Stagecoach Group plc – Annual report – 27 April 2019
Note 4 exceptional items and intangible asset amortisation (extract)
Guaranteed minimum pension equalisation
On 26 October 2018, the High Court handed down a judgement involving Lloyds Banking Group defined benefit pension schemes. The judgement concluded that the schemes should equalise pension benefits for men and women in relation to guaranteed minimum pension (“GMP”) benefits. The judgement has implications for many defined benefit schemes, including those in which the Stagecoach Group participates.
The Group has worked with its actuarial advisors to understand the implications of the High Court judgement for the schemes in which the Group participates and has recorded a £25.3m pre-tax exceptional expense to reflect the Group’s best estimate of the effect on the reported pension liabilities.
The change in pension liabilities recognised in relation to GMP equalisation involves estimation uncertainty. It is expected that there will be follow-on court hearings to further clarify the application of GMP equalisation in practice. It is not yet known whether Lloyds Banking Group will appeal the High Court judgement. Whilst the financial statements reflect the best estimate of the impact on pension liabilities, that estimate reflects a number of assumptions. As the outcome of future court hearings cannot be reliably predicted, it is not practical to quantify the extent of the estimation uncertainty but the best estimate reflects the information currently available. The Directors will continue to monitor any further clarifications or court hearings arising from the Lloyds case and consider the impact on pension liabilities accordingly.
The Directors have made the judgement that the estimated effect of GMP equalisation on the Group’s pension liabilities is a past service cost that should be reflected through the consolidated income statement and that any subsequent change in the estimate of that should be recognised in other comprehensive income. The judgement is based on the fact that the reported pension liabilities for the Stagecoach Group Pension Scheme as at 28 April 2018 did not include any amount in respect of GMP equalisation.