Lloyds Trade Union (LTU)

Lloyds Trade Union (LTU)

May 23, 2012 12:23 ET

GBP 910 Million Gaping Hole In LBG Accounts?

LONDON, UNITED KINGDOM--(Marketwire - May 23, 2012) - Mr Bradbury is a member of the BBC Philharmonic Orchestra. The BBC introduced a pensions cap of 1% and members of the main Pension Scheme received pay offers subject to the condition that only the first 1% of the increases is pensionable. The clarinettist rejected his 2% pay offer and made a complaint to the Pensions Ombudsman. The Pensions Ombudsman rejected the complaint and that decision was appealed to the High Court. The High Court issued its judgement today. Mr Justice Warren did not issue a final judgement instead he said that "The parties may be able to reach an agreed position which can be presented for my approval".

Pensions Cap and Lloyds Banking Group

Lloyds Banking Group imposed a pensions cap of 2% for those staff in defined benefits or final salary schemes in April 2010.

Whilst there were a number of issues for the Court to determine the two main ones, with a direct bearing on staff in Lloyds Banking Group, were the meaning of "basic salary" in the context of the Pension Scheme Trust Deed and Rules and the use of separate contracts with individual members of staff to give effect to the 2% pensions cap.

In respect of the meaning of "basic salary" the Court agreed that it has an objective meaning and it is not up to the Bank or the Trustee to determine that some proportion (in this case anything over 2%) of a member's basic salary is not to be regarded as pensionable pay. Mr Justice Warren said ".....the construction for which Mr Bradbury contends is in my judgement to be preferred to that for which the BBC contends". He then rejects the BBC's approach to the interpretation of basic pay.

In the Bank, pay increases are now conditional on members of staff accepting that only part of those increases are pensionable. If they don't accept that condition (the 2% cap) they give up any right to pay increases. It is that separate agreement (the collateral contract) which the Bank is using, and the Trustee is relying on, to override the Trust Deed and Rules. Our argument is that staff had no real choice and imposing that condition is a breach of the Bank's duty of good faith. Our argument is that staff had no real choice and imposing that condition is a breach of the Bank's duty of good faith. On this point Mr Justice Warren said "I therefore conclude that, subject to...the question of breach of Implied Duties........an agreement by an Active Member of the Scheme to accept a pay rise on the basis that only part of it is pensionable, would be binding on the Member concerned". This judgement opens up the argument that the course of action adopted by the Bank in seeking to impose the pensions cap amounts to a breach of the implied terms of good faith and/or trust and confidence. Two LTU members referred to below have made that exact point in their complaints to the Pension Fund Trustee.

Two members of Lloyds Trade Union, both of whom have now left the Bank but whose basic salaries were subject to the pensions cap, have made formal complaints to the Trustee using the Lloyds TSB Pension Scheme Dispute Resolution Procedure. In their complaints the members say:

"The Trustee is obliged to administer the Scheme in accordance with its rules, and that means that all of my basic salary must be counted for pension purposes. The Trustee is not permitted to treat some lesser part of my pay as my basic salary, because my employer has so informed it, when the Trustee is aware that my basic salary is a higher amount."

In the light of the BBC judgement the Pension Fund Trustee must rule on the complaints brought by the two members of LTU. If the Trustee refuses to uphold the complaints then we will refer the issue to the Pensions Ombudsman.

£910 Million Gaping Hole In LBG Accounts

The most worrying issue for the Bank is perhaps not that the pensions cap may be legally questionable following the Bradbury judgement, that's bad enough for those in HR who proposed such a strategy, but the fact that it has already absorbed the gain of £910 million (the savings it expected to make from imposing the pensions cap) in its 2010 Annual Report and Accounts. Without that gain the Bank's statutory profit before tax figure would have been a loss of £629 million rather than the £281 million it reported. If that gain is now questionable, it is going to create a gaping hole in the Bank's accounts for 2012.

Union Comments

Commenting on the High Court judgement, Mark Brown, General Secretary at Lloyds Trade Union, has said:

"Today's judgment puts the pensions cap issue firmly back on the agenda.
We knew at the time that the imposition of the pensions cap, with members losing pension benefits of up to £200k depending on how long they live, was morally indefensible. The indignation of our members was compounded by the fact that the pensions cap didn't apply to Eric Daniels, the then Chief Executive of LBG, who incidentally left with a pensions pot of £5 million, which pays out some £210,000 per year.
As with the PPI mis-selling scandal the new Chief Executive has been left with a potential bill of £910 million if the Pensions Ombudsman rules that the imposition of the cap was wrong, something that is now more likely following the BBC judgment.
There are a number of Senior Executives who received bonuses on the back of the 'successful' integration of the LTSB and HBOS businesses, including the harmonization of terms and conditions, and if those bonuses are proven to be based on savings which are now illusory then the payments need to be clawed back immediately."

About Lloyds TSB Group Union (LTU)

Lloyds Trade Union (LTU) - with over 40,000 members - is the largest independent trade union representing staff in the Lloyds Banking Group. Within the merged Bank, Accord would be the second largest union with over 20,000 members and Unite the third, representing only approximately 9,500 staff across the two Banks.

For More Information

You can download a copy of LTU's Newsletter at http://www.ltu.co.uk/newsletters/.

Mark Brown

General Secretary, Lloyds Trade Union

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