The European Court of Justice has handed down its decision in Safeway v Newton, a case relating to the equalisation of normal pension ages (NPAs) for men and women.
The ECJ has ruled that schemes cannot retrospectively equalise benefits on the less favourable basis, even where this is allowed by UK law and the scheme rules.
On 19 May 1990, the ECJ decided in the Barber case that it was unlawful discrimination for pension schemes to provide different NPAs for men and women. Following this decision, Safeway issued an announcement to members of its scheme explaining that the trustees had decided to increase the NPA for women from 60 to 65 (the NPA already applicable to men), with effect from 1 December 1991. The scheme was administered on this basis from December 1991, but no amending deed was signed until 2 May 1996. The amending deed was stated to have retrospective effect from 1 December 1991.
The scheme’s power of amendment said that:
“The Principal Company may at any time and from time to time with the consent of the Trustees by Supplemental Deed executed by the Principal Company and the Trustees alter or add to any of the trusts powers and provisions of the Scheme . . . and may exercise such powers so as to take effect from a date specified in the Supplemental Deed which may be the date of such Deed or the date of any prior written announcement to Members of the alteration or addition or a date occurring at any reasonable time previous or subsequent to the date of such Deed so as to give the amendment or addition retrospective or future effect as the case may be”.
The employer argued that equalisation occurred on 1 December 1991 (i.e. the date notified to members in the announcement and the date by reference to which the rule amendment was stated to be retrospectively effective). The representative beneficiary argued that equalisation did not occur until 2 May 1996, the date on which the amending deed was signed. If equalisation did not occur until 2 May 1996, NPA for men and women would be 60 for the period between December 1991 and May 1996, the estimated cost of which would be more than £100 million.
The High Court was asked to consider two issues:
- whether the amendment power could be exercised by an announcement to members; and
- whether, if the amendment power could only be exercised by deed, the power to do so retrospectively was prohibited by the EU principle of equal treatment.
The High Court ruled that the amendment power could not be exercised by an announcement to members and the EU principle of equal treatment did not allow retrospective levelling down of benefits, even where allowed by the scheme rules.
On appeal, the Court of Appeal:
- agreed that the power of amendment could only be exercised by deed and not by written announcement; but
- concluded that the question of whether the power of amendment could be exercised retrospectively raised a question of EU law which needed to be referred to the ECJ.
The second issue arose because, as a matter of UK law, members had only a defeasible right to an NPA of age 60 during the period from December 1991 until May 1996. This was because the announcement that NPA would be increased to age 65 could have been implemented at any time during that period by the retrospective application of the amendment power.
The effect of the High Court decision, however, was to give all members an indefeasible right to an NPA of age 60. This appears to conflict with the principle that the domestic law rights of the disadvantaged class during the relevant period (here, men) need only be brought up to the same level as those of the advantaged class (women). In this case, that would mean giving both men and women only a defeasible right to an NPA of age 60.
It is worth noting that the amendment in this case was made before Section 67 of the Pensions Act 1995 (which generally prevents amendments to accrued benefits) came into force on 6 April 2007. Section 67 would prevent the retrospective effect of the amending deed in this case, regardless of whether EU law allows it.
The ECJ has ruled that the EU principle of equal treatment means that a pension scheme cannot retrospectively equalise NPA to that of the members in the disadvantaged class (in this case, age 65), even where this would be allowed by national law and under the rules governing the scheme.
The ECJ left open the possibility that, in exceptional cases, retrospective levelling down may be permissible, so long as the legitimate expectations of members are respected and the retrospective levelling down is warranted by an “overriding reason in the public interest”. The ECJ said that the risk of seriously undermining the financial balance of the pension scheme concerned could constitute such an overriding reason in the public interest. Whether the retrospective levelling down was necessary to prevent the financial balance of the scheme in this case from being seriously undermined was a question for the national court.
The ECJ’s decision confirms that the EU principle of equal treatment prevents schemes from retrospectively levelling down NPAs, even where this is permitted by UK law and the scheme rules. This is consistent with earlier case law (and the Advocate General’s Opinion) and is therefore not surprising.
However, the ECJ has left open the possibility that retrospective levelling down could be justified in exceptional cases, where it can be shown it was necessary to prevent the financial balance of the scheme from being “seriously undermined”. This leaves a ray of hope for schemes which purported to equalise NPAs by way of an announcement to members and only made a formal amendment to the scheme rules at a later date. But it may prove an uphill struggle to show that the scheme’s funding position would be “seriously undermined” if retrospective levelling down is not permitted, or that it would be in the “public interest” to allow levelling down even if the scheme’s financial position would otherwise be seriously undermined. In relation to this last point, it is worth noting that there is no “public interest” exception to the Section 67 restrictions.
It will be interesting to see how the UK courts now view the case. One possibility may be that, in light of this ruling from the ECJ, the amending deed could be interpreted as treating accrued benefits as at May 1996, equalised on the “levelling up” basis permitted by the ECJ, as a protected “underpin”, but limiting post-May 1996 accrual until the benefits set out in the rules exceed the underpin. With £100 million at stake, the employer may think it cannot afford to leave any stone unturned.