Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 26 October 2018 |
| Neutral Citation | [2018] EWHC 2839 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2017-001399 |
| Date | 26 October 2018 |
[2018] EWHC 2839 (Ch)
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
Mr Justice Morgan
Case No: HC-2017-001399
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
| Heading | Paragraph No. |
| PART I: INTRODUCTORY MATTERS | |
| Introduction | 1 |
| The parties | 10 |
| Representation orders | 15 |
| Procedural background | 20 |
| A summary of the problem | 26 |
| PART II: SERPS AND GMPS | |
| SERPS | 34 |
| Contracting out of SERPS | 46 |
| GMPs | 47 |
| GMPs: the Legislation | 50 |
| Other rules applicable to GMPs | 77 |
| GMP Inequalities between men and women | 79 |
| Effect of the different GMPs | 88 |
| PART III: THE SCHEMES | |
| The Schemes – an introduction | 95 |
| Lloyds No. 1 Scheme | 100 |
| Lloyds No. 1 Scheme – Main Section | 105 |
| Lloyds No. 1 Scheme – PIP Section | 106 |
| Lloyds No. 2 Scheme | 107 |
| HBOS Scheme | 111 |
| Some key features of the Schemes | 118 |
| Comments on the table in Appendix A | 122 |
| The effect of unequal GMPs on the Schemes | 124 |
| Other rules of the Schemes | 130 |
| PART IV: THE ISSUES | |
| The Issues | 131 |
| PART V: ISSUES 1 AND 2 | |
| Issues 1 and 2 | 150 |
| The EU legislation relevant to Issues 1 and 2 | 160 |
| The domestic legislation relevant to Issues 1 and 2 | 170 |
| Express sex equality rules | 182 |
| Powers to modify the Schemes | 186 |
| Case Law relevant to Issues 1 and 2 | 190 |
| Issues 1 and 2: Submissions for the Banks | 218 |
| Issues 1 and 2: Submissions for the RBs | 232 |
| Issues 1 and 2: Submissions for the Crown | 239 |
| Issues 1 and 2: Discussion and conclusions | 240 |
| PART VI: ISSUES 5 TO 8 | |
| Issues 5 to 8: the methods to be used for equalisation | 269 |
| Issues 5 to 8 reviewed | 303 |
| The term by term approach | 305 |
| The principle of minimum interference | 340 |
| The operation of sections 24A to 24H of PSA 1993 | 358 |
| The methods appraised in the light of the above | 374 |
| PART VII: ISSUE 11 | |
| Issue 11(a) and (b) | 395 |
| Issue 11(c) and Interest | 453 |
| Issue 11(d) | 464 |
| PART VIII: ISSUES 12 AND 13 | |
| Issue 12 | 465 |
| Issue 13 | 467 |
| PART IX: CONCLUSIONS | |
| A summary | 472 |
PART I: INTRODUCTORY MATTERS
Introduction
Between 6 April 1978 and 5 April 1997, the legislation as to state pensions in the United Kingdom included provisions as to a state earnings related pension. In particular, the legislation created a State Earnings Related Pension Scheme or “SERPS”. The detailed provisions relating to SERPS, in particular in relation to retirement age, resulted in inequalities in the treatment of men and women. These inequalities were not unlawful under EU law or domestic law nor did they infringe anyone's human rights.
It was possible to contract out of the benefits provided by SERPS. In particular, it was possible to make alternative arrangements to SERPS with the result that the liability to pay National Insurance contributions was reduced. It was possible to contract out of SERPS by making alternative arrangements which provided for guaranteed minimum pensions or “GMPs”. GMPs were calculated in broadly the same manner as SERPS benefits but they were not identical to those benefits. The legislative provisions as to GMPs were complicated but they created a number of inherent inequalities between men and women. It was possible to introduce provisions to remove these inequalities but, generally speaking, corrective action of that kind was not taken.
The result of the above was, and is, that there are very many occupational pension schemes which involved contracting out of SERPS and which fully comply with the legislation as to GMPs but which created inequalities in relation to the benefits available to male and female members of those schemes. This case concerns three large schemes where that is the situation.
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.
Because the decision in Barber took effect from 17 May 1990 and because the legislative provisions as to SERPS and GMPs only governed the position up to 5 April 1997, the issues in this case relate to the position between 17 May 1990 and 5 April 1997 only.
In the present case, a number of female members of some of the pension schemes with which this case is concerned took action to enforce what they said were their rights to equality of treatment in relation to pension benefits. In response to that action, the trustee of the three pension schemes with which this case is concerned has brought these proceedings to obtain the ruling of the court on a number of issues which have been identified. In summary, the principal issues are:
(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?
In the years since 1990, there has been considerable debate within the pensions industry as to some or all of these issues. The issues which I am now asked to determine arise in relation to many other occupational pension schemes. If there is an obligation to equalise benefits by one or other of the methods contended for, there will be a substantial cost involved. The amount of that cost depends upon the method of equalisation which is adopted. In the present case, there are four basic methods which are put forward for consideration. These methods have been referred to as methods A, B, C and D and methods A, C and D have been further sub-divided into alternatives. There is a considerable difference in the costs of giving effect to these methods. Ignoring administration costs, the order of magnitude of the various costs is: method A costs £300 million, method B costs £135 million and method C costs £100 million. Method D involves a two-stage process and the first of those stages adopts one of methods A or B or C. The cost of method D depends on which method is adopted at the first stage. If method D adopts method C at the first stage, the cost involved will be the same as the cost of method C, £100 million. The court's answers to the questions raised in this case are likely to apply widely in relation to other schemes so that the total costs involved for all such schemes will be many times these figures.
The Government has an interest of its own in the court's answers to the questions raised in this case. The Secretary of State for Work and Pensions and the Her Majesty's Treasury have been joined as parties to these proceedings and took part in the argument on the issues. They want to know the court's answers to the questions arising before they consider what action should be taken by the Government.
I am told that there are many in the pensions industry who are watching this litigation as they are likely to be affected by its outcome. They wish to have definitive rulings which will settle the long running debate on these issues. Certainly, the implications of the decision reach far beyond the immediate parties. The evidence in this case has been very detailed and thorough. The issues have been very extensively argued. In other circumstances, it might have been desirable to give a shorter judgment and to avoid recitation of matters on which there was no dispute between the immediate parties and which were therefore well known to them. However, in view of the wider interest in this judgment on the issues which arise, I have decided to set out the background and the facts and the submissions of the parties in greater detail even though that means the judgment is longer than it otherwise would have been.
The parties
In due course, I will provide detail as to the three schemes which are involved in this case. At present it is sufficient to refer to them as “the No. 1 Scheme”, “the No. 2 Scheme” and “the HBOS Scheme” (each a “Scheme” and together “the Schemes”).
The Claimant is the current trustee of the Schemes (“the Trustee”). Immediately prior to 31 March 2016, Lloyds Bank Pension Trust (No. 1) Limited was the trustee of the No. 1 Scheme, Lloyds Bank Pension Trust (No. 2) Limited was the trustee of the No. 2 Scheme, and HBOS Final Salary Trust Limited was the trustee of the HBOS Scheme. On 31 March 2016, the former trustees were removed as trustee of the Schemes and the Claimant was appointed as the sole trustee of the Schemes.
The Schemes provide retirement and other benefits for and in respect of individuals who work or have worked for companies in what is now the Lloyds Banking...
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