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

The trustee of the Lloyds/HBOS final salary schemes was under a continuing obligation to equalise benefits for the effect of unequal GMPs. Where, in the process of paying statutory cash-equivalents or providing a guaranteed statement of entitlement, the trustee failed to reflect equalisation and thereby made an inadequate transfer, the trustee remained liable to remedy that breach.

Key legal conclusions: (1) transfers made under the cash-equivalent regime (Chapter IV of Part IV PSA 1993 and the Transfer Value Regulations) which omitted the increases needed for equalisation did not discharge the trustee under section 99 PSA 1993; (2) statements of entitlement which wrongly stated guaranteed cash equivalents are effective but subject to correction under regulation 9(5) of the 1996 Regulations, and the trustee can be ordered to belatedly perform its duty; (3) the alternative statutory late-payment provisions (regulation 4(4) of the 1985 Regulations and regulation 10 of the 1996 Regulations) do not operate to give transferring members the relief contended for in this case; and (4) where transfers were effected under the preservation-of-benefit regime (regulation 12 of the 1991 Regulations and section 73 PSA 1993), mirror-image bulk transfers that complied with the regulations discharged the transferring trustee.

The court therefore held that transferring members whose transfers were underpaid because the trustee failed to equalise are prima facie entitled to a top-up payment or equivalent remedy; the trustee can perform that duty belatedly or be ordered by the court to do so. Interest on any top-up is awarded at 1% above base rate.

Background and parties: The Claimant is the trustee of three defined-benefit schemes (Lloyds Bank Pension Scheme No 1, No 2 and the HBOS Final Salary Pension Scheme). The First and Second Defendants are the Principal Employers. The litigation followed the Barber-era equalisation issues and the court's earlier 2018 judgment that the trustee had an obligation under EU law to equalise benefits; the present issues concern transfers out and transfers in where cash equivalents were calculated without reflecting the increases needed to equalise GMPs.

Nature of the application / relief sought: issues were formulated for the court to determine principles of law about the obligation of the transferring trustee where an inadequate transfer payment was made (whether the trustee remains liable to the transferring member, whether it must make a top-up payment to the receiving scheme, whether it can instead provide a residual benefit, whether standard discharge forms bind members, and the effect of limitation and scheme forfeiture provisions).

Issues framed by the court: The List of Issues addressed (inter alia) whether the trustee’s equalisation obligation applies to transfers to various types of receiving arrangement (DB, DC, personal pension, overseas schemes); whether the trustee must make a top-up payment to the receiving scheme or provide a residual benefit; whether the trustee was discharged by section 99 PSA 1993 or by scheme rules or signed discharge forms; the effect of regulation 9(5) of the 1996 Regulations on statements of entitlement; the operation of the preservation-of-benefit regime; and limitation and forfeiture questions.

Concise account of reasoning and conclusions:

• Detailed statutory analysis divided the relevant period into 1990–1997, 1997–2008 and 2008 onwards because the cash-equivalent statute and the Transfer Value Regulations changed over time.
• In 1990–1997 the cash-equivalent regime and the 1985 Regulations required the trustee to calculate the cash equivalent of accrued rights. The trustee’s omission of increases needed for equalisation meant cash equivalents were wrongly calculated; the statutory machinery did not make a trustee’s calculation conclusive and the trustee was not discharged under section 99 where it paid an inadequate sum.
• From 1997 the 1996 Regulations introduced statements of entitlement and the concept of a guaranteed cash equivalent. The court construed regulation 9(5) as permitting correction of a wrongly-calculated guaranteed cash equivalent; where a trustee failed to make such correction before making a transfer the trustee had committed a breach and the member could obtain an order that the trustee belatedly perform the obligation. Regulation 10 (late-payment interest) and its predecessor did not yield the wider relief contended for.
• From 2008 the Regulations imposed more detailed actuarial procedures (regulation 7 and 7A etc) but did not render trustees’ calculations irrefragable; the same principles applied.
• Preservation-of-benefit transfers (bulk/mirror-image transfers) made in compliance with regulation 12 of the 1991 Regulations and the scheme rules operate as transfers "instead of" the scheme providing benefits and (on the assumptions the parties asked the court to make) do discharge the transferring trustee.
• Scheme rules which conferred a power to transfer or to decide the transfer amount produce different results depending on whether the trustee (or employer decision-maker) acted within power; an individual who seeks to set aside an exercise of that power must show a breach of duty to render it voidable; absent setting aside, the exercise stands and the member has no retained entitlement under the transferring scheme.
• Standard discharge forms of the kinds exhibited to the trial did not, on their true construction, discharge the trustee from the member’s right to seek a top-up payment in respect of an inadequate cash-equivalent transfer.
• Limitation: claims for orders to compel the trustee to perform its statutory or regulatory duty are equitable in nature and are not extinguished by the ordinary periods in ss.2–9 Limitation Act 1980. Where the claimant seeks to "recover" trust property in the possession of the trustee, the claim can fall within s.21(1)(b) (no limitation) as well as s.21(3) (six-year period). The court held that a member’s claim for a top-up payment can be characterised as recovery of trust property for these purposes.
• Interest on any top-up is to be awarded at 1% above base rate as a practical, administrable rule for these remedies (the court applied the principles in Marshall and domestic practice).

Wider comment: The court emphasised the primacy of the domestic statutory transfer regimes and scheme rules in addressing transfer disputes, and that Coloroll imposes obligations on receiving defined-benefit schemes but does not relieve transferring trustees from liability to remedy underpayments caused by failure to equalise.

This first-instance judgment determined the parties’ issues. The court held that where a trustee paid an inadequate cash-equivalent because it failed to include the increases required to equalise GMPs, that trustee was not discharged by section 99 PSA 1993, nor by the Transfer Value Regulations, nor by the scheme rules or the sample discharge forms considered. The transferring member is prima facie entitled to remedy (typically a top-up payment to the receiving scheme), enforceable by the court; the trustee can perform the duty belatedly or be ordered to do so. The court gave detailed statutory construction and ancillary rulings, and ordered interest on any top-up at 1% above base rate. Rationale: detailed construction of Chapter IV PSA 1993, the 1985/1996 Regulations (in particular regulation 9(5)), and the preservation-of-benefit provisions, led to the conclusion that a correct cash-equivalent remained the member’s right and an inadequate payment did not effect an unconditional discharge of the trustee's liabilities.