart was considered to be helpful in Foster Wheeler Ltd v Hanley [2010] ICR 374, where the question of minimum interference was considered in detail.
“33 In my judgment, the approach in Bestrustees v Stuart [2001] Pen LR 283 represents in general the principled approach for reasons which Neuberger J gives, and provides the guiding principles in this situation. Accordingly, the court should, where possible, give effect to Barber rights by adhering to the provisions of the relevant scheme where it is possible to do so in preference to some other approach. If some departure is required, it should in general, so far as practicable, represent the minimum interference with the scheme provisions. This approach is not limited to the situation where members have been led to believe that a provision will be used in a certain way or a stated aim of a provision has been only imperfectly achieved (as in Bestrustees v Stuart itself). As the judge in this case recognised, it is a principle of more general application.
34 However, in determining what “minimum interference” is, regard must in my judgment be had to substance as well as form. Accordingly the court should consider not just the extent of any textual amendment required to the rules of the scheme to enable effect to be given to Barber rights, but also the substantive effect of the amendment so adopted. In this case, the implementation of the rights of members with mixed NRDs on the judge's approach involved taking away the company's right to give or withhold its consent to early retirement, or to give its consent on terms. Likewise his solution ended up giving those entitled to Barber rights far more than they were entitled to under European law: they acquired the right to non-reduced benefits on early retirement in respect of pension entitlement accrued outside the Barber window. Those factors cannot be ignored. The only effect of European law on benefits is to impose a NRD of 60 for pension entitlements accrued during the Barber window. The scheme should in general only be treated as amended to the extent necessary to make those rights effective. This principle of minimum interference with the scheme's provisions should be applied on the basis that minimum interference takes account of the substance and not simply the form of any notional amendment to the rules.
35 It follows from the approach of minimum interference that the court has to compare possible options and consider in relation to any particular option whether the Barber rights can be given effect in some other way involving less interference with the rights of any party, again determining the substance and not just the form of the interference. Whether a particular solution is appropriate in any given case will depend on the circumstances of the pension scheme in question.”
“Domestic legislation has been introduced to cover the point, but it does not circumscribe any more narrowly the range of choice open to the employer and the trustees in making the necessary modifications. Accordingly it is fair to regard the employer and the trustees as having a reasonable margin of discretion in this respect.”
351. Lloyd LJ then added at [54]:
“How the imbalance is to be redressed, or is to be regarded as having been redressed, in any given case may depend on the particular rules of the scheme. However, in principle, it seems to me that Neuberger J's approach in Bestrustees v Stuart [2001] Pen LR 283 that “minimum interference by the courts is desirable” is undoubtedly correct (see the passage quoted by Arden LJ, at para 30 above), and minimum effect, here, refers to the extent of the substantive effect rather than to the extent of the drafting exercise. The corrective effect of article 141 EC, as applied in the Barber and Coloroll cases, is to ensure equality of benefits as between male and female employees and scheme members, to the extent required by the two cases, but not anything more than that. Minimum change might require extensive amendments to the drafting of the rules, whereas fewer textual changes might result in a greater substantive alteration. I agree with Arden LJ that the minimum alteration required should start with the modifications made already by way of equalisation for the future, in 1993, and should proceed from there but making no greater additional alteration to the scheme than is necessary to achieve full conformity with Community law as declared in article 141 EC, the Barber and Coloroll cases.”
“In principle the necessary modifications ought to be agreed between the trustees and the employer and given effect by an amendment under the power in the trust deed, though clearly section 65 of the Pensions Act 1995 gives the trustees a reserve power to act on their own if the agreement of the employer cannot be obtained. If problems arise that cannot be resolved otherwise, then clearly the trustees, the employer or one or more beneficiaries can apply to the court, as in the present case. I hope that this will be necessary only in rare cases.”
353. The third member of the court (David Richards J) agreed with the reasons in both judgments.
355. The principle of minimum interference was referred to again in Safeway Ltd v Newton [2018] Pens LR 2. In that case, the trustee had a power of amendment permitting amendments to be made retrospectively to the date of any prior announcement of the intended amendment. Following the decision in Barber , the trustee had made an announcement in 1991 that it would level down benefits by adopting a normal retirement date of 65 for all members with effect from 1 December 1991. That announcement was acted upon save that the trustee did not immediately thereafter take the formal steps needed to alter the rules of the scheme to give effect to the announcement. The judge held that the rules required any amendment to be by deed so that the announcement in 1991 did not itself make an effective amendment to the rules. The trustee eventually amended the rules by deed on 2 May 1996. The deed purported to amend the rules by levelling down the normal retirement date from the date stated in the announcement, 1 December 1991. The judge at first instance held that the power could not be exercised to level down benefits retrospectively. The Court of Appeal upheld the judge’s decision that the 1991 announcement did not itself effect an amendment to the rules and it referred to the ECJ the question whether it was consistent with the case law of the ECJ, in particular Smith v Avdel Systems Ltd (Case C-408/92) [1995] ICR 596, for a retrospective power of amendment to be used to amend the rules to provide for retrospective levelling down.
“Fourthly, the objective of art.119 during the period when the Barber window is open is concerned with levelling up the rights of the disadvantaged class to those enjoyed by the advantaged class, but not with giving either the advantaged class more generous rights than they previously enjoyed, still less giving the disadvantaged class more generous rights than previously enjoyed by the advantaged class. This is, Mr Green submits (and we agree), the effect of the second and third principles described above. It also reflects what may be described as a principle of minimum interference with domestic rights, where a directly applicable EU right is to be applied, as explained by Arden LJ in Foster Wheeler v Hanley [2009] EWCA Civ 651 , at [33]:
“Accordingly, the court should, where possible, give effect to Barber rights by adhering to the provisions of the relevant scheme where it is possible to do so in preference to some other approach. If some departure is required, it should in general, so far as practicable, represent the minimum interference with the scheme provisions.” ”
The operation of sections 24A to 24H of PSA 1993
“ 2 4A Conversion of guaranteed minimum pension into other benefits: introduction
In this section and sections 24B to 24H–
(a) the rules specified in sections 13(1)(a) and (b) and 17(1) are referred to as the “guaranteed minimum pension rules” ,
(b) “GMP conversion” means amendment of the scheme in relation to an earner so that it no longer contains the guaranteed minimum pension rules,
(c) a “ GMP-converted scheme ” is a scheme which has been subject to GMP conversion,
(d) “the conversion date” means the date on which that amendment takes effect,
(e) “the pre-conversion benefits” means the benefits provided under the scheme immediately before the conversion date (disregarding money purchase benefits),
(f) “the post-conversion benefits” means the benefits which are provided under the converted scheme (disregarding money purchase benefits),
(g) “the converted scheme” means the scheme as it has effect immediately after conversion, and
(h) “the trustees” in relation to a scheme means the trustees, managers or other persons responsible under the scheme for effecting amendments of it.
24B The conversion conditions
(1) This section specifies the conditions referred to in sections 13(1A) and 17(1A) (for exemption from the requirement to guarantee a minimum pension).
(2) Condition 1 is that the post-conversion benefits must be actuarially at least equivalent to the pre-conversion benefits.
(3) Condition 2 is that if the earner was entitled immediately before the conversion date to the payment of a pension under the scheme, the converted scheme does not provide for a reduction of, or have the effect of reducing, the amount of that pension immediately after conversion.
(4) Condition 3 is that the post-conversion benefits must not include money purchase benefits, apart from any money purchase benefits provided under the scheme immediately before the conversion date.
(5) Condition 4 is that the converted scheme provides survivors' benefits in accordance with section 24D in such circumstances, and during such periods, as are prescribed by regulations.
(6) Condition 5 is that the procedural requirements of section 24E have been complied with.
(7) In applying these conditions to a scheme in respect of an earner–
(a) it is immaterial whether or not on the conversion date the scheme was also converted in respect of other earners, and
(b) it is immaterial (except for Condition 2) whether or not on the conversion date the earner was entitled to the payment of a pension under the scheme.
24C Actuarial equivalence
Regulations may make provision for determining actuarial equivalence for the purpose of Condition 1 of section 24B.
24D Survivors' benefits
(1) This section specifies the benefits mentioned in Condition 4 of section 24B.
(2) The first benefit is that if the earner dies is a man married to a woman or a woman married to a woman in a relevant gender change case, and the earner dies (whether before or after attaining normal pension age) leaving a widow, she is entitled to a pension of at least half the value of the pension to which the earner would have been entitled by reference to employment during the period–
(a) beginning with 6th April 1978, and
(b) ending with 5th April 1997.
(3) The second benefit is that if the earner is a married woman (other than in a relevant gender change case), a man married to a man, or a civil partner, and the earner dies (whether before or after attaining normal pension age) leaving a widower or surviving civil partner, he or she is entitled to a pension of at least half the value of the pension to which the earner would have been entitled by reference to employment during the period–
(a) beginning with 6th April 1988, and
(b) ending with 5th April 1997.
(4) In relation to an earner who is a woman, a reference in this section to a relevant gender change case is a reference to a case where-
(a) the earner is a woman by virtue of a full gender recognition certificate having been issued under the Gender Recognition Act 2004, and
(b) the marriage of the earner and her widow (that ends with the earner’s death) subsisted before the time when the certificate was issued.
(5) This section is subject to regulations under section 38A.
24E Procedural requirements
(1) This section specifies the procedural requirements that must be complied with in order to satisfy Condition 5 of section 24B.
(2) The employer in relation to the scheme must consent to the GMP conversion in advance.
(3) The trustees must take all reasonable steps to–
(a) consult the earner in advance, and
(b) notify all members, and survivors, affected by the GMP conversion before, or as soon as is reasonably practicable after, the conversion date.
