Background

On 28 June 2010, judgment was handed down in the so called Marine Pilots litigation[1]. The case was extremely complex involving a multi-employer defined benefit pension scheme for marine pilots - the Pilots National Pension Fund (PNPF).

The Facts

The PNPF has almost 2000 members, who include, rather unusually, a high proportion of self-employed members. Common with many defined benefit pension schemes, the PNPF has a significant funding deficit and the trustees (who are under a duty to repair this deficit) applied to the Court for directions on how they could use the scheme amendment power to collect greater contributions. This also raised questions of the inter-relationship between scheme powers, the scheme specific funding regime under Part 3 of the Pensions Act 2004 and the employer debt regime under section 75 of the Pensions Act 1995.

What was decided?

Running to nearly 200 pages and covering 39 separate issues, the judgment is not for the faint hearted. Most of the issues relate solely to the PNPF but the court made a number of key points which have far-reaching implications for the pensions industry and employers who have in the past sponsored or continue to sponsor defined benefit pension schemes:

  • When does an employer trigger a statutory debt under section 75 of the Pensions Act 1995?  

An employer triggers a statutory debt as soon as it ceases to employ anyone who is either active in or, pre 6 April 2008, eligible to join the relevant pension scheme (whether or not they are able to join only with the trustee's consent).

  • When is an employer on the hook for ongoing additional contributions to a scheme under the scheme specific funding regime?

Until it ceases to employ anyone who is either active in or eligible to join the relevant pension scheme (whether or not they are able to join only with the trustee's consent).

  • How does the scheme specific funding regime interact with a trustee's powers under a scheme rule to demand contributions?

The scheme specific funding regime underpins a scheme's rules, providing trustees with a means to achieve the statutory funding objective if the rules of the scheme are inadequate to do so. Where the rules of a scheme provide for greater contributions than might be sought under the statutory funding regime, a trustee is generally able to demand those higher contributions.

Potential future impact

  • While clarification of the legislation is welcome, sponsoring employers will still need their pensions specialists to provide technical analysis and to help work out which group companies have liabilities to the pension scheme.
  • It may be the case that some employers have paid a statutory debt on the basis of what is now understood to be the incorrect interpretation of the legislation.
  • It also means that some companies which had assumed that they had no further obligations in respect of a particular pension scheme are actually still liable for the scheme's liabilities.
  • The trustees or actuary may be able to use their powers under the scheme rules so as to require employers to pay contributions beyond those due under the scheme specific funding regime.