“Big Data” is a topic that is frequently referred to in the news. The traditional definition of Big Data is data that contains greater variety, arriving in increasing volumes and with ever-higher velocity. Whilst this definition isn’t typically of direct relevance to trustees of UK occupational pension schemes, it does have some application in the context of guaranteed minimum pension (GMP) equalisation.
Trustees are already grappling with scheme data in connection with the submission of data scores to the Pensions Regulator as part of their scheme returns. In addition, data issues are high on many trustee agendas, for example, when addressing data security and data privacy obligations, or looking ahead to the information to be provided to pension dashboards. Following the recent High Court decision on the issue of GMP equalisation and historical transfers – a ruling commonly referred to as “Lloyds 3” – trustees have a potential further headache regarding scheme data to deal with.
Lloyds 3 is the most recent ruling in legal proceedings relating to a number of pension plans connected with the Lloyds Banking Group. The court came to different conclusions regarding the Lloyds schemes trustee’s obligations to revisit and top-up unequalised transfers, distinguishing between individual transfers that had been made under the cash equivalent legislation, individual non-statutory transfers that had been made under the scheme rules and some bulk transfers out. (For a more detailed analysis of the court’s decision please read our publication “GMP Equalisation – Some Transfers Are More
One of the issues that schemes may encounter in practice is establishing whether individual transfers were made under the cash equivalent legislation, or whether they were non-statutory transfers paid using a power in the scheme rules. This will be particularly problematic if the scheme has limited data regarding historical transfers. The distinction is important. The High Court ruled that trustees can act without a court order in paying a top up due in respect of an unequalised transfer made under the cash equivalent legislation. In contrast, a member would have to apply to court for a ruling that the trustees should recalculate an unequalised non-statutory transfer paid under the scheme rules (based on the court’s interpretation of the relevant law and its application to the Lloyds schemes’ rules). Trustees and advisers will need to come up with pragmatic solutions to address these uncertainties and gaps in data.
The difficulties regarding missing data are exacerbated by the fact that trustees potentially have to look back to 17 May 1990 when identifying where top ups to statutory transfers are due. For many schemes that is going to raise significant issues. In particular, trustees are likely to face the following complications:
- Missing member contact details
- Missing information about the receiving scheme
- Missing data to identify where a top up is due and/or calculate the amount owed
Data protection legislation such as the GDPR may have made the position more difficult if administrators deleted member data after the making of a transfer, on the assumption that the personal data was no longer needed and its retention was therefore inconsistent with data protection obligations to minimise the personal data they retain.
There is some comfort to be derived from the court’s recent ruling: the judgment stops short of saying that trustees must immediately pay top ups due, but instead states that “the Trustee does need to be proactive in that it must consider the rights and obligations … identified, the remedies available to members and the absence of a time bar and then determine what to do”. This flexibility is likely to be comforting where trustees encounter practical barriers and delays in identifying and paying the top ups due. Trustees cannot, however, sit on their hands and must be proactive in determining how they will address these obligations. Understanding the gaps in scheme data will help them plan ahead. The first step which trustees should be taking now is investigating how many transfers out will need to be revisited (and, to the extent possible, identifying which type of transfer was made) then assessing where their data gaps are and how easily those gaps can be filled.
Trustees are getting to grips with an increasing variety and large volume of data issues and there is no indication that the velocity at which these challenges will arise is slowing down. Trustees will therefore need to reconcile themselves to addressing their own Big Data issues, including those resulting from the Lloyds 3 ruling on GMP equalisation and historical transfers, in the near future.
If you have any questions on this topic, or GMP equalisation generally, please speak with your usual Squire Patton Boggs contact.