(4) The Commissioners for Her Majesty's Revenue and Customs must be notified on or before the conversion date–
(a) that the GMP conversion will occur or has occurred, and
(b) that it affects the earner.
24F Transfer out
(1) Regulations may prescribe–
(a) restrictions on the transfer of the earner's accrued rights under a GMP-converted scheme;
(b) conditions which must be complied with on the transfer of the earner's accrued rights under a GMP-converted scheme.
(2) Section 20(2) and (5) shall apply to regulations under this section.
(3) Where a member of a non-GMP-converted scheme makes an application under section 95(1), the trustees may with his consent adjust any cash equivalent so as to reflect rights that would have accrued if the scheme had been subject to GMP conversion in accordance with Conditions 1 to 4 of section 24B.
24G Powers to amend schemes
(1) The trustees of an occupational pension scheme may by resolution modify it so as to effect GMP conversion (whether in relation to present earners, pensioners or survivors) in accordance with the conditions in section 24B.
(2) The subsisting rights provisions within the meaning of section 67 of the Pensions Act 1995 (c. 26) shall not apply to a power conferred by an occupational pension scheme to modify the scheme in so far as the power enables GMP conversion in accordance with the conditions in section 24B.
(3) Where a scheme is amended to effect GMP conversion the trustees may include other amendments which they think are necessary or desirable as a consequence of, or to facilitate, the GMP conversion.
(4) Where an occupational pension scheme is being wound up, the trustees may, before the winding up is completed, adjust rights under the scheme so as to reflect what would have happened if the scheme had been subject to GMP conversion in accordance with Conditions 1 to 4 of section 24B.
(5) In the application of section 24E by virtue of subsection (1) above, a reference to the earner includes a reference to a pensioner or survivor whose pension is subjected to GMP conversion.
24H Enforcement of GMP conversion conditions
(1) If the Regulatory Authority thinks that the conditions of section 24B have not been satisfied in relation to an amendment, modification or adjustment effected in accordance with any of sections 13(1A), 17(1A), 24F and 24G, the Regulatory Authority may make an order declaring the amendment, modification or adjustment void–
(a) in respect of a specified person or class of person,
(b) to a specified extent, and
(c) as from a specified time.
(2) Where the Regulatory Authority makes an order under subsection (1) it may–
(a) require the trustees of the scheme concerned to take specified steps;
(b) declare that specified action of the trustees shall not be treated as a contravention of the scheme if it would not have been a contravention if the order under subsection (1) had not been made.
(3) An order may be made under subsection (1) before or after the amendment, modification or adjustment takes effect.
(4) If the Regulatory Authority thinks that the process of effecting a GMP conversion of a scheme has been commenced and that a relevant condition of section 24B is not being complied with, or may not be complied with, the Regulatory Authority may by order–
(a) prohibit the taking of further steps in the GMP conversion (whether generally or in relation to specified steps), and
(b) require the trustees of the scheme to take specified steps before resuming the process of GMP conversion.
(5) Section 10 of the Pensions Act 1995 (civil penalties) shall apply to a trustee who has failed to take all reasonable steps to secure compliance with the conditions of section 24B in relation to an amendment, modification or adjustment effected in accordance with any of sections 13(1A), 17(1A), 24F and 24G.”
(1) the fact that “guaranteed minimum pension rules” was defined in section 24A(1)(a) to refer to the rules in sections 13 and 17 and section 17 dealt with survivors;
(2) the argument that “in relation to” an earner (in section 24A(1)(b)) could be read so as to include the rights of a survivor which would be “in relation to” an earner;
(3) references to Hansard where there was a discussion of the amendment of section 17 (by introducing section 17(1A)).
(1) the relevant provisions contain many references to the position of survivors;
(2) the reference in section 24B(1)(b) “in relation to an earner” does not restrict the power so as to exclude persons who are survivors at the time of conversion because section 24B(1)(b) refers to the scheme following conversion no longer containing “the guaranteed minimum person rules” and this phrase is defined to include the rules specified in section 17, dealing with survivors;
(3) a survivor’s pension is “in relation to an earner”; there is no independent entitlement to a survivor’s pension and see also section 8(2) which explains the relationship between the survivor’s pension and the position of an earner;
(4) section 24B(1)(b) is in a definition section, whereas the power to amend is conferred by section 24G which makes it clear that the power applies to enable conversion in relation to “present earners, pensioners or survivors”;
(5) section 24E(3) read together with section 24G(5) requires consultation with survivors before conversion;
(6) the purpose of the provisions would be advanced by the Crown’s interpretation but not by the rival interpretation;
(7) the fact that condition 2 in section 24B does not provide a safeguard for survivors will not necessarily create a practical problem but even if it did that would not justify reading the statutory provisions in such a way that made it impossible to convert a pension of a person who is a survivor at the time of conversion;
(8) Ms Stout also relied on a statement in Hansard as to the amendment which was made to section 17 of the PSA 1993.
(1) the GMP rules apply to both earners and survivors;
(2) it would have been well understood at the time these provisions were enacted that there would be many schemes where the beneficiaries included a number of present survivors;
(3) there is no obvious reason why Parliament would have wished to permit GMP conversion for earners but not for persons who were survivors at the time of conversion; indeed, the opposite is likely to be that case, in that Parliament would have wished to have GMP conversion for all persons receiving pensions under the scheme;
(4) the power to convert is conferred by section 24G in terms which readily appear to permit conversion in relation to persons who are survivors at the time of the conversion;
(5) the interpretation put forward by the Crown advances the apparent purpose of the provisions and the rival interpretation does not;
(6) although there may be questions arising as to the operation of the provisions in relation to persons who are survivors at the time of conversion, there is no question which, if answered in a particular way, would make it impossible to have conversion in relation to persons who are survivors at the time of conversion;
(7) any difficulties in interpreting section 24B(7) would not seem to be sufficient to justify reading the provisions so that they do not apply to persons who are survivors at the time of conversion;
(8) the fact that Condition 2 appears only to apply to the pensions of earners is not a sufficient reason to read the provisions so that they do not apply to persons who are survivors at the time of conversion.
The methods appraised in the light of the above
374. I must now appraise methods A to D in the light of the rulings I have given above.
PART VII: ISSUE 11
Issue 11(a) and (b)
(1) Is the Claimant as trustee obliged to make back-payments to the member?
(2) If so, should back payments be made (i) going back 6 years (and if so, 6 years before what date), (ii) going back to 17 May 1990, or (iii) going back to some other date?
(3) Should interest be added to the back-payments, and if so at what rate?
(4) Should the calculation of cumulative benefits under Method C and Method D take into account only those back payments as allowed for under (b)-(c) above?”
400. For convenience, I will refer to these rules as follows:
(1) “Rule 1” is rule 62.9 of the Lloyds Bank Pension Scheme No. 2 Rules dated 21 December 1995;
(2) “Rule 2” is rule 9.5 of Part III (Capital Bank Section Specific Rules) of the Rules of the legacy Bank of Scotland 1976 Pension Scheme;
(3) “Rule 3” is rule 24.1 of Part IV (Bank of Wales Section Specific Rules) of the Rules of the legacy Bank of Scotland 1976 Pension Scheme;
(4) “Rule 4” is rule 16.3 of the HBOS FSPS;
(5) “Rule 5” is rule 8.2 of the Lloyds Bank No 1 scheme.
“62.9 Failure to claim benefit
No beneficiary shall be entitled to claim any instalment of pension or other benefit to which he is entitled under the Scheme more than 6 years after that instalment has fallen due for payment.”
“9.5 Forfeiture of unclaimed benefits
Any sum which may have become due to a Member or other person entitled to benefit under the Rules shall be forfeited if it has not been claimed during a period of at least six years from the date upon which that sum became due, but, if the sum formed one payment of a pension or annuity the right to such pension or annuity shall not thereby be extinguished.”
“24 Unclaimed benefits
24.1 If any pension or benefit or any instalment remains unpaid to and unclaimed by the person to whom it is payable for a period of six years from the date it became payable, then the entitlement to it shall be extinguished and it shall be retained by the Trustees in the Fund.
24.2 Any unclaimed AVC Interest shall be held by the Trustees on trust for the AVC Member or his estate as the case may be.”
[An AVC was an Additional Voluntary Contribution paid by a Member under Rules 19 or 20 of these Rules. An AVC Interest was the interest in the Fund which a Member had in respect of his AVCs.]
“16.3 Benefits not assignable
Benefits under the Scheme are subject to restrictions imposed by Sections 91 to 93 of the Pensions Act 1995 (assignment and forfeiture, etc). These restrictions are intended generally to ensure that benefits are paid only to the person entitled under these Rules, rather than to any other person. The restrictions prevent benefits from being assigned, commuted, surrendered, charged, or forfeited, except in specified circumstances.
However, there are exceptions to the restrictions imposed by Section 91 to 93. To the extent permitted by those exceptions:
…
16.3.4 the Trustees will forfeit any benefit if the person entitled to the benefit does not claim it within six-years of the date on which it becomes due.”
“8.2 Assignment, forfeiture, etc
Benefits under the Scheme are subject to restrictions imposed by Sections 91 to 93 of the Pensions Act 1995 (assignment and forfeiture, etc). These restrictions are intended generally to ensure that benefits are paid only to the person entitled under these Rules, rather than to any other person. The restrictions prevent benefits from being assigned, commuted, surrendered, charged, or forfeited, except in specified circumstances.
However, there are exceptions to the restrictions imposed by Sections 91 to 93. To the extent permitted by those exceptions:
…
8.2.5 the Trustee may also reduce a person’s benefits, or decide that a person’s benefits will be forfeited, in any other circumstances allowed by sections 91 and 92 of the Pensions Act 1995.
