Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank Plc & Ors

Factual and Procedural Background

Between 6 April 1978 and 5 April 1997, UK legislation provided for a State Earnings Related Pension Scheme (SERPS) and guaranteed minimum pensions (GMPs) as part of contracting out from SERPS. The GMP legislation created inherent inequalities between men and women in pension benefits, which were lawful under EU and domestic law at the time. This case concerns three large occupational pension schemes (referred to as the No. 1 Scheme, No. 2 Scheme, and the HBOS Scheme) within the Lloyds Banking Group, which complied with GMP legislation but resulted in unequal benefits for male and female members due to GMP disparities.

Following the European Court of Justice (ECJ) decision in Barber v Guardian Royal Exchange Assurance Group (1990), there was an obligation to treat men and women equally in occupational pension benefits for service from 17 May 1990 onwards. Female members of the Schemes sought enforcement of this right, prompting the Trustee to seek declaratory rulings on key issues concerning equalisation obligations, methods, retrospective claims, and treatment of transferred benefits.

The procedural history includes early conciliation and Employment Tribunal claims by representative female members, which were stayed to allow High Court determination of the wider issues. The Secretary of State for Work and Pensions and Her Majesty's Treasury (the Crown) were joined as interested parties due to the wider implications for public policy and spending.

The Trustee applied for representation orders to bind all interested parties in the Schemes and to facilitate resolution of the issues. The parties agreed on representation arrangements excluding Issue 13, which was deferred for separate consideration.

Legal Issues Presented

1. Is the Trustee obliged to adjust benefits payable under the Schemes in excess of GMP to equalise total benefits between male and female members with equivalent age, service and earnings histories for service between 17 May 1990 and 5 April 1997?
2. Is it lawful to pay unequal total benefits resulting from GMP differences on grounds that:
1. GMPs are a substitute for the state pension and not pay within Article 157 TFEU?
2. There is an objective difference between males and females arising from GMP legislation?
3. The defence of material factor under section 69 Equality Act 2010 applies?
3. Is there a single correct method to equalise benefits or a choice between permissible methods?
4. Should the court accept a surrender of the Trustee's discretion as to the method of equalisation?
5. Which of the methods A, B, C, or D should be adopted if discretion is surrendered?
6. Are methods A, B, C, or D lawful and effective methods of equalisation if discretion is retained?
7. Is the Trustee obliged to make back-payments for underpaid benefits, and if so, what is the relevant period and should interest be added?
8. Should a different method be adopted for members where the cost of equalisation exceeds the projected additional benefits?
9. Does the Trustee's obligation to equalise apply to benefits transferred into or out of the Schemes, and what are the consequences?

Arguments of the Parties

Banks' Arguments

• GMPs are part of the state social security pension framework and serve as a substitute for the earnings-related part of the state pension, thus the inequalities arising from GMP legislation fall outside the scope of Article 157 TFEU and domestic equality legislation.
• The difference in treatment is a direct consequence of legislation integrating GMPs with the state pension scheme, not arising from the employment relationship.
• The Trustee is not obliged to equalise benefits because the treatment is lawful under Article 157 or justified by objective differences or material factor defence.
• There is no single method required to equalise benefits; the Trustee must adopt a method that involves minimum interference, which excludes the more costly or administratively burdensome methods.
• Method D2 cannot be adopted without employer consent, which is not presently given.
• Back-payment claims are subject to limitation periods under Scheme rules and section 134 Equality Act 2010.
• The Trustee has a limitation defence to back-payment claims and should pay interest at simple base rate.

Representative Beneficiaries' Arguments

• Benefits paid under the Schemes, including GMPs, constitute pay within Article 157 TFEU and domestic law, and the Trustee is obliged to equalise benefits.
• The inequalities do not arise automatically from GMPs but from the Schemes' application of different revaluation and indexation rates to GMP and non-GMP elements.
• The difference in treatment is discrimination on grounds of sex, and objective difference or material factor defences do not apply.
• The Trustee must adopt a term by term approach to equalisation, effectively requiring method A3.
• Method D1 is unlawful as it interferes impermissibly with beneficiaries' rights.
• Back-payments are not subject to limitation periods under the Limitation Act 1980 and section 134 Equality Act 2010 is ineffective due to the European principle of equivalence.
• Interest on arrears should be at 2% above base rate and compounded.
• The Trustee's obligation to equalise applies to benefits transferred in and out of the Schemes, requiring further detailed consideration.

