The purpose of this Guidance published in August 2021 is to assist pension schemes and their advisers to equalise historic transfers and is divided in the following three sections:
1-role of transferring schemes in individual transfers;
2-role of receiving schemes in individual transfers; and
3-bulk transfers.
Role of transferring schemes in individual transfers
Transferring pension schemes may be required to pay a top up payment in respect of former members who had service between 17 May 1990 and 5 April 1997 (the Equalised Period) and transferred out. This would happen if the amount that was transferred would have been higher if GMP was equalised at the time the member transferred out.
The two points raised by PASA Guidance here are that (i) there is no statutory limitation period and therefore all historic transfers out which cover periods of pensionable service in the Equalised Period can theoretically be entitled to receive a top up payment and (ii) trustees need to be proactive when determining what to do in cases of historic transfers and transferring schemes need to take advice. Inevitably, there will be situations where the transferring schemes will be unable to discharge their liability for top up payments and will have to retain this liability.
PASA Guidance contains the following table which illustrates the necessary steps the transferring schemes have to undertake to discharge their liability and when this is not possible.
Role of receiving schemes in individual transfers
While the Guidance provides a step-by-step approach to transferring schemes dealing with historic transfers, it does not help in the same way for receiving schemes and, as the legal obligations remain uncertain, it suggests receiving schemes should seek legal advice.
In summary, from the Lloyds case, it appears that there is an obligation to comply with the Coloroll case which says that it is the receiving scheme that is required to make the top up payment if requested. If the receiving scheme is a DB scheme, it is expected that the scheme equalises the GMP awarded in respect of the transfer as part of its wider GMP equalisation exercise. However, if, instead, the receiving scheme is a DC scheme, it is likely that the top up payment will be offered by the transferring scheme and it is expected that the receiving DC scheme will accept the payment subject to a minimum level and with member consent.
Bulk transfers
Based on the Lloyds judgments, often the transferring schemes have no obligation to make top up payment to equalise benefits on bulk transfers and it is normally the receiving schemes that are expected to assume an obligation to equalise the correct GMP inequalities. It is essential for schemes to review the bulk transfer legal agreements to ascertain who may be liable to implement the GMP equalisation.