The recent decision by the Outer House of the Court of Session in Scotland, in the case of Low & Bonar plc and Low & Bonar Pension Trustees Limited v Mercer Limited, will have significant repercussions for occupational pension schemes in Scotland where the manner in which the equalisation of Normal Retirement Dates ("NRDs") is in dispute.
The judgment concerned the manner in which the equalisation of NRDs had been effected in practice and whether this was done in accordance with the requirements of the alteration power of the pension scheme. The law surrounding equalisation has been extensively developed in English courts, one aspect of which states that where the alteration power prescribes a method by which to effect amendments, that method must be strictly followed in order for amendments to be valid.
In his decision, the judge allowed for a less restrictive interpretation to be placed on the alteration power, so as to allow the equalisation of NRDs to be effective from 1 July 1991 (the date that had been used in practice) and not the much later date of 15 August 2002.
The basic facts of the case were that in March 1991, after having received advice to equalise NRDs from Mercer Limited, the board of Low & Bonar plc resolved to equalise the NRDs of its members at age 65 from July 1991. The decision made at the board meeting was formally noted in the minutes of that meeting. It was thought that the amendment had been made sufficiently, however, as the amendment had not been made by deed, a further amendment was made in August 2002 to rectify the situation.
The gap between July 1991 and August 2002 represented a period by which male members would be entitled to benefits at a higher level than they had been accruing. On this basis Low & Bonar plc would be required to provide additional funding to the scheme. An action was then raised, to determine whether the amendment made in 1991 was valid and whether damages could be recovered from Mercer Limited, as it was on their advice that equalisation had taken place.
The judgment turned on the interpretation of the alteration power, which provided that in order to amend the pension scheme a "deed" was required, together with the written consent of the Trustee. It was the important distinction between the legal concept of a "deed" which allowed the judge to come to a different conclusion than what would have been reached by a court in England.
In England, where an alteration power requires a deed to make an amendment, a formal deed must be entered into. Scots law, however, does not have the same corresponding concept of a "deed" as English law. On this basis the judge found that the minutes of the meeting of the board of directors of Low & Bonar plc were sufficient to constitute a deed and thereby fulfil the requirements of the scheme's alteration power.
The judge determined that the requirement of the written consent of the Trustee was satisfied by the minutes of the Trustee meeting where the consent to the decision to equalise NRDs made by the board of directors was agreed to and minuted.
For Low & Bonar plc, this has meant that the additional funding that would have been required to be paid to the scheme no longer needs to be made.
The decision in this case may mean that in Scotland the requirements of the alteration power will not be viewed as strictly as in England, provided the way in which equalisation occurred in practice can be matched in an appropriate manner to the requirements of the alteration power.
If you have a pension scheme governed by Scots law, then this case may be relevant to you, and trustees and employers should still review the provisions within their schemes relating to the equalisation of NRDs to ensure that they accord with the legal requirements.