However, General Rules 8.2.1 and 8.2.4 do not apply to GMPs, and this General Rule 8.2 does not apply to any lump sum or instalment of pension that falls due for payment before the benefit otherwise ceases to be payable.”
414. Section 92 of the Pensions Act 1995 provides, so far as relevant:
“92.- Forfeiture, etc.
(1) Subject to the provisions of this section and section 93 , an entitlement to a pension under an occupational pension scheme or a right to a future pension under such a scheme cannot be forfeited.
…
(5) Subsection (1) does not prevent forfeiture by reference to a failure by any person to make a claim for pension—
(a) where the forfeiture is in reliance on any enactment relating to the limitation of actions, or
(b) where the claim is not made within six years of the date on which the pension becomes due.
…
(7) In this section and section 93, references to forfeiture include any manner of deprivation or suspension.”
426. Limitation Act 1980 section 21 provides so far as material:
“21.- Time limit for actions in respect of trust property.
(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action —
(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee , or previously received by the trustee and converted to his use.
…
(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six-years from the date on which the right of action accrued.
For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.
… ” (emphasis added)
(1) a member who has been underpaid does not have a proprietary claim to any specific asset in the possession of the trustee and a claim for arrears of underpayments is not a claim to recover trust property;
(2) if a scheme is in deficit, as many often are, then the trustee may not have any assets with which to meet the claim for arrears of payment (other than the trustee’s ability to call upon the employer to fund the obligation).
429. Section 21 of the 1980 Act contains “much-litigated provisions”: see First Subsea Ltd v Balltec Ltd [2018] Ch 25 at [1]. However, neither side was able to show me a case which was directly in point on the present issue.
430. The background to section 21 of the 1980 Act and the legislative history of the provision, involving section 8 of the Trustee Act 1888 and section 19 of the Limitation Act 1939, were explained in Williams v Central Bank of Nigeria [2014] AC 1189 at [12]-[14], [20]-[22] and [24]-[25]. Before the Trustee Act 1888, a trustee did not have a limitation defence to a claim by a beneficiary for breach of trust. The possession of trust assets by the trustee was considered to be the possession of the beneficiary. If a trustee was in possession of trust assets and did not execute the terms of the trust in relation to those assets, he had no defence based on limitation to a claim by the beneficiary requiring him to perform his trust: see Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 at 633-634. Although in some cases a trustee could defend a claim by a beneficiary for breach of trust by relying on the equitable doctrine of laches, no such defence was available where the trustee remained in possession of the trust fund and was called upon by a beneficiary to perform the trust in relation to that fund: see Mills v Drewitt (1855) 20 Beavan 632.
431. The legal position of a trustee was altered by section 8 of the Trustee Act 1888 which provided the trustee with a limitation defence in relation to some claims. That position was largely re-enacted in section 19 of the Limitation Act 1939 and then in section 21 of the 1980 Act with some changes of language. Under these provisions, a trustee can in some circumstances plead a defence of limitation to a claim by a beneficiary for a breach of trust. However, a defence of limitation is not available in relation to all claims by a beneficiary against a trustee. One case where such a defence is not available is where the trustee was a party or a privy to a fraud. Another case is where the trustee had converted trust property to his use. Mr Rowley cited Thorne v Heard [1894] 1 Ch 599 and [1895] AC 495 and Re Timmis, Nixon v Smith [1902] 1 Ch 176 which discuss cases like these. At times, the submission seemed to be that because the trustees in the present case were not guilty of any fraud and had not converted trust property to their use, section 21(1)(b) did not apply. But that submission ignores the language of section 21(1)(b) which includes the simple case where a beneficiary seeks to recover from the trustee property in the possession of the trustee. The reason why there is no limitation period in relation to such a case is that the trustee is in possession of the trust property on behalf of the beneficiaries: see First Subsea Ltd v Balltec Ltd [2018] Ch 25 at [57].
432. The authorities on section 8 of the Trustee Act 1888 make it clear that the time for determining whether there is trust property in the possession of the trust is at the date of the claim: see Thorne v Heard [1894] 1 Ch 599 at 606.
433. Section 21 of the 1980 Act applies to certain causes of action only. The cause of action which is said to be relevant in this case is an action “to recover from the trustee trust property … in the possession of the trustee”. In How v Earl Winterton [1896] 2 Ch 626, the claimant complained that a trustee had underpaid her the amount of an annuity under a will trust and she claimed an account. At 632, Kekewich J said that the claim was an action “to recover trust property”. In Burnden Holdings (UK) Ltd v Fielding [2017] 1 WLR 39 (Court of Appeal) and [2018] 2 WLR 885 (Supreme Court), the claim was by a company against a director for breach of fiduciary duty in converting the property of the company to the use of the director. It was explained that, for the purposes of section 21 of the 1980 Act, the position was to be analysed as if the director was a trustee holding trust property for the benefit of the company. The company claimed equitable compensation for the breach of fiduciary duty. In the Court of Appeal, at [38], David Richards LJ (with whom the other members of the court agreed) held that the claim to equitable compensation was a claim to recover trust property. That conclusion was not challenged in the Supreme Court: see per Lord Briggs at [13].
439. In relation to the principle of equivalence, the parties cited to me certain authorities which included the decision of the Court of Justice in Levez v T H Jennings Ltd (Harlow Pools) Ltd (C-326/96) [1999] ICR 521, the subsequent decision of the EAT in that case, [2000] ICR 58, and the decisions of the Court of Appeal and the Supreme Court in Totel Ltd v Revenue and Customs Commissioners [2017] 1 WLR 2313 and [2018] 1 WLR 4053.
440. The Court of Justice in Levez is authority for the following propositions:
(1) it is for the domestic legal system of each member state to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law;
(2) it is compatible with Community law for national rules to prescribe, in the interests of legal certainty, reasonable limitation periods for bringing proceedings; normally, reasonable limitation periods do not infringe the principle of effectiveness as it cannot be said that this makes the exercise of rights conferred by Community law either virtually impossible or excessively difficult, even though the expiry of such limitation periods entails by definition the rejection, wholly or in part, of the action brought;
(3) the rules laid down by the domestic legal system must not be less favourable than those governing similar domestic actions (the principle of equivalence);
(4) it is for the national courts to ascertain whether the procedural rules intended to ensure that the rights derived by individuals from Community law are safeguarded under national law comply with the principle of equivalence;
(5) the Court of Justice can provide the national court with guidance as to the interpretation of Community law, which may be of use to it in undertaking such an assessment;
(6) the principle of equivalence requires that the rule at issue be applied without distinction, whether the infringement alleged is of Community law or national law, where the purpose and cause of action are similar;
(7) the principle is not to be interpreted as requiring member states to extend their most favourable rules to all actions brought in the relevant area of law;
(8) in order to determine whether the principle of equivalence has been complied with in a particular case, the national court must consider both the purpose and the essential characteristics of allegedly similar domestic actions;
(9) whenever it falls to be determined whether a procedural rule of national law is less favourable than those governing similar domestic actions, the national court must take into account the role played by that provision in the procedure as a whole, as well as the operation and any special features of that procedure before the different national courts.
(1) the question whether any proposed domestic claim was a true comparator with an EU law claim was context-specific (at [9]);
(2) the court must focus on the purpose and essential characteristics of allegedly similar claims (at [10]);
(3) it was wrong to address the question of similarity at too high a level of generality (at [12] and [28]).
“45 First, the Proviso should not be regarded as some free-standing rule, separate from the principle of equivalence. Rather it is part of the Court of Justice's expression of the principle of equivalence itself, directed to explaining the standard of treatment which that principle imposes upon member states when providing procedures for the vindication of rights based in EU law. What is required is that the procedure should be broadly as favourable as that available for truly comparable domestic claims, rather than the very best available.
46 Secondly, the Proviso is, like the principle of equivalence of which it forms part, best understood in the light of its purpose.”
Issue 11(c) and the rate of interest
456. As to the approach which a court would adopt to the award of interest, I was shown a number of authorities dealing with the approach of the court in a commercial case. I was referred in particular to Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch) and to Challinor v Bellis [2013] EWHC 620 (Ch) where a number of earlier cases were discussed. However, the present case is not a commercial case. These two cases were cited to the Court of Appeal in Carrasco v Johnson [2018] EWCA Civ 87. That was a case of a personal loan and was treated as not being a commercial case. Although this case was not cited to me, it contains a useful summary of the relevant principles. At [17] and [27], Hamblen LJ said:
“17 The guidance to be derived from these cases includes the following:
(1) Interest is awarded to compensate claimants for being kept out of money which ought to have been paid to them rather than as compensation for damage done or to deprive defendants of profit they may have made from the use of the money.
(2) This is a question to be approached broadly. The court will consider the position of persons with the claimants' general attributes, but will not have regard to claimants' particular attributes or any special position in which they may have been.
(3) In relation to commercial claimants the general presumption will be that they would have borrowed less and so the court will have regard to the rate at which persons with the general attributes of the claimant could have borrowed. This is likely to be a percentage over base rate and may be higher for small businesses than for first class borrowers.
(4) In relation to personal injury claimants the general presumption will be that the appropriate rate of interest is the investment rate.
(5) Many claimants will not fall clearly into a category of those who would have borrowed or those who would have put money on deposit and a fair rate for them may often fall somewhere between those two rates.
…
27 The Appellant's arguments in this case highlight the importance of the principle that the court does not inquire into the detailed financial position of the claimant, but looks only at general or class attributes. To examine properly, for example, the claimant's financial position throughout the relevant period; the borrowing carried out by her, when and on what terms; whether and how she needed so to borrow; the uses to which she might otherwise have put the money and the financial consequences of so doing; the extent to which any of these matters were known or in the reasonable contemplation of the Respondent etc. would have required a mini or indeed major trial, consumed significant time and expense and may well not have resulted in definitive answers. The broad approach which the court adopts is fair, practical and proportionate.”
