Equalising historic transfers

Jun 8, 2020

Equalising historic transfers

The latest piece in the GMP puzzle is the most recent instalment of the Lloyds case – dealing with transfers out and GMP equalisation. The hearing relates to a former member of the Scheme who transferred their benefits elsewhere – prior to equalisation, and looks at just how these members should be treated for GMPe purposes. The hearing took place in mid-May and we expect to get the judgment later in the summer.

So what’s the issue?

Potentially the value of a transfer out may have been higher if it had been equalised for GMPs. Do Lloyds now need to revisit these historic transfers, recalculate, then chase down those members due an uplift to pay the additional tranche of transfer value?  Lloyds think not. Lloyds position put to the High Court is that the trustee doesn’t need to address historic transfers. Based on the Coloroll judgment this obligation lies with the receiving scheme.

But DWP disagree.  As part of the hearing DWP set out their position to the High Court that stated Lloyds’ proposal is “contrary to public policy”.  Their stance is that if a transferring scheme has miscalculated a transfer value, they have a statutory obligation to correct the transfer calculation and pay any top up – regardless of limitation periods.

How easy is it to revisit historic transfer values?

The main requirement here is for member data – data which may have been deleted by the transferring scheme and the receiving scheme may never have held. Such as details of the basis of the transfer value, including any assumptions and calculations and the particulars of the benefit structure where the pension was accrued.

Then impacted members will need to be traced (or possibly their dependants) and a small partial transfer made, assuming the receiving scheme is even prepared to accept a partial transfer. Additional tax issues that arise from this uplift will then also need to be addressed.

It may be that relevant discharge forms will determine whether it is the transferring or receiving scheme that has liability.  But have these been kept?

Cost benefit analysis needed

In many cases historic transfers may not require uplifting.  Even if they do, the uplift is likely to be small.  Whereas the cost of data work and calculations needed to implement this, will, in the majority of cases be significantly more than any benefit increase to the member. It is very difficult to identify members most likely to be impacted, but it is important to apply a proportionate and pragmatic approach to data work.

What about transfers in?

This hearing doesn’t explicitly cover transfers in, but it is likely to have implications.  If the obligation is placed on the receiving scheme to equalise – they are very unlikely to have sufficient data to do the calculations required accurately.  Theoretically the transferring scheme could have more data, but it is more likely that the data has been deleted since the individual is now not a member.  And the receiving scheme wouldn’t even know if the transfer in needed equalising as this would depend on the benefit structure of the transferring scheme. Although this could be different again for bulk transfers.

The complications of GMP equalisation keep growing.

Who will have the data?

This is the million dollar questions – we’ve just passed the second anniversary of GDPR. The rules introduced in 2018 are more stringent in terms of why data is kept and how long for. This is limited to – keeping what is necessary and only for as long as necessary. Two years ago there was no way of knowing that this level of data would’ve been necessary. Therefore, transferring schemes may have reviewed data and either deleted data for no liability members or kept only skeleton data.

This could be problematic (or a blessing).


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