The CJEU has held that European Law prevents a pension scheme equalising benefits retrospectively where the effect is to level down benefits during the Barber window, even where it is permitted under national law and the scheme’s trust deed.

Background

This case concerned the Safeway Pension Scheme (the Scheme) and its attempt to equalise benefits for men and women under the Scheme following the decision in Barber v Guardian Royal Exchange on 17 May 1990, which included equalising Normal Pension Age (NPA) for men and women (equalisation).

Following the decision in Barber, Safeway attempted to equalise benefits in the Scheme by increasing the NPA for women from 60 to 65 through a written announcement to members in September 1991 (the 1991 Announcement) to be effective from 1 December 1991. A subsequent Announcement on 1 December 1991 reiterated this change. Although the Scheme was administered on the basis that it had equal NPAs from 1 December 1991, the Scheme’s trust deed and rules was not amended until a replacement definitive deed was executed on 2 May 1996 (the 1996 Deed). The 1996 Deed sought to make equalisation effective from the date of the 1991 Announcement.

The case considered whether the action taken by Safeway in 1991 was sufficient to achieve equal NPAs under the 1991 Announcement and, if not, whether the 1996 Deed could have retrospective effect to achieve equalisation from the date of the 1991 Announcement. Safeway contested both that the 1991 Announcement was effective in itself and/or that the 1996 Deed was effective to make the changes retrospectively. Failure to equalise until the date of the 1996 Deed had the effect of increasing Safeway’s liability towards the Scheme by c. £100 million.

Referral to the CJEU

In the first instance, the High Court found that equalisation was not effective until 2 May 1996. Safeway appealed to the Court of Appeal on two points: firstly, whether the Scheme’s power of amendment could be exercised by the 1991 Announcement as Safeway suggested and secondly, failing that, whether the attempt in the 1996 Deed to make changes retrospective (from 1 December 1991) was effective.

If the 1996 Deed was accepted as being effective from 1 December 1991, this would allow the Scheme to increase retirement ages for the advantaged class (women) from 60 to 65 for the period from 17 May 1990 to 2 May 1996 (the Barber window) and level down their entitlement to be equal to that of the disadvantaged class (men).

The Court of Appeal concluded that the 1991 Announcement had no legal effect because it was “unmistakable” that amendments must be made by deed under the Scheme’s amendment power. However, it was uncertain about the second question about retrospective effect of the 1996 Deed and whether benefits could be reduced during the Barber window.

Considering the case of Smith v Avdel1 the Court of Appeal disagreed with Warren J’s initial analysis in the High Court about members’ defeasible and indefeasible rights (the former of which may be amended retrospectively and the latter of which are fixed and cannot be amended). The Court of Appeal suggested a key issue was whether rights which are defeasible become indefeasible during the Barber window. The case was referred to the CJEU to determine this point, which the Court of Appeal noted was “critical” to the case.

Before the case was heard by the CJEU, the Attorney General provided an Opinion on the key issues and reformulated the question the CJEU was asked to consider. The Attorney General stated that consideration of “defeasible and indefeasible rights” was immaterial because the EU equal treatment principle contained in Article 157 of the Treaty on the Functioning of the European Union (previously Article 141 and Article 119) has “foundational status” and the primacy of Article 157 is “paramount”. The Opinion clarified that the prohibition in European law and case law on levelling down benefits during the Barber window applies, even where the rules of a scheme and national law would otherwise allow it.

The CJEU’s decision

The CJEU agreed with the Attorney General and held that, without objective justification, Article 119 prohibited schemes taking measures to equalise, with retrospective effect, the NPA of all members to that of the disadvantaged class for the period between the measure being announced and its adoption, even where that measure is authorised under national law and under the scheme's trust deed. The amendments to the Scheme were therefore effective from the date of the 1996 Deed.

Safeway argued that the 1991 Announcement was a “measure” reinstating equal treatment, but the CJEU disagreed. The CJEU held that Article 119 has direct effect and must be immediately complied with once discrimination is found to exist. Action could not be taken which attempts to maintain discrimination in the Scheme (even on a transitional basis) before changes become legally effective. The 1991 Announcement was not legally effective under the Scheme’s amendment power but sought to reserve the power for the trustees to “look back” at a later date and make changes legally effective from 1991.

The CJEU also noted that European case-law has clearly established that where discrimination is identified, equality can only be achieved by treating the disadvantaged class of members more favourably. This prohibits schemes from achieving equality by retrospectively reducing the advantaged class’ benefits to make them equal with the disadvantaged class.

The CJEU concluded that measures having retrospective effect to end discrimination and level down benefits could be permissible in rare circumstances. The CJEU suggested that an overriding public interest reason (such as seriously undermining the financial balance of the scheme) might be one such circumstance. However, Safeway had not argued that the financial balance of the Scheme would be materially undermined unless equalisation had retrospective effect.

The CJEU’s decision is important and far-reaching. In the immediate case, Safeway must calculate benefits for men and women based on a normal retirement date of 60 for the Barber window period and not 65 as they had hoped to establish.

The outcome in Safeway sends a clear message to schemes which failed to equalise effectively following the Barber decision. If unequal NPAs are identified, any amendment now seeking to level down benefits for the advantaged class of beneficiary will only be effective from the date of the amendment. Amendments cannot “look back” to legitimise or complete an earlier failed attempt, even if permitted by the scheme rules and national law to do so.

The judgment theoretically leaves a door open for making retrospective amendments in circumstances where a scheme’s financial balance would be severely affected. The Attorney General has clarified that additional financial burdens are to be expected, so scope to try and rely on this financial burden argument is likely to be very limited.