458. Mr Rowley cited Lewin on Trusts (19 th ed) at paras. 39-059 to 39-062 which provides support for an award of interest as simple interest at base rate. Para. 39-060 cites Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515 and Re Duckwari plc (No. 2) [1999] Ch 268 which I have considered. Mr Rowley also referred to the position where there is a complaint to the Pensions Ombudsman which results in a direction that a payment is made to a pensioner in respect of a benefit which ought to have been paid earlier. In such a case, section 151A of PSA 1993 provides that the Pensions Ombudsman may require the payment of interest “at the prescribed rate”. This rate is prescribed by regulation 6 of the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996 as being base rate.
460. The rate of 8% which can be awarded by an employment tribunal under sections 134 and 139 of EA 2010 is obviously much higher than the rate which would be awarded by a court in a case like the present. Similarly, the rate of 8% is much higher than would be awarded under the equitable rules as to interest. It may be that Mr Short’s provisional reliance on section 134 is to be taken as saying that if a pensioner is entitled to more than six years arrears of payment, then the arrears should bear compound interest at 2% above base rate but if the pensioner was restricted to six years arrears of payment by reason of section 134, then the interest would be simple interest at 8%. I agree with Mr Short to the extent that it would seem to be unfair to disregard the limitation in section 134 to the period of six years but yet adopt the rate of 8% which was only envisaged as applying if the period of interest involved arrears of up to six years before the proceedings were commenced. But more generally, it has been recognised that a rate of interest of 8% in recent years and at the present time is quite inappropriate when a court is asked to fix a rate to compensate a claimant for being kept out of his money: see Novoship (UK) Ltd v Mikhaulyuk [2015] QB 499. Whatever might be said as to the policy of awarding interest at 8% following judgment, it seems to me to be wholly inappropriate to use a rate of 8% in this case for a period of six years before the commencement of proceedings and from the commencement of proceedings until payment.
462. It is still the normal practice of the court to award simple rather than compound interest. An award of interest by an employment tribunal in accordance with section 139 of EA 2010 and the Regulations is also simple interest. The rules of equity would also lead to an award of simple interest in a case like the present: see Lewin on Trusts at para. 39-062. I recognise that in Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 561, the House of Lords stated that awards of simple interest did not do full justice to a person who ought to be compensated but the normal practice remains as I have described. I will follow that practice and award simple interest.
Issue 11(d)
PART VII: ISSUES 12 AND 13
Issue 12
Issue 13
(1) Does the Claimant's obligation apply to benefits accrued in other schemes during the Barber window which have been transferred in to any of the Schemes?
(2) Leaving aside the effect of any contractual obligation that may have been undertaken in relation to particular transfers out of the Schemes, does the Claimant's obligation apply in relation to benefits accrued in any of the Schemes during the Barber window which have been transferred out of the Schemes, and if so what does that obligation require?
(3) If the answer to Issue 13(b) is yes, is that such an obligation applies, is that “in principle” obligation discharged (and thus not enforceable by relevant Scheme members) either
(i) under s 99 PSA 1993 and/or by reason of s 73(2) and (4) PSA 1993?
(ii) under transfer out provisions in the relevant Scheme rules?”
468. It is agreed that the answer to Issue 13 (a) is “yes”.
470. In the event, I heard extensive submissions in relation to Issues 13(b) and 13(c) from Mr Rowley on behalf of the Banks and then from Mr Short on behalf of the RBs. Mr Rowley addressed Issue 13(b) on the basis that the source of the alleged obligation was said by the RBs to be a short passage in the judgment of the Court of Justice in Coloroll Pension Trustees Ltd v Russell (C-200/91) [1995] ICR 179 at [97]. Indeed, Mr Rowley’s skeleton argument on Issue 13(b) dealt with that issue in less than half a page and Mr Short’s skeleton argument on Issue 13(b) was also brief. However, in the course of Mr Short’s argument, it emerged that he wished to contend that the alleged obligations on the part of a transferring scheme were not just based on European law principles and he wished to rely for that purpose on domestic statutory provisions and regulations. Further, the arguments as to Issue 13(c) would require a detailed consideration of domestic statutory provisions and regulations and general principles of English law. When considering the domestic provisions, it became clear that the arguments advanced were of general application and potentially of great significance to cases where there had been an underpayment or an overpayment by a transferor scheme to a transferee scheme and which did not involve any question of equalisation. It also seemed to me that some of the points I was being asked to rule on would depend on the particular facts of individual cases and it might be undesirable to deal with the arguments at a high level of generality and without regard to specific facts. Further, a judgment which considered all of the points which would need to be considered in relation to the extended arguments in relation to Issues 13(b) and (c) would considerably delay the time at which a comprehensive judgment on all of the issues would be available to the parties.
PART IX: CONCLUSIONS
A summary
472. In summary, my conclusions are as follows:
(1) The Trustee is under a duty to amend the Schemes in order to equalise benefits for men and women so as to alter the result which is at present produced in relation to GMPs;
(2) The Trustee is not obliged to adopt method A3 which was argued to be the only method available;
(3) The Trustee is not entitled to adopt method A (in particular, method A3) because that method infringes the principle of minimum interference judged from the standpoint of the Banks;
(4) The Trustee is not entitled to adopt method D1 because that method infringes the principle of minimum interference judged from the standpoint of the beneficiaries;
(5) Method D2 is not at present available to be adopted as the Banks have not consented as required by section 24E(2) PSA 1993. However, in principle, it is a lawful method to which the Banks could consent and the GMP conversion legislation used in Method D2 does enable conversion of survivor’s benefits;
(6) Methods B, C1 and C2 all provide for equivalence in relation to benefits but the Banks can require the Trustee to adopt method C2 by relying on the principle of minimum interference, judged from the standpoint of the Banks;
(7) The rate of interest to be used for method C2 should be 1% over base rate simple interest;
(8) Beneficiaries are entitled to receive arrears of payments due to them;
(9) The period for which beneficiaries are entitled to receive arrears of payments is governed by the rules of the Schemes which deal with the period of time more than six years before a claim for payment of arrears; I was shown five examples of rules of the Schemes; four of those examples provide for the beneficiaries not to be entitled to arrears in relation to that period; the fifth example gives the Trustee a discretion in relation to that period;
(10) The rules of the Schemes are not contrary to section 92(5) of the PA 1995;
(11) By virtue of section 21(1)(b) of the Limitation Act 1980 there is no relevant limitation period in relation to proceedings to recover arrears;
(12) Section 134 EA 2010 is not effective in relation to proceedings by beneficiaries to recover arrears of payments where the Trustee is in possession of trust assets, as section 134 offends the principle of equivalence in such a case;
(13) In equity, arrears of payments should bear simple interest at 1% over base rate.
APPENDIX A
This Appendix highlights the provisions of the Schemes that could give rise to unequal payments arising from GMPs. These provisions relate to benefits accrued after 17 May 1990 and prior to 6 April 1997 and where reference is made to a total pension in the table below, this refers only to benefits accrued during this period. For ease of reference, this Appendix only looks at the provisions of the Schemes contained in the most recent Trust Deeds and Rules, and any subsequent amendments. It is possible that the benefits for certain members are governed by previous Trust Deeds and Rules which contain different provisions.
|
LBPS No. 1 Main Scheme
| |||||
|
Standard Section Post 31/10/83 joiners |
Standard Section Post 1974 - Pre 1/11/83 joiners |
Standard Section Pre 1974 joiners |
Standard Section LBI members |
AFD Section Standard |
C&G Section All members excl small subsections |
Approximate percentage of total liability |
33% |
31% |
25% |
3% |
3% |
4% |
Age from which unreduced pension is payable at member’s option |
60 |
60 |
60 (55 in some cases) (1) |
60 (55 in (2) some cases) |
60 |
60/63/65 depending on sub-section |
Non-GMP increases in payment (noting where discretionary (3) in the case of the HBOS FSPS) – assuming GMP does not technically ‘exist’ until GMP Payment Age (4) |
RPI max 5% |
RPI max 5% but subject to an underpin of RPI max 4% on total pension (including GMP) |
RPI max 5% but subject to an underpin of RPI max 4% on total pension (including GMP) |
RPI max 5% |
Fixed 3% pa |
RPI max 5% |
GMP increases in payment (from GMP Payment Age) |
Statutory (CPI max 3%) |
Statutory but subject to an underpin of RPI max 4% on all GMP from retirement |
Statutory but subject to an underpin of RPI max 4% on all GMP from retirement |
Statutory (CPI max 3%) |
Fixed 3% pa |
Statutory (CPI max 3%) |
Non-GMP revaluation in deferment |
Lesser of 4% compound or annual RPI. We understand that the administrative practice (5) is to apply RPI max 5%. Increases of less than 2% can be carried over to the following year at the Trustee’s discretion. We are not aware of this discretion having been exercised.
