25th February 2015 saw the handing down of the judgment of Asplin J in the case of the Merchant Navy Ratings Pension Fund Trustees Limited v. Stena Line Limited and others, relating to the Merchant Navy Ratings Pension Fund (the "Fund"). At any other time, this case would be the only issue talked about in the pensions world, covering as it does a range of fascinating issues, but at the moment, many pensions minds are occupied by a range of other developments.
The Fund is relatively unusual, in that it is an industry wide arrangement, for employees of a large number of employers in the same industry without common ownership and therefore, in many cases, competitors. This of course gives rise to some difficulties in management, and in particular concern about which employers bear any costs. It is to this issue of costs that the case relates. When the Fund was closed to accrual in 2001, a funding regime was put in place to deal with the deficit, which required payments largely from employers who had had active members in 1999. The effect of this, of course, is that these employers were bearing the pension costs rather than other, competitor employers.
Because of the perceived unfairness of this, the trustees considered changing this payment regime and a 2011 Court of Appeal decision in Stena Line v Merchant Navy Pension Fund Trustees Limited and P&O Ferries Limited decided that this was possible. The trustees then looked at another method of calculating the liabilities for the deficit, and proposed an amendment to the Fund to do so.The present case arose from their application to the court for confirmation that this was possible and appropriate.
In short, Asplin J held that this was possible and gave a wide power for the trustees to adopt the proposed amendments.Whereas this is of great importance to those in the sea-going professions, and may again become important as master trusts of unconnected employers become more popular, it might, as a question that in large part turned on the rules and the power of amendment of the Fund, be assumed not to have general application. However, there are a number of issues that are of general interest considered by Asplin J, as follows:
- There is no overriding separate duty to act in the interest of members – it was argued that the new regime would not give a greater level of covenant strength or security to the Fund. As such, it was argued, the change was not possible because it had no effect on members, to whom the duties of trustees are owed, but instead affected the employers, who were not the concern of the trustees. Asplin J held that the "duty to act in the best interests of members" was at most a shorthand for the general obligation for trustees to act within the purpose of the trust, which was to provide pensions for the members – but it is the employers who (largely) pay for those pensions. She therefore held that the trustees could consider the employers, as part of the purpose of the trust, and should take into account financial hardship and perceived inequities.
- The ability to change scheme liabilities in relation to benefits already earned – it was argued that the amendment to change the liabilities (as between employers) for benefits already earned was a change to past provisions, and (arguably) not possible without express provision in the deed of amendment. Asplin J held that it was not rewriting history or amending historical provisions to readjust the liabilities between employers in relation to contributions to be paid going forwards. In short, the rules could be amended in this way, presumably for this and for other schemes where certain employers believe they have no further liability – at least where employers have not been validly discharged.
- Paying the section 75 debt does not avoid any liabilities under the deed – if the rules provide for a debt to be paid, paying a debt under section 75 of the Pensions Act 1995 does not prevent a greater liability arising under the rules, and the difference from being paid. This means that employers who paid a section 75 debt, perhaps on an old Minimum Funding Requirement basis may be still on the hook for a further sum if the rules provide for this or are validly changed to make them liable. Clearly, there are likely to be many legal and practical issues with making any such amendment, as exemplified by this case.
- Is a scheme "frozen" for section 75 purposes if members have increases to their benefits reliant on being an employee – the Fund provided that, if a member remained in employment with their scheme employer or otherwise in "seagoing employment" the benefits earned up until the closure in 2001 would have the benefit of a better revaluation than if the member left such employment. The question was asked as to whether the better revaluation, reliant on a member being in such employment, made that member an active member for section 75 purposes. Asplin J held that it did not, and that the better revaluation was not related to service in the way that accrual of years of pensionable service were: the right to the better revaluation had already been earned by past service and had accrued at the date in 2001 as from which members ceased to build up further years of pensionable service. This situation is akin to, although not exactly the same as, that of schemes which have closed to accrual with a salary link, and the decision suggests that the salary link does not give rise to active membership for section 75 purposes.
One noteworthy feature of the judgment is several references to the Pensions Regulator's guidance, particularly its Code of Practice on Funding Defined Benefits. Generally, the court has taken little notice of guidance, and in fact has been quite scathing of it on occasion. However, in the circumstances of a case which turned in large part on the appropriateness of the trustees reassessing the covenant of employers and the appropriate apportioning of pension liabilities, it is clear that guidance was of use to the court, and also of use to the many covenant expert witnesses involved in the case.
The decision has made it clear that, just because an employer is not liable for any further payments under section 75, does not mean it necessarily has no further obligations. Whereas the circumstances where re-apportionments of liability are or should be undertaken are limited, the fact remains that there is no overriding legal bar to their consideration.