The High Court judgment in Alexander Forbes Trustee Services Limited -v- Clarke will be of interest to trustees of defined benefit schemes which commenced winding-up before 6 April 2005.

The defined benefit scheme went into insolvent winding-up in 2000. For schemes that wound up before 6 April 2005 the statutory order of priorities for dividing the assets among the different classes of members requires priority to be given to those members whose “entitlement to payment of pension” has arisen.

The Court of Appeal decided in Cripps -v- Trustee Solutions (see Pensions Update, July 2007) that this covers those whose pensions are in payment and those who have satisfied all the conditions under the scheme rules which entitle them to immediate payment of a benefit. The court in Alexander Forbes was asked to consider whether it should also include two groups who had not satisfied all the conditions but would be able to do so by taking steps exclusively within their own power, i.e. without the need for any third party consents. The court held that both groups were in the pensioner priority category: 

  • deferred members aged 50+, who had an option to take an immediate unreduced pension without consent, whether or not they had already made the request by the date of termination
  • those still in service on the date that winding-up commenced who had the right to terminate service without notice and elect early retirement.

It was immaterial whether the relevant members had actually taken the necessary steps to permit payment of their pensions; what was critical was that those steps were wholly and exclusively within the members’ powers, without the need for consent from any third party.