In January, we reported on this important case dealing with Barber equalisation.
The Court of Appeal has overturned the High Court's decision. While it agreed that members who have built up pension with different NRDs can take all their pension at the earliest NRD it decided that benefits paid before NRD may be actuarially reduced. The decision is good news for many employers who stood to have significantly increased pensions liabilities if the High Court's decision had stood.
A reminder of the background
The scheme introduced an NRD of age 65 for all members on 16 August 1993 (the Barber equalisation date). Before then, NRD was the usual age 60 for women and age 65 for men. This meant that, for women, pension built up before the Barber equalisation date had an NRD of age 60 and other pension had an NRD of age 65. For men, pension built up between 17 May 1990 and the Barber equalisation date (the Barber window) had an NRD of age 60 and other pension had an NRD of age 65.
The scheme allowed active members to retire from age 50 with employer consent. The early retirement rules changed several times after 1993 and company practice until 1 April 2003 was to allow early retirement with a reduction only where pension was taken before age 60.
Court of Appeal's decision
The Court of Appeal was asked to consider three alternatives as to how pensions should be paid to members with split NRDs:
- members can take a single pension at age 60 with only the part built up from 1 April 2003 reduced for payment before age 65 (as the High Court had decided);
- members can take a single pension at age 60 with all pension with an NRD of age 65 reduced for payment before age 65; or
- members' pensions are payable in two parts – that determined by reference to an NRD of age 60 at age 60 and that determined by reference to an NRD of age 65 at age 65.
It decided that:
- members with split NRDs can take all their pension at the earliest NRD. A two-part payment approach would be difficult to administer and could disadvantage members. However, a part payment approach could be adopted if this is the only way under a scheme to comply with Barber requirements;
- where possible Barber rights should be given effect to under a scheme's current Rules. If this is not possible, the scheme should be treated as being amended in a way having the minimum substantive impact on benefits. In this case, it was decided that pensions should be paid under the scheme's deferred pension rule rather than, as the High Court decided, the early retirement rule. Under the deferred pension rule, members taking pension at age 60 would have the part with an NRD of 65 reduced for early payment. Granting the pension through the early retirement rule would confer an unwarranted windfall benefit on members with split NRDs, impose additional liabilities of £130 million and be potentially unfair to non- Barber members.
The impact of the decision
The decision is good news for Foster Wheeler and other employers with similar schemes. The court has given a strong indication that where benefits have been equalised properly it is reluctant to impose additional, unintended benefits on members. However, trustees and employers will still need to undertake a careful analysis of their scheme's particular rules to decide how the decision impacts on them and whether rule changes are required to clarify how pensions are paid to members with split NRDs.
Foster Wheeler Ltd v Hanley & ors