Court of Appeal rules on enforceability of compromise agreements which cover pension terms

We understand that the Court of Appeal has confirmed that section 91 Pensions Act 1995, which prohibits the assignment, commutation or surrender of a “right to a future pension”, “does not present an obstacle to reaching a binding bona fide compromise of a bona fide dispute”. This pronouncement was made in open court, and the final judgment has not yet been published. However, this strong indication of the court’s approach will come as a relief to employers and trustees who have, in the past, struck compromises directly with pension scheme members (with or without court sanction).

At the High Court stage of this litigation (Re IMG Pension Plan ([2010] EWHC 321 (Ch) (February 2010)), Arnold J indicated that compromise agreements between employers and employees under which a pension scheme member waives rights to which he or she might be entitled (but for the compromise agreement), would constitute an unenforceable surrender under section 91 (unless the limited exception conditions were met).

This first instance decision created a great deal of uncertainty for employers, both in relation to the validity of previous compromise agreements and in terms of how to proceed with compromise arrangements in future. However, it now appears that the Court of Appeal has reversed the High Court on this issue.

Any conditions or nuances to the bald principle pronounced by the court will not be known until the full written judgment is issued. However, this early indication of the court’s thinking is a promising development and it seems that the issue will at least be resolved with a useful degree of certainty.

Unfortunately, we also understand that other major issues raised in the High Court stage of the IMG litigation, and which have implications for occupational pension schemes generally, (including, the ambit of the South West Trains principle; specifically, the ability of employers to vary pension terms via contracts of employment), will not be considered in the Court of Appeal judgment, as these form part of an overall settlement.