LONDON (26 October 2018) – Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that today’s High Court ruling on the equalisation of pension benefits in relation to the three largest Lloyds Banking Group pension schemes, sheds long-awaited light on the issue of GMP equalisation. The judgment provides potential clarity for thousands of UK schemes on an issue that arose from the ‘Barber Case’ back in 1990 and has remained an open question for the UK pension industry for even longer.
Aon has already helped more than 50 schemes, ranging in size from £10 million to £40 billion, to understand the financial impact of this issue.
The judgment has:
1. Acknowledged that there is legal requirement for schemes to equalise between male and female benefits for the impact of a Government defined minimum pension – the Guaranteed Minimum Pension (GMP)
2. Presented a number of options that schemes can use to equalise.
Tom Yorath, principal consultant at Aon, who acted as an expert witness in the case said:
"Our analysis suggests that for a typical scheme the average increase to individual pensions is around 1% -although depending on the scheme rules we have seen schemes where costs were up to four times this. On an industry-wide level this could mean a cost of around £15Bn."
However, Aon's analysis suggests that contrary to common perception, the ruling is likely to have a relatively minor impact for most pensioners and will benefit male pension scheme members more than female members.
Tom Yorath said:
"While the overall costs to the industry are certainly significant, this ruling will not have a material benefit for all scheme members. Most pensioners will see no increase and for those pensioners who see some increase, only a small number will receive more than an extra few pounds a month.
“Although, most schemes will see a mixture of men and women receiving some increases, our analysis of more than 50 pension schemes suggests it is men who are more likely to benefit. In the vast majority of cases this is mainly a reflection of the legacy inequality in state benefits between men and women, rather than conscious unequal treatment by employers."
The cost of equalisation could be a serious strain for some sponsors - particularly those with large schemes relative to the size of their business - but for most, this cost will be less of a concern than the annoyance of disproportionate administration costs, the hassle of calculating relatively minor revisions to the benefits and explaining the costs in their accounts.
Lynda Whitney, partner at Aon, said:
"Although pension schemes often provided equal pensions, it was the Government's own requirements for GMP revaluations that lead to the inequality – vexing when you have done things right and you then need to undertake a technical correction like this. And especially for sponsors if they have to recognise it in one year’s P&L.
“Although this issue has rumbled on for more than 28 years, this case provides a way forward for many schemes and action should be taken now to consider:
• Treatment of the costs in company accounts
• Transfer value waivers
• Reserves in ongoing valuations
• Getting data ready for a full equalisation exercise
Lynda Whitney continued:
“Despite the potential for an appeal with numerous parties to the case, precautionary action taken now can help manage the risk of inadvertently amplifying the issues in future.”
For further information please contact:
Colin Mayes Marina Sanchez
Aon Kekst CNC
01372 733689 07535 693214
Notes to Editors
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
Aon announced in May 2018 it will retire the business unit brands of Aon Benfield and Aon Risk Solutions, which follows the retirement of the Aon Hewitt business unit brand in 2017. This move was designed to increase the rate of innovation across the firm and make it easier for colleagues to work together to bring the best of Aon to clients. Aon has five specific global solution lines: Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions and Data & Analytic Services.
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