|
Statutory revaluation of CPI max 5% but with 'overall' min 3% pa increases for some members (7)
|
Statutory (CPI max 5%) | |||
GMP revaluation in deferment |
Fixed (6) rate – although admin practice is to revalue whole deferred pension to NRA with non GMP revaluation as an underpin. |
Fixed rate |
Fixed rate | |||
Approach to anti-franking test at age 60/65 for females/males |
The administrative practice is that the pension in payment immediately before age 60/65 (females/males) is compared to the pension at exit with statutory revaluation on the excess over GMP between date of exit and NRA plus the GMP revaluation between date of exit and 60/65 (females/males). |
|
LBPS No. 2 | ||
|
Standard Section Pre 21/5/83 joiners |
Standard Section Post 20/5/83 joiners |
Hill Samuel Section Pre 1/7/92 joiners |
Approximate percentage of total liability |
48% |
45% |
6% |
Age from which unreduced pension is payable at member’s option |
60 |
60 |
60/65 depending on sub-section (8) |
Non-GMP increases in payment (noting where discretionary (3) in the case of the HBOS FSPS) – assuming GMP does not technically ‘exist’ until GMP Payment Age (4) |
CPI no max |
CPI max 5% |
Fixed 3% |
GMP increases in payment (from GMP Payment Age) |
Statutory (CPI max 3%) |
Statutory (CPI max 3%) |
Statutory (CPI max 3%) |
Non-GMP revaluation in deferment |
CPI no max |
CPI max 5% |
CPI max 5% |
GMP revaluation in deferment |
Fixed rate – although admin practice is to revalue whole deferred pension to NRA with non GMP revaluation as an underpin. | ||
Approach to anti-franking test at age 60/65 for females/males |
The administrative practice is that the pension in payment immediately before age 60/65 (females/males) is compared to the pension at exit with statutory revaluation on the excess over GMP between date of exit and NRA plus the GMP revaluation between date of exit and 60/65 (females/males). |
|
HBOS FSPS | ||||
|
Birmingham Midshires |
Capital Bank |
Clerical Medical |
Halifax |
Bank of |
Approximate percentage of total liability |
2% |
8% |
7% |
51% |
30% |
Age from which unreduced pension is payable at member’s option |
60 |
First day of the month following the members’ 60 th birthday. |
60 |
62 (60 for some members) |
65/60/55 depending on sub-section (9)
|
Non-GMP increases in payment (noting where discretionary (3) in the case of the HBOS FSPS) – assuming GMP does not technically ‘exist’ until GMP Payment Age (4) |
Guaranteed: Nil Discretionary: CPI max 5% (10) |
Guaranteed: 3% pa Discretionary: CPI min 3% max 5% (11), (10) |
Guaranteed: RPI min 3% max 5% |
Guaranteed: RPI min 3% max 5% |
Guaranteed: |
GMP increases in payment (from GMP Payment Age) |
Statutory CPI max 3% |
Statutory (CPI Max 3%) |
Statutory (CPI max 3%) |
Statutory (CPI max 3%) |
Statutory (CPI |
Non-GMP revaluation in deferment |
Statutory (CPI max 5%) |
Statutory (CPI max 5%) |
Pre 1/5/94 leavers: Fixed 5% (12) Post 30/4/94 leavers: CPI max 5% |
Statutory (CPI max 5%) |
Statutory (CPI |
GMP revaluation in deferment |
Pre 6/4/97 Post 5/4/97 - pre 1/7/06 leavers: Fixed rate Post 30/6/06 leavers: National Average Earnings
|
Pre 1/7/06 leavers: Fixed Post 30/6/06 leavers: National Average Earnings |
Pre 6/4/06 leavers: Fixed Post 5/4/06 leavers: National Average Earnings (13) |
Pre 6/4/96 leavers: Limited rate on scheme GMP, full rate on transferred-in GMP Post 5/4/96 leavers: National Average Earnings Some historic sections differ to this (eg pre 6/4/96 Leeds and Southdown leavers get fixed rate) |
Pre 1/7/06 leavers: Fixed Post 30/6/06 Leavers: |
Approach to anti-franking test at age 60/65 for females/males |
GMP revaluation is reflected at NRA, including where this is lower than GMP payment age, which will tend to result in a pension exceeding statutory requirements being put into payment from that age. The administrative practice is that the pension in payment immediately before age 60/65 (females/males) is compared to the GMP to be put into payment. If the GMP is greater than the pension in payment, a step up would be calculated. Formal anti-franking minimum tests are not undertaken. This is expected to affect very few if any members.
|
Notes
(1) Our understanding is that equalisation provisions result in age 55 being used for all members. This has been reflected in costings provided in this report.
(2) Our understanding is that equalisation provisions have been applied where necessary for male members. This has been reflected in costings provided in this report.
(3) For the purposes of this report, except where noted otherwise, it is assumed that discretionary practices will continue.
(4) Prior to GMP payment age the entire pension is increased at the rate applicable to the non-GMP element.
(5) For the purposes of this report this administration practice has been assumed to continue at a level which is more generous than that required by the rules.
(6) Fixed revaluation rates depend on date of exit from the scheme and are set out below.
(7) This is an administrative practice applying to some members.
(8) Our understanding is that age 60 is used to reflect equalisation provisions. This has been reflected in costings provided in this report.
(9) Due to equalisation provisions, we understand references to age 65 do not apply in practice. This has been reflected in costings provided in this report.
(10) Level funded at actuarial valuation.
(11) Rules provide for 3% minimum only to apply in cases of early retirement. Administration practices is to apply this to all pensioners.
(12) Administrative practice more generous than rules.
(13) Administrative practice (rules state fixed).
Date of leaving scheme |
Fixed rate of revaluation (%pa) |
6 April 1988 – 5 April 1993 |
7.5 |
6 April 1993 – 5 April 1997 |
7.0 |
6 April 1997 – 5 April 2002 |
6.25 |
6 April 2002 – 5 April 2007 |
4.5 |
6 April 2007 – 5 April 2012 |
4.0 |
6 April 2012 – 5 April 2017 |
4.75 |
6 April 2017 - |
3.5 |
Summary
The important points to take from these summaries are set out below.
In conclusion, the overall impact of addressing inequalities arising from GMPs is expected to be lower (as a percentage of total liabilities) for these schemes than for many others, although the absolute sizes of the schemes could still result in significant costs in £ terms. The widely differing provisions between the schemes (and between sections within each scheme) is expected to give rise to differing issues on a scheme-by-scheme (and section-by-section) basis.
APPENDIX B
GMP Equalisation – agreed summary of methods
Method |
Description |
A1 |
At the age the pension comes into payment, pay higher of male’s and corresponding female’s total pension (likely to be female’s in the case of a deferred pensioner). In payment, compare the amount of the total increase payable to the (unequalised) male and female and pay the higher each year. Recognise and award (regardless of the member’s sex) any increase payable under the (unequalised) male’s calculation at age 65 due to the anti-franking provisions.
Note: The attached example illustrates a higher pension being paid than the unequalised approach applicable to either sex.
|
A2 |
At the age the pension comes into payment, pay the higher (usually female’s) GMP plus the higher (usually male’s) non-GMP. In payment, calculate the increased (unequalised) GMP and (unequalised) non-GMP for each sex, and take the higher calculation for each component. At age 65 compare the (unequalised) GMP and (unequalised) non-GMP elements and take the higher calculation for each component.
Note: At age 65 it is possible that the male’s calculation will apply to both components and that a large increase at age 65 will not be exhibited by this version of Method A. In some circumstances a decrease may apply from age 65 as shown in the attached example. Following such a decrease the benefit would remain higher than the unequalised approach applicable to either sex.
|
A3 |
As Method A1 at the age the pension comes into payment. In payment, compare the amount of the total increase each year payable to the male and female and pay the higher. Once the pension is put into payment and immediately after each subsequent increase, view any uplift that is added as a consequence of equalisation as an increase in the non-GMP element. This means that at the following pension increase exercise, the pension increase is calculated by applying the increase percentage applicable to the GMP and non-GMP respectively, recognising that the previous year’s equalisation uplift is non-GMP, and then, if necessary, adding another equalisation uplift. At age 65, (1) recognise the male GMP at age 65 and deduct it from the male non-GMP; and (2) recognise and award (regardless of the member’s sex) any increase payable under the male’s calculation at age 65 due to the anti-franking provisions. Continue to calculate increases as before, including any previous equalisation uplifts as non-GMP. |
|
|
B |
Higher of unequalised male and analogous female benefit paid each year.
Note: In some cases a member has the higher (unequalised) benefit in every year, in which case there would be no change to that member’s benefit. In other cases (such as the attached example), at times when the payment to a member of the opposite sex would be higher, the member’s benefit would be increased to this level. There would be no adjustment to recognise times where the payment to the member is higher than that which would have been payable to a member of the opposite sex. |
C1 |
In payment, pay the annual pension that would result in the accumulated pension paid to date being equal to the higher of the accumulated pension payable to either an unequalised male or female.
For many members, this would result in identical annual pension payments as under Method B because the same unequalised sex always receives the higher pension each year. In these cases, equalising the accumulated payments amounts to the same as paying the higher annual pension each year.
The difference to Method B arises in respect of those members where the higher annual pension switches from one sex to the other over time.
Where the higher calculation switches from one sex to the other, the lower of the two calculations is thereafter paid until such time as the accumulated excess prior to the switch equals the accumulated loss after the switch, after which the higher of the male and female benefits is paid each year. If the advantage switches again a similar process is followed. Interest to reflect the time value of money is ignored. |
C2 |
As Method C1 except that interest from date of payment to date of calculation is allowed for in the comparison of the values of accumulated gain prior to the switch and loss since the switch.
Note: As the attached example indicates, Method C2 will tend to defer the point at which the benefit switches back from those payable to the member who is initially advantaged.
|
D1 |
Identify whether the actuarial value of the member’s unequalised benefits is less than the actuarial value of the unequalised benefits that would apply to a member of the opposite sex. If this is the case, an additional benefit (probably in the form of an additional pension) equal in actuarial value to the excess is provided to the member. (Referred to as Method D in the WTW Report dated 25 April 2017.) |
D2 |
As Method D1 except that instead of providing an additional pension, a pension which converts GMP structures into an alternative format (for example in line with non-GMP benefits) and is of equal actuarial value to the larger of the compared values is then put into payment. To convert GMP to non-GMP benefits, GMP conversion legislation would have to be used.
