One of Britain’s largest house-building companies, Taylor Wimpey, has announced that its pension scheme liabilities will increase by up to £20m in the wake of a recent legal ruling on guaranteed minimum pensions.
The dent to its defined benefit liabilities will be recorded as an exceptional charge in its 2018 results, the FTSE 100 company said in a trading update last Wednesday.
Taylor Wimpey’s latest available results indicate a deficit of £63.7m at December 2017. A £20m increase would therefore push up the shortfall by almost a third.
Last October the High Court ruled that Lloyds Banking Group must amend its three defined benefit pension schemes in order to equalise GMPs for men and women. The ruling will have an impact on every organisation that contracted their pension scheme out of the state earnings-related pension scheme between 1990 and 1997.
Companies should take proactive steps to deal with GMPs by converting GMPs to standard scheme benefits
Rob Dales, JLT Employee Benefits
At December 31 2017, Taylor Wimpey’s DB scheme had 8,188 deferred members and 9,045 pensioner members, including spouses and dependants.
One industry source said the cost of equalisation, estimated between £15m and £20m, will be typical, or a slightly lower than average cost for a scheme of its size.
Taylor Wimpey could not be reached for comment on its funding position, but said it is likely to provide an update in its full year results in February.
Its trading statement said: “The position will be kept under review, including the amount of the liability, pending any further clarification and government guidance.”
Schemes may delay equalisation
Paul McGlone, president of the Society of Pension Professionals and a partner at Aon, questioned how quickly UK DB schemes will rectify inequalities in GMP payments, give the lack of clarity on how to do so.
“To the best of my knowledge the Pensions Regulator doesn’t have a formal position, and there is no requirement, either from TPR or elsewhere, to settle this issue quickly,” he said. “Although the Lloyds case clarified a number of issues, it left others still open, and until more of those are resolved most schemes are not in a position make definitive decisions. Initial work can be, and is being, undertaken, but not final decisions.”
McGlone said the impact on scheme liabilities will largely depend on the benefit structure and membership profile.
“There will be cases where it simply isn’t possible to contact the member and correct the benefits,” he added. “There is therefore no requirement to pay straight away, although schemes and sponsors will be required to set aside additional reserves to cover the expected cost.”
Questions remain on methodology
Rob Dales, director at consultancy JLT Employee Benefits, said the range of options for equalisation could prove daunting.
“What do you do with people who have already taken their benefit out of the scheme? How far back do you go making amendments and corrections for current pensioners? Is it a six-year limitation or is it back to 1990?,” he asked, adding that some schemes have not even have reconciled their GMPs with HM Revenue & Customs. “Schemes will use that uncertainty to delay making any decisions.”
However, Dales said he sees the ruling as an opportunity for trustees: “Companies should take proactive steps to deal with GMPs by converting GMPs to standard scheme benefits and simplifying their scheme.”
