The main question for the High Court was whether a member with part of his pension accrued by reference to a Normal Retirement Date (NRD) of 60, and part of the pension accrued by reference to an NRD of 65, both before and after equalisation following the Barber ruling, could take all of his pension from age 60. The judge held that, under the early retirement provisions of the Foster Wheeler Pension Plan (the Plan), a “split pension” regime should not be imposed and the member was entitled to take the whole of his pension from age 60. This was despite the fact that the Plan’s early retirement rule required employer consent.
The second question was whether that part of the pension accrued by reference to an NRD of 65 after equalisation could be reduced for early payment. The judge decided that the Plan’s early retirement provisions did not allow reduction for early receipt in relation to the period between the retiring member’s 60th and 65th birthdays.
The additional liabilities for the Plan as a result of this decision were estimated to be in the region of £18 - 30 million and, recognising the significance of this decision for Foster Wheeler and the funding implications for other schemes, the judge granted permission for the employer to appeal.
The Court of Appeal judgment was handed down on 8 July 2009. Crucially for Foster Wheeler, the Court accepted the employer’s argument that the High Court decision conferred an unjustifiable windfall on members who had accrued what it referred to as “mixed NRDs” - that is, pension benefits with reference to both NRD 60 and NRD 65.
The Court of Appeal held that:
- where possible, the court should give effect to “Barber rights” by adhering to the scheme rules in preference to some other approach;
- if a different approach is required, there should be minimum interference with the scheme rules. The minimum interference principle applies to both substance and form - that is, the court should consider not only the extent of any amendment to the scheme rules but also the substantive effect of any such amendment; and
- a scheme should, in general, be treated as amended only to the extent necessary to give effect to the rights acquired under European law, and no more.
For mixed NRD members who retired between 60 and 65, the Court of Appeal decided that the correct approach was for the trustees to grant a single pension, but on the basis that the benefits accrued by reference to NRD 65 fell under the scheme’s deferred pension rule. This allowed the trustees to apply an early payment reduction to these benefits.
It is not yet clear whether there will be an appeal to the House of Lords.
Comment: this judgment has been welcomed as a common sense approach which allows members’ proper scheme entitlements to be delivered without conferring unintended windfall benefits which could impact adversely on scheme funding and put sponsoring employers at risk. The Court of Appeal supported the equalisation approach following the Barber judgment in 1990 which was taken by many schemes, namely to introduce a single (higher) retirement age for all members and to allow early retirement with actuarial reduction.
View the judgment.