Note: As the attached example highlights, where GMP is being converted into a benefit structure which attracts higher pension increases, the theoretical position would be a reduction in the immediate pension (expected to be compensated by a higher pension in later years of payment). Method D2 is consistent with the method on which the DWP consulted in 2016 (save that there may be differences in the detail of implementation which have not presently been identified). |
|
|
For Methods D1 and D2, the actuarial value of benefits is calculated as the discounted cash flows payable to the member and to a surviving dependant entitled to benefits. The comparison could either be carried out (i) at a single conversion date for all members or (ii) for each member at the point of retirement, transfer out or death.
GMP Equalisation – Worked examples
The following examples provide an illustration of the various equalisation methods.
Illustrations of the impact of the various alternative Methods
The data underpinning these projections relates to a female member of the HRF Section of the HBOS Final Salary Pension Scheme, who left service at age 41 with a pension entitlement of £2,293 per annum relating to the period from 17 May 1990 to 5 April 1997, payable from the Section’s Normal Retirement Age of 62. The split of this pension (and the analogous split that would have applied had she been a male) is set out below.
|
Actual benefit as female |
Alternative benefit as male (£pa) |
GMP |
520 |
467 |
Non-GMP |
1,773 |
1,826 |
Total pension |
2,293 |
2,293 |
The illustrations use the following assumed increases. Where historical information existed at the time the original projections were prepared (e.g. in relation to historic rates of inflation) this information has been incorporated.
|
After leaving service but before retirement |
After retirement |
GMP |
4.1 |
2.06 |
Non-GMP |
2.6 |
3.85 |
A rate of interest of 3% pa has been assumed in the calculations for Method C2. Also, the examples assume the member dies aged 92 following the pension increase received when aged 91. Thus the examples have considered payments received over a 30 year period (from age 62 and ignoring any subsequent payments to contingent spouses and/or dependants) and assumed a discount rate of 4% pa when considering the actuarial values under Methods D1 and D2.
There are some important stages to these projections, as set out below:
Actual entitlement at age 62 (reflecting status as a female)
GMP increased by 29.6% plus 7 increases of 4.1%, (giving a total GMP of £892 pa at 60), [1] plus an increase (calculated as 19.6%) to reflect payment being deferred past GMP payment age by two-years (giving a total GMP of £1,067 pa at 62) plus non-GMP increased by 25% plus 10 increases of 2.6% (£2,866 pa), giving a total unequalised female pension of £3,933 pa at age 62.
Alternative entitlement at age 62 (reflecting the way the Scheme treats male members)
GMP increased by 29.6% plus 10 increases of 4.1% (£904 pa at 62) plus non-GMP increased by 25% plus 10 increases of 2.6% (£2,951 pa) giving a total unequalised male pension of £3,855 pa at age 62. Until age 65, all of this pension is treated as non-GMP under the unequalised calculation applicable to a male.
Application of the anti-franking test at age 65 to the calculations as a male
The statutory minimum pension payable (as a male) from age 65 is made up of two parts, namely the statutory GMP calculated at the male’s GMP Payment Age of 65 and the non-GMP increased up to the Scheme’s NRA of 62. The first part is the male’s GMP increased by 29.6% plus 12 increases of 4.1% (£979 pa). The second part is the male’s non-GMP increased by 25% plus 10 increases at 2.6% (£2,951 pa) giving a total minimum pension of £3,930 pa.
The minimum pension payable to a male at 62 under the preservation legislation would be the GMP at the date of leaving service (£467 pa) plus the non-GMP with increases over the period between the date of leaving service and age 62 (in this case £1,826 pa increased by 25% plus 10 increases of 2.6% or £2,951 pa) giving a total of £3,418 pa. The maximum step up at 65 for a male would therefore be the amount needed to increase this to the minimum of £3,930 pa (an increase of £512 pa). In the following examples this is referred to as the anti-franking minimum, reflecting the statutory (anti-franking) tests that apply at GMP payment ages. An increase of this amount would be applied only if (i) the scheme put the minimum required by the preservation legislation into payment at age 62 and (ii) there were no increases in payment after age 62. The HBOS Final Salary Pension Scheme provides more generous treatment than the statutory minima in both of these areas.
Further Notes
1. Statutory and rule provisions affect the number of increases applied in deferment. The number of increases on the non-GMP and GMP over a specific period may not equate, and may not be the same as the difference between age at leaving service and retirement age. In this example, 18 increases are taken to apply over the period between leaving service and age 60, with a further 5 to age 65.
2. In the examples, the individual in question was born on 12 February. Pension increases are typically granted with effect from the April payment each year, meaning that increases apply shortly after the individual’s birthday. This is reflected in the projections which show the pension applying from a certain age generally being that which would come into payment in the April following attainment of that age. The “At retirement” row shows the position at retirement on the member’s 62 nd birthday in February; the next row “62” shows the position at the first April increase after the 62 nd birthday and so on for each annual April increase thereafter. Where an adjustment is included to reflect anti-franking provisions, this is incorporated as an adjustment from the actual 65 th birthday – referred to as age “65(a)”, with the annual increase assumed to apply just after the 65 th birthday being referred to as age “65(b)”.
3. Actual pension increases are awarded on a pro-rata basis on non-GMP at the first such increase, but for illustration purposes in these projections this nuance has been set aside and it has been assumed that the non-GMP will receive a full increase from the April after the February in which retirement occurs at age 62. This is the same approach as followed for the generalised methodology adapted for the WTW Report dated 25 April 2017. The practical effect of recognising a partial first increase on the non-GMP would be to defer the age at which the projected advantage switches from the female member to the male analogue and this would obscure some of the detail around the impact of the different Methods.
4. Some of the figures in the following tables have been rounded, creating some minor arithmetic discrepancies.
Method A1
Age |
Female GMP |
Female non-GMP |
Female Total |
Male GMP |
Male non-GMP |
Male Total |
Method A1 |
At retirement |
1,067 |
2,866 |
3,933 |
- |
3,855 |
3,855 |
3,933 |
62 |
1,089 |
2,976 |
4,066 |
- |
4,004 |
4,004 |
4,082 |
63 |
1,112 |
3,091 |
4,203 |
- |
4,158 |
4,158 |
4,236 |
64 |
1,135 |
3,210 |
4,345 |
- |
4,318 |
4,318 |
4,396 |
65(a) |
1,135 |
3,210 |
4,345 |
979 |
3,339 |
4,318 |
4,396 |
65(b) |
1,158 |
3,334 |
4,492 |
999 |
3,467 |
4,467 |
4,545 |
66 |
1,182 |
3,462 |
4,644 |
1,020 |
3,601 |
4,621 |
4,699 |
67 |
1,206 |
3,595 |
4,801 |
1,041 |
3,739 |
4,781 |
4,858 |
68 |
1,231 |
3,734 |
4,965 |
1,062 |
3,883 |
4,946 |
5,024 |
69 |
1,256 |
3,877 |
5,134 |
1,084 |
4,033 |
5,117 |
5,195 |
70 |
1,282 |
4,027 |
5,309 |
1,107 |
4,188 |
5,295 |
5,373 |
71 |
1,309 |
4,182 |
5,490 |
1,130 |
4,349 |
5,479 |
5,557 |
72 |
1,336 |
4,343 |
5,678 |
1,153 |
4,517 |
5,670 |
5,748 |
73 |
1,363 |
4,510 |
5,873 |
1,177 |
4,691 |
5,867 |
5,945 |
74 |
1,391 |
4,684 |
6,075 |
1,201 |
4,871 |
6,072 |
6,150 |
75 |
1,420 |
4,864 |
6,284 |
1,225 |
5,059 |
6,284 |
6,362 |
76 |
1,449 |
5,051 |
6,500 |
1,251 |
5,254 |
6,504 |
6,582 |
77 |
1,479 |
5,246 |
6,725 |
1,276 |
5,456 |
6,733 |
6,810 |
78 |
1,509 |
5,448 |
6,957 |
1,303 |
5,666 |
6,969 |
7,047 |
79 |
1,540 |
5,657 |
7,198 |
1,330 |
5,884 |
7,214 |
7,292 |
80 |
1,572 |
5,875 |
7,447 |
1,357 |
6,111 |
7,468 |
7,546 |
81 |
1,605 |
6,101 |
7,706 |
1,385 |
6,346 |
7,731 |
7,809 |
82 |
1,638 |
6,336 |
7,974 |
1,414 |
6,590 |
8,004 |
8,082 |
83 |
1,671 |
6,580 |
8,252 |
1,443 |
6,844 |
8,287 |
8,365 |
84 |
1,706 |
6,833 |
8,539 |
1,472 |
7,108 |
8,580 |
8,658 |
85 |
1,741 |
7,097 |
8,838 |
1,503 |
7,381 |
8,884 |
8,962 |
86 |
1,777 |
7,370 |
9,147 |
1,534 |
7,665 |
9,199 |
9,277 |
87 |
1,813 |
7,654 |
9,467 |
1,565 |
7,961 |
9,526 |
9,604 |
88 |
1,851 |
7,948 |
9,799 |
1,597 |
8,267 |
9,864 |
9,942 |
89 |
1,889 |
8,254 |
10,143 |
1,630 |
8,585 |
10,216 |
10,294 |
90 |
1,928 |
8,572 |
10,500 |
1,664 |
8,916 |
10,580 |
10,658 |
91 |
1,968 |
8,902 |
10,870 |
1,698 |
9,259 |
10,957 |
11,035 |
Explanatory notes on Method A1
Upon the member’s retirement at age 62 in February, the higher of the two calculations (unequalised male and female entitlements) is put into payment. This is the female calculation of £3,933 pa.
