Amending scheme rules to manage final salary pension scheme liabilities, getting member consent to alter benefits, relying on contractual terms and conditions to override scheme rules and compromising disputes with members: many schemes will recently have had to consider these issues, each of which was considered by the court in the IMG case[1].


The IMG Pension Plan was originally set up as an occupational final salary pension scheme for employees of a group of companies founded by the late Mark McCormack.

In the early 1990's the company decided to change the Plan so that it provided money purchase benefits for all service. Active members were sent a memorandum, booklet and application form and asked to confirm that they wished to continue to participate in the Plan from 1 January 1992. The members' accrued final salary benefits were converted into capital sums which were subsequently credited to their personal investment accounts under the new Defined Contribution (DC) arrangement. The relevant rule amendments were made in a deed dated 3 March 1992.

In the late 1990's questions surfaced from some members about what had happened, although at that stage no one suggested that the Defined Benefit (DB) to DC switch was invalid.

In 2006 an independent trustee was appointed and became concerned about the validity of the conversion of the Plan in 1992. A number of questions were therefore raised with the court. This is a long and important decision which we have therefore considered in some detail.


This is an important case that could have significant implications for many sponsoring employers and trustees.

  1. It is a timely reminder of the difficulties of making changes to reduce members' benefits where the amendment power contains (or previously contained) some form of fetter. Two challenges over the summer to the Courage decision (which is one of the leading cases in this area), have failed, suggesting the courts will be concerned to protect member interests.
  2. The comments made in the case about South West Trains compound the problems that exist with restrictive amendment powers, although the judge's focus was on accrued rights. South West Trains has been the source of many convenient "workarounds" but may be less useful in the future.
  3. Schemes with more than one amendment power or an amended amendment power will need to consider which is effective and whether rule changes made after the amendment power was changed or supplemented have been validly introduced.
  4. Trustees appointed to schemes that have altered their benefit structures - one of the common ways adopted in recent years to try and manage scheme liabilities - will want to consider in light of this case whether that alteration has in fact achieved the desired result.
  5. The judge's comments on the sort of information needed for members to give informed consent will require careful consideration by employers and trustees who are or have been involved in projects where informed consent is sought. The comments supplement guidance in this area from the Pensions Regulator and both will need to be considered.
  6. The court's decision that the compromise agreements infringed the provisions of Section 91 will mean that resolving disputes with individual members about their pension benefits may be more difficult and will need careful consideration.
  7. The judge's decision that the power of amendment was validly exercised (the fourth issue) illustrates the importance of early training for new trustees.

The judgment

The first issue was whether the amendments were effective to bring about a switch from DB to DC benefits.

This first issue had two elements:

  • were the amendment formalities complied with? (A later Trust Deed purportedly introduced less rigid amendment formalities than those contained in the original Trust Deed); and
  • did the restrictions in the amendment power prevent the switch being effective in any event?

On the first question, the judge decided that the amendments purportedly made to the original amendment power (removing a fetter protecting accrued benefits and changing the balance of power from the trustee alone to a shared power with the company) were ineffective. Although there was no express prohibition in the original amendment power prohibiting any amendment to the amendment power itself, the judge decided that the changes purportedly made fell outside the scope of the original amendment power. Their effect would have been to allow changes that could have been prejudicial to members' interests to be made indirectly when they could not have been made directly.

On the second question, the judge had to consider the effect of the fetter that existed in the original amendment power which provided that:

" amendment shall have the effect of reducing the value of benefits secured by contributions already made..."

This wording was very similar (but not identical) to wording considered in a number of other cases, notably Re Courage[2], in which it had been construed as being effective to preserve the benefit for members of a linked final salary in respect of pre-amendment service. Having considered the rules of the IMG Plan, the judge decided that its fetter operated to equivalent effect. The conversion of the final salary benefits to a money purchase entitlement was only therefore permissible on the basis that there was an underpin preserving the value of the accrued DB benefits linked to final pensionable pay at the date of retirement, earlier leaving service or death.

The second issue was whether a contract with the members overrode the Plan provisions.

The amendments having failed to achieve the intended effect, the company sought to argue that by signing the application forms when the switch was purportedly made, the members had entered into a contract under which they consented to the changes being made.

The judge rejected this argument also, deciding that the necessary intention to create contractual relations was not present, the members having, in effect, with the memorandum booklet and application form been presented with a fait accompli.

In reaching this conclusion, the judge distinguished the South West Trains[3] case (often successfully relied on in this context). In IMG, unlike in South West Trains, the judge considered that the contract alleged would have been looking to achieve something that was contrary to the terms of the original Trust Deed. In a case such as IMG, the judge decided that he would only have regard to the contract if members could be said to have given informed consent to the terms of that contract.

The member communication exercise was poor. The judge was not satisfied that informed consent had been obtained when, among other things, the members were unaware of the restrictions in the amendment power, were unclear what was happening to their final salary benefits (and in some cases had the impression that they would not be adversely affected), were given no real choice as to whether or not to consent and received no advice in relation to the proposed change.

The third issue was whether the company could rely on estoppel arguments.

As a further alternative means of giving effect to the amendments, the company sought to rely on estoppel arguments. The judge decided that the estoppel arguments failed because, in the case of estoppel by representation, there had been no unequivocal statement that member benefits were going to be converted to a money purchase basis. Although some of the available material came closer to suggesting that an estoppel by convention could be established, ultimately the judge decided that the necessary common assumption (that final salary rights had been given up) had not existed.

The fourth issue was whether the power of amendment had been validly exercised.

New trustees were appointed shortly before the deed of amendment purportedly effecting the changes was executed. The judge found they simply rubber stamped a decision taken by the previous trustee (which was the company). Despite this finding, the judge saw nothing wrong in the process by which the new trustees came to execute the deed of amendment. One of the trustees was independent of the company (even though not a member trustee), which the judge felt would have been desirable and all of the new trustees had been advised in general terms of the nature of the obligations they were assuming. The decision to amend the Plan rules had been carefully considered by the previous trustee (albeit on a flawed understanding of the amendment power) and the new trustees could properly conclude, in those circumstances, that they should simply give effect to a decision that had already been taken.

The fifth issue was whether a compromise agreement was a breach of the section 91 restriction on surrendering a pension.

Some members signed compromise agreements to forego their final salary benefits. Having considered the competing policy benefits of upholding compromise agreements on the one hand and the inalienability of pensions on the other, the judge decided that to uphold the former policy would be, in effect, to undermine the latter and that the protection afforded to members by section 91 of the Pensions Act 1995 should prevail.