Crown's Arguments

• Supports the Representative Beneficiaries' position that benefits under the Schemes are pay under Article 157 and that the Trustee must equalise benefits.
• Article 7(1)(a) Directive 79/7/EEC (social security exception) does not justify unequal treatment in occupational pension schemes.
• The Trustee must comply with domestic sex equality rules, which may be broader than Article 157.
• Men and women are in comparable situations for pension entitlement; difference in GMP is a proxy for sex and does not justify unequal treatment.
• Roberts and Hlozek cases create narrow exceptions for equalising earlier inequalities, which do not apply here.
• Supports the conclusion that back-payment limitation under section 134 Equality Act 2010 is ineffective due to the principle of equivalence.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed analysis of the relevant EU and domestic legislation, case law, and the specific facts of the Schemes. It confirmed that benefits under the Schemes, including GMP-related benefits, constitute pay within the meaning of Article 157 TFEU and domestic sex equality legislation. The court rejected the Banks' argument that GMPs are part of the state pension framework and thus outside Article 157, finding that the totality of benefits paid under the occupational schemes are pay for equal treatment purposes.

The court held that the difference in GMPs is a proxy for sex and does not constitute an objective difference justifying unequal treatment. It distinguished the present case from cases like Roberts and Hlozek where unequal treatment was justified as remedying earlier inequalities.

On the question of equalisation methods, the court applied principles from EU and domestic law requiring a term-by-term comparison of terms to ensure transparency and effective judicial review. However, it found that the complex benefit structure of the Schemes meant that the relevant term is the overall benefit rather than individual calculation factors. Consequently, method A3 (a strict term-by-term approach) was not the only permissible method.

The court applied the principle of minimum interference, holding that the Trustee must choose a method of equalisation that interferes least with the rights of the parties. Method A3 was excluded as it imposed excessive cost on the employers (Banks), and method D1 was excluded as it interfered impermissibly with beneficiaries' rights by substituting actual pension payments with actuarial assumptions. Methods B and C (particularly C2, which accounts for interest on accumulated differences) were found to be permissible and method C2 was preferred as it is less costly and respects the principle of minimum interference.

The court found that statutory provisions enabling GMP conversion (method D2) are workable and lawful but require employer consent, which was not given in this case, so method D2 is not currently available.

Regarding back-payments, the court held the Trustee is obliged to pay arrears but the period for which arrears can be claimed is limited by the Schemes’ rules (typically six years) unless the Trustee exercises discretion otherwise. The court found that these rules are consistent with section 92 of the Pensions Act 1995 and that the Limitation Act 1980 provides no limitation period for claims to recover trust property in the trustee’s possession, rendering section 134 Equality Act 2010 ineffective due to the principle of equivalence under EU law.

The court ruled that arrears should bear simple interest at 1% above base rate to compensate beneficiaries for being kept out of their money, rejecting higher or compound interest rates as inappropriate in the circumstances.

Issues relating to alternative methods for members where equalisation costs exceed benefits (Issue 12) and the obligation regarding benefits transferred in and out of the Schemes (Issue 13) were deferred for separate consideration due to their complexity and wider implications.

Holding and Implications

HOLDING: The Trustee is under a legal obligation to equalise pension benefits between male and female members of the Schemes for service between 17 May 1990 and 5 April 1997, adjusting benefits in excess of GMP to achieve equality. The Trustee must adopt an equalisation method that complies with the principle of minimum interference, with method C2 identified as the appropriate approach. The Trustee must make back-payments with interest at 1% above base rate, subject to Scheme rules limiting claims to six years before claim date unless discretion is exercised otherwise. Method D2 (GMP conversion) is lawful but unavailable without employer consent. Issues concerning transferred benefits and alternative methods for certain members remain outstanding.

Implications: This decision clarifies the obligation of pension scheme trustees to equalise GMP-related inequalities under EU and domestic law, providing guidance on permissible methods and the principle of minimum interference. It confirms that GMP-related benefits are pay under Article 157 TFEU, rejecting arguments that GMPs are excluded as state social security benefits. The ruling impacts a large number of occupational pension schemes beyond the immediate parties, with significant financial consequences. It also establishes that back-payment claims are generally not subject to limitation periods under the Limitation Act 1980 and that statutory limitation under the Equality Act 2010 is ineffective in this context. No new precedent was set on issues relating to transfers or alternative methods, which await further determination.