Each year, the pension increase is calculated as the higher of two amounts, namely the increase that would have applied to the unequalised male and female entitlements. At the first increase (taken to be at the April just after age 62), the comparators are:
Male – an increase of 3.85% on the whole pension, as all of the pension is assumed to be non-GMP, providing an increase of £148.42 pa.
Female – an increase of 2.06% on the GMP element only (£22.00) and an increase of 3.85% on the non-GMP of £2,866 pa (£110.34) to provide a total increase of £132.34 pa.
The male approach applies, and the pension is increased to £4,081 pa.
At the April just over one year after retirement the comparators would be:
Male – an increase of 3.85% on the non-GMP (equal to the entire unequalised pension £4,004 pa) or £154.15 pa.
Female – an increase of 3.85% on the non-GMP of £2,976 pa (i.e. £114.58 pa) plus an increase of 2.06% on the GMP of £1,089 pa (£22.43 pa) or £137.01 pa.
On this basis, the increase applicable to the male applies and the pension becomes £4,081 + £154 = £4,235 pa.
At age 65 (i.e. the 65 th birthday in February, shown as “65(a)” in the table), the GMP is recognised for the purposes of the male’s calculation. At that age the (unequalised) benefit payable to the male is the total pension at 62 of £3,855 increased by three increases of 3.85% or £4,318 pa. This exceeds the minimum pension under anti-franking of £3,930 so the unequalised male calculation is not subject to any adjustment for anti-franking. The unequalised male pension remains at £4,318 pa, and is now split into a GMP of £979 pa and a non-GMP of £3,339 pa.
At the increase from the April just after age 65 (shown as “65(b)” in the table), the pension increase comparators are:
Male – an increase of 3.85% on the non-GMP of £3,339 (£128.55 pa) plus an increase of 2.06% on the GMP of £979 pa (£20.17 pa) or £148.72 pa.
Female – an increase of 3.85% on the non-GMP of £3,210 pa (i.e. £123.59 pa) plus an increase of 2.06% on the GMP of £1,135 pa (£23.38 pa) or £146.97 pa.
On this basis, the increase applicable to the male applies and the pension becomes £4,396 + £149 = £4,545 pa.
The same process is repeated for each annual April increase thereafter.
Method A2
Age |
Female GMP |
Female non-GMP |
Female Total |
Male GMP |
Male non-GMP |
Male Total |
Method A2 |
At retirement |
1,067 |
2,866 |
3,933 |
- |
3,855 |
3,855 |
4,923 |
62 |
1,089 |
2,976 |
4,066 |
- |
4,004 |
4,004 |
5,093 |
63 |
1,112 |
3,091 |
4,203 |
- |
4,158 |
4,158 |
5,270 |
64 |
1,135 |
3,210 |
4,345 |
- |
4,318 |
4,318 |
5,453 |
65(a) |
1,135 |
3,210 |
4,345 |
979 |
3,339 |
4,318 |
4,473 |
65(b) |
1,158 |
3,334 |
4,492 |
999 |
3,467 |
4,467 |
4,625 |
66 |
1,182 |
3,462 |
4,644 |
1,020 |
3,601 |
4,621 |
4,783 |
67 |
1,206 |
3,595 |
4,801 |
1,041 |
3,739 |
4,781 |
4,946 |
68 |
1,231 |
3,734 |
4,965 |
1,062 |
3,883 |
4,946 |
5,114 |
69 |
1,256 |
3,877 |
5,134 |
1,084 |
4,033 |
5,117 |
5,289 |
70 |
1,282 |
4,027 |
5,309 |
1,107 |
4,188 |
5,295 |
5,470 |
71 |
1,309 |
4,182 |
5,490 |
1,130 |
4,349 |
5,479 |
5,658 |
72 |
1,336 |
4,343 |
5,678 |
1,153 |
4,517 |
5,670 |
5,853 |
73 |
1,363 |
4,510 |
5,873 |
1,177 |
4,691 |
5,867 |
6,054 |
74 |
1,391 |
4,684 |
6,075 |
1,201 |
4,871 |
6,072 |
6,263 |
75 |
1,420 |
4,864 |
6,284 |
1,225 |
5,059 |
6,284 |
6,479 |
76 |
1,449 |
5,051 |
6,500 |
1,251 |
5,254 |
6,504 |
6,703 |
77 |
1,479 |
5,246 |
6,725 |
1,276 |
5,456 |
6,733 |
6,935 |
78 |
1,509 |
5,448 |
6,957 |
1,303 |
5,666 |
6,969 |
7,175 |
79 |
1,540 |
5,657 |
7,198 |
1,330 |
5,884 |
7,214 |
7,425 |
80 |
1,572 |
5,875 |
7,447 |
1,357 |
6,111 |
7,468 |
7,683 |
81 |
1,605 |
6,101 |
7,706 |
1,385 |
6,346 |
7,731 |
7,951 |
82 |
1,638 |
6,336 |
7,974 |
1,414 |
6,590 |
8,004 |
8,228 |
83 |
1,671 |
6,580 |
8,252 |
1,443 |
6,844 |
8,287 |
8,515 |
84 |
1,706 |
6,833 |
8,539 |
1,472 |
7,108 |
8,580 |
8,813 |
85 |
1,741 |
7,097 |
8,838 |
1,503 |
7,381 |
8,884 |
9,122 |
86 |
1,777 |
7,370 |
9,147 |
1,534 |
7,665 |
9,199 |
9,442 |
87 |
1,813 |
7,654 |
9,467 |
1,565 |
7,961 |
9,526 |
9,774 |
88 |
1,851 |
7,948 |
9,799 |
1,597 |
8,267 |
9,864 |
10,118 |
89 |
1,889 |
8,254 |
10,143 |
1,630 |
8,585 |
10,216 |
10,474 |
90 |
1,928 |
8,572 |
10,500 |
1,664 |
8,916 |
10,580 |
10,844 |
91 |
1,968 |
8,902 |
10,870 |
1,698 |
9,259 |
10,957 |
11,227 |
Explanatory notes on Method A2
At age 62 two separate comparisons are made. The first is between the non-GMPs at age 62 (for this purpose treating the entire male pension as non-GMP). The respective comparators are £2,866 pa (female) and £3,855 pa (male), so £3,855 pa is recorded as the non-GMP entitlement. The second compares the GMP elements at age 62 of zero (male) and £1,067 pa (female), so £1,067 pa is recorded as the GMP element, giving a total pension of £4,923 pa.
Up to age 65, these comparisons are performed again annually. Because the male non-GMP will always exceed that of the female, and male GMP is zero up to age 65, this means that the calculation is taken as the female GMP plus the male non-GMP (equal to the entire male pension). For example the pension payable from the April after attaining age 64 is the male non-GMP (i.e. the entire pension) at age 62 increased by three increases of 3.85% (£4,318 pa) plus the female’s GMP at 62 increased by three increases of 2.06% (£1,134 pa*) giving a total pension payable from that April of £5,452 pa*.
At actual age 65 (denoted “65(a)”), for the male version, the same comparison is made as for Method A1. The male entitlement remains at £4,318 pa, split £979 pa GMP and £3,339 pa non-GMP. At this point the higher GMP is that payable to the female (£1,135 pa compared to £979 pa payable to the male) and the higher non-GMP is that payable to the male (£3,339 compared to £3,210 payable to the female) so the total pension reduces to £1,135 pa plus £3,339 pa, giving a total pension of £4,474 pa*. This is higher than the unequalised male and female comparators.
At the pension increase awarded from the April just after age 65 (denoted “65(b)”) two comparisons are again made. The first is between the non-GMPs (£3,210 pa increased by 3.85% (£3,334 pa) for the female and £3,339 pa increased by 3.85% (£3,468 pa*) for the male), giving £3,468 pa* for this part of the comparison. The second is between the female GMP (£1,135 pa) increased by 2.06% (£1,158) and the male GMP (£979 pa) increased by 2.06% (£999) giving £1,158. The total pension is then £3,468 pa plus £1,158 pa, giving a total pension of £4,626 pa*.
The same process is repeated for each annual April increase thereafter.
* Note – These figures are shown rounded up or down to the next whole number in the table.
