The British Vita case is the first case to come before the courts concerning the inter-relationship
between the new scheme-specific funding regime applying to defined benefit pension schemes
under the Pensions Act 2004 and a scheme’s own contribution rule. In particular, it looks at the
position of a scheme which has not yet had a scheme-specific valuation under the new regime
and is effectively still operating under the minimum funding requirement (MFR) regime.
British Vita (BV) was the principal employer of two pension schemes. It was acquired in 2005 by
a US private equity firm. Both pension schemes were well funded by reference to ‘middle-of-theroad’
assumptions, and following the acquisition, BV continued to contribute to the schemes in
accordance with their respective schedules of contributions. However, the trustees of the
schemes sought additional contributions of £49.6 million from BV pursuant to the schemes’ own
contribution rules, based on far more conservative assumptions than previously adopted. BV
refused to pay the extra contributions, and challenged the trustee’s ability to demand the
BV argued (amongst other things) that, following the coming into force of the new scheme
funding regime under the Pensions Act 2004 in December 2005, the trustees could no longer
exercise the powers conferred on them by the schemes’ own respective contribution rules.
However, the judge disagreed. Warren J said that, until a scheme has its first scheme-specific
funding valuation and puts a Pensions Act 2004 schedule of contributions in place, the scheme’s
contribution rules remain valid and are not overridden by the statutory MFR provisions. If a
contribution rule permits trustees to make a demand for employer contributions in excess of what
would otherwise be required under the MFR, a demand made in compliance with that rule would
be valid. The judge did not go on to consider whether his decision would be different had a
schedule of contributions under the new regime already been put in place.
We understand that British Vita plan to appeal the decision.