Method A3
Age |
Female GMP |
Female non-GMP |
Female Total |
Female Equalised non-GMP* |
Male GMP |
Male non-GMP |
Male Total |
Male Equalised non-GMP* |
Method A3 |
At retirement |
1,067 |
2,866 |
3,933 |
2,866 |
- |
3,855 |
3,855 |
3,933 |
3,933 |
62 |
1,089 |
2,976 |
4,066 |
2,996 |
- |
4,004 |
4,004 |
4,085 |
4,085 |
63 |
1,112 |
3,091 |
4,203 |
3,130 |
- |
4,158 |
4,158 |
4,242 |
4,242 |
64 |
1,135 |
3,210 |
4,345 |
3,271 |
- |
4,318 |
4,318 |
4,405 |
4,405 |
65(a) |
1,135 |
3,210 |
4,345 |
3,271 |
979 |
3,339 |
4,318 |
3,426 |
4,405 |
65(b) |
1,158 |
3,334 |
4,492 |
3,400 |
999 |
3,467 |
4,467 |
3,558 |
4,557 |
66 |
1,182 |
3,462 |
4,644 |
3,533 |
1,020 |
3,601 |
4,621 |
3,695 |
4,715 |
67 |
1,206 |
3,595 |
4,801 |
3,672 |
1,041 |
3,739 |
4,781 |
3,837 |
4,878 |
68 |
1,231 |
3,734 |
4,965 |
3,816 |
1,062 |
3,883 |
4,946 |
3,985 |
5,047 |
69 |
1,256 |
3,877 |
5,134 |
3,966 |
1,084 |
4,033 |
5,117 |
4,138 |
5,223 |
70 |
1,282 |
4,027 |
5,309 |
4,122 |
1,107 |
4,188 |
5,295 |
4,298 |
5,404 |
71 |
1,309 |
4,182 |
5,490 |
4,284 |
1,130 |
4,349 |
5,479 |
4,463 |
5,593 |
72 |
1,336 |
4,343 |
5,678 |
4,452 |
1,153 |
4,517 |
5,670 |
4,635 |
5,788 |
73 |
1,363 |
4,510 |
5,873 |
4,627 |
1,177 |
4,691 |
5,867 |
4,813 |
5,990 |
74 |
1,391 |
4,684 |
6,075 |
4,808 |
1,201 |
4,871 |
6,072 |
4,999 |
6,200 |
75 |
1,420 |
4,864 |
6,284 |
4,997 |
1,225 |
5,059 |
6,284 |
5,191 |
6,417 |
76 |
1,449 |
5,051 |
6,500 |
5,193 |
1,251 |
5,254 |
6,504 |
5,391 |
6,642 |
77 |
1,479 |
5,246 |
6,725 |
5,396 |
1,276 |
5,456 |
6,733 |
5,599 |
6,875 |
78 |
1,509 |
5,448 |
6,957 |
5,608 |
1,303 |
5,666 |
6,969 |
5,814 |
7,117 |
79 |
1,540 |
5,657 |
7,198 |
5,827 |
1,330 |
5,884 |
7,214 |
6,038 |
7,368 |
80 |
1,572 |
5,875 |
7,447 |
6,055 |
1,357 |
6,111 |
7,468 |
6,271 |
7,628 |
81 |
1,605 |
6,101 |
7,706 |
6,292 |
1,385 |
6,346 |
7,731 |
6,512 |
7,897 |
82 |
1,638 |
6,336 |
7,974 |
6,538 |
1,414 |
6,590 |
8,004 |
6,783 |
8,176 |
83 |
1,671 |
6,580 |
8,252 |
6,794 |
1,443 |
6,844 |
8,287 |
7,023 |
8,466 |
84 |
1,706 |
6,833 |
8,539 |
7,060 |
1,472 |
7,108 |
8,580 |
7,293 |
8,766 |
85 |
1,741 |
7,097 |
8,838 |
7,336 |
1,503 |
7,381 |
8,884 |
7,574 |
9,077 |
86 |
1,777 |
7,370 |
9,147 |
7,623 |
1,534 |
7,665 |
9,199 |
7,866 |
9,399 |
87 |
1,813 |
7,654 |
9,467 |
7,920 |
1,565 |
7,961 |
9,526 |
8,169 |
9,734 |
88 |
1,851 |
7,948 |
9,799 |
8,230 |
1,597 |
8,267 |
9,864 |
8,483 |
10,081 |
89 |
1,889 |
8,254 |
10,143 |
8,551 |
1,630 |
8,585 |
10,216 |
8,810 |
10,440 |
90 |
1,928 |
8,572 |
10,500 |
8,885 |
1,664 |
8,916 |
10,580 |
9,149 |
10,813 |
91 |
1,968 |
8,902 |
10,870 |
9,232 |
1,698 |
9,259 |
10,957 |
9,501 |
11,199 |
*This is the equalised non-GMP amount based on the Method A3 pension at that age
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Explanatory notes on Method A3
At age 62, the higher of the two calculations is put into payment. This is the female calculation of £3,933 pa, and is the same as Method A1.
After the pension is put into payment and for the purposes of the first pension increase (at the April just after age 62):
The equalised pension of £3,933 pa is considered to be all non-GMP in the case of the male comparator, and made up of £1,067 pa GMP and £2,866 pa non-GMP for the female.
The pension is then increased to the greater of (i) £3,933 pa increased by 3.85% (£4,085) on the male approach and (ii) the sum of £1,067 pa increased by 2.06% (£1,089 pa) plus £2,866 increased by 3.85% (£2,976 pa) or £4,065 on the female basis.
This results in the pension increasing to £4,085 pa for both sexes.
At the next pension increase, in the April after attaining age 63, the equalised pension of £4,085 pa is considered to be all non-GMP in the case of the male comparator and made up of £1,089 pa GMP and £2,996 pa non-GMP for the female. A similar comparison is then undertaken as for the previous year.
The practical impact of this is to grant a 3.85% annual increase on the pension of £3,933 pa put into payment at age 62. Following the pension increase awarded just after age 64 the pension in payment would therefore be £3,933 pa increased by three increases of 3.85%, or £4,405 pa. In the case of the female this would be viewed as split £1,134 pa* GMP and £3,271 pa non-GMP.
At age 65, (denoted as 65(a) in the table), the GMP of £979 is recognised for the male comparator whose non-GMP is reduced by that amount to £3,426. In this example, there is no anti-franking adjustment. The higher total pension of £4,405 continues in payment.
At the subsequent pension increase (from the April just after age 65 (denoted as 65(b) in the table)):
The pension is then increased by the greater of (i) the female comparator of GMP of £1,135 pa increased by 2.06%, plus non-GMP of £3,271 pa increased by 3.85%, giving a total of £4,554 pa and (ii) the male comparator of GMP of £979 pa increased by 2.06%, plus equalised non-GMP of £3,426 pa increased by 3.85%, giving a total of (£999 + £3,558) £4,557 pa.
In this case the male calculation exceeds the female comparator of £4,554 so the figure of £4,557 pa would be put into payment for both sexes.
The female comparator is then considered to be £1,158 pa GMP and £3,399 pa* non-GMP.
The same process is repeated for each annual April increase thereafter.
* Note – These figures are shown rounded up or down to the next whole number in the table.
Method B
Age |
Female GMP |
Female non-GMP |
Female Total |
Male GMP |
Male non-GMP |
Male Total |
Method B |
At retirement |
1,067 |
2,866 |
3,933 |
- |
3,855 |
3,855 |
3,933 |
62 |
1,089 |
2,976 |
4,066 |
- |
4,004 |
4,004 |
4,066 |
63 |
1,112 |
3,091 |
4,203 |
- |
4,158 |
4,158 |
4,203 |
64 |
1,135 |
3,210 |
4,345 |
- |
4,318 |
4,318 |
4,345 |
65(a) |
1,135 |
3,210 |
4,345 |
979 |
3,339 |
4,318 |
4,345 |
65(b) |
1,158 |
3,334 |
4,492 |
999 |
3,467 |
4,467 |
4,492 |
66 |
1,182 |
3,462 |
4,644 |
1,020 |
3,601 |
4,621 |
4,644 |
67 |
1,206 |
3,595 |
4,801 |
1,041 |
3,739 |
4,781 |
4,801 |
68 |
1,231 |
3,734 |
4,965 |
1,062 |
3,883 |
4,946 |
4,965 |
69 |
1,256 |
3,877 |
5,134 |
1,084 |
4,033 |
5,117 |
5,134 |
70 |
1,282 |
4,027 |
5,309 |
1,107 |
4,188 |
5,295 |
5,309 |
71 |
1,309 |
4,182 |
5,490 |
1,130 |
4,349 |
5,479 |
5,490 |
72 |
1,336 |
4,343 |
5,678 |
1,153 |
4,517 |
5,670 |
5,678 |
73 |
1,363 |
4,510 |
5,873 |
1,177 |
4,691 |
5,867 |
5,873 |
74 |
1,391 |
4,684 |
6,075 |
1,201 |
4,871 |
6,072 |
6,075 |
75 |
1,420 |
4,864 |
6,284 |
1,225 |
5,059 |
6,284 |
6,284 |
76 |
1,449 |
5,051 |
6,500 |
1,251 |
5,254 |
6,504 |
6,504 |
77 |
1,479 |
5,246 |
6,725 |
1,276 |
5,456 |
6,733 |
6,733 |
78 |
1,509 |
5,448 |
6,957 |
1,303 |
5,666 |
6,969 |
6,969 |
79 |
1,540 |
5,657 |
7,198 |
1,330 |
5,884 |
7,214 |
7,214 |
80 |
1,572 |
5,875 |
7,447 |
1,357 |
6,111 |
7,468 |
7,468 |
81 |
1,605 |
6,101 |
7,706 |
1,385 |
6,346 |
7,731 |
7,731 |
82 |
1,638 |
6,336 |
7,974 |
1,414 |
6,590 |
8,004 |
8,004 |
83 |
1,671 |
6,580 |
8,252 |
1,443 |
6,844 |
8,287 |
8,287 |
84 |
1,706 |
6,833 |
8,539 |
1,472 |
7,108 |
8,580 |
8,580 |
85 |
1,741 |
7,097 |
8,838 |
1,503 |
7,381 |
8,884 |
8,884 |
86 |
1,777 |
7,370 |
9,147 |
1,534 |
7,665 |
9,199 |
9,199 |
87 |
1,813 |
7,654 |
9,467 |
1,565 |
7,961 |
9,526 |
9,526 |
88 |
1,851 |
7,948 |
9,799 |
1,597 |
8,267 |
9,864 |
9,864 |
89 |
1,889 |
8,254 |
10,143 |
1,630 |
8,585 |
10,216 |
10,216 |
90 |
1,928 |
8,572 |
10,500 |
1,664 |
8,916 |
10,580 |
10,580 |
91 |
1,968 |
8,902 |
10,870 |
1,698 |
9,259 |
10,957 |
10,957 |
Explanatory notes on Method B
Under Method B, the higher of the two calculations is put into payment. Up to the pension increase awarded just after age 75, this is the female benefit, and the male benefit from this point onwards.
Method C1
Age |
Female GMP |
Female non-GMP |
Female Total |
Male GMP |
Male non-GMP |
Male Total |
Difference (F-M) |
Accumulated difference (F-M) |
Method C1 |
At retirement |
1,067 |
2,866 |
3,933 |
- |
3,855 |
3,855 |
78 |