The Summer has witnessed the publication of several interesting pensions cases, covering such issues as the status of a defined benefit pension within a remuneration package, the ambit of Trustee Act protection against claims by unknown beneficiaries and the extent to which scheme provisions should be interpreted purposively. The key cases are summarised below.

Court of Appeal holds that EAT was wrong to accord specific status to a defined benefit pension arrangement and treat it as a unique benefit when assessing compensation

In Aegon v Roberts, the Court of Appeal considered the appropriate level of compensation payable to a member of a defined benefit pension scheme who had been unfairly dismissed.

The employee had immediately been re-employed on a basis which was more favourable overall than under her previous employment, notwithstanding the fact that she had been a member of a defined benefit pension scheme in her old employment and her new employer had offered her membership of a significantly less generous defined contribution arrangement.

The Employment Appeal Tribunal (EAT) concluded that the original tribunal was entitled to form the view that the loss of membership of a defined benefit pension scheme could not be quantified in purely monetary terms. However, the Court of Appeal did not accept that pensions "have some special status" when assessing compensation. They are "simply part of the overall remuneration package… albeit an important part, and must be assessed accordingly." The Court also rejected the observation of the EAT that a defined benefit pension is "an unquantifiable benefit which justified pension loss being treated differently." Instead, the tribunal "cannot avoid translating pension values into money terms".  

Court of Appeal upholds decision allowing trustees to use a partial buy-out plan to increase the debt due from an employer on a scheme wind-up

In Headway v Easterly, the Court of Appeal upheld an earlier decision of the High Court with the effect that scheme trustees were able to partially buy-out benefits before triggering the "applicable time" for the calculation of the debt due from the sponsoring employer under section 75 of the Pensions Act 1995. This meant that the debt due from the employer on the scheme wind-up was increased.

The case may have limited application, in light of the fact that the debt fell to be calculated under the old minimum funding requirement and because certain aspects of the case turned on the particular wording in the scheme rules.

However, the Court of Appeal also held that legislation (that is, section 19(1)(b) of the Pension Schemes Act 1993) envisaged that guaranteed minimum pensions could be bought out either in part or in full, but only if the scheme rules allowed it or the affected members (that is, those whose GMPs could not be bought-out in full) consented. On the particular facts of Headway, this meant that, if member consent could not be obtained, a "truncated version of the agreement" could be put in place.  

High Court decision confirms limitations of section 27 notice protection

Section 27 of the Trustee Act 1925 offers a degree of protection to trustees from claims by unknown beneficiaries (for example, on a scheme wind-up). In order to benefit from the statutory protection, the trustees must have placed notices in the London Gazette (and also in local newspapers) inviting potential beneficiaries to submit their claims.

In MCP Pension Trustees v AON Pension Trustees, the administrative records relating to 32 members who had transferred into the Maxwell Communication Works Pension Scheme had been lost, with the result that their benefits had not been secured. The trustees had placed section 27 notices in the appropriate publications but none of the affected members had come forward. Issues relating to section 27 notices arose as a preliminary issue in a claim for breach of contract or negligence by the trustees against the scheme administrators.

The High Court concluded that "it would seem surprising if a pension scheme trustee, who had been aware of a member’s interests at some time in the past, could escape liability to that member because when the time came for distribution no provision was made for the member because of the trustee’s oversight or that of his agent".

This case demonstrates the importance of accurate record-keeping and the limitations of section 27 protection. However, it is also worth noting that trustees will often be able to rely on exoneration clauses in scheme rules and/or an employer/fund indemnity in cases of negligence, provided that they do not participate in fraud or wilful default.

High Court upholds amendment power, causing members to have their benefits scaled back

In Walker Morris Trustees v Masterson, the High Court upheld the terms of an amendment power even though, in doing so, it resulted in members' benefits being scaled back.

The scheme's amendment power contained a requirement that the amendment be the subject of written actuarial advice. There had been seven scheme amendments since 1981, most of which were benefit improvements, and in respect of which no actuarial advice was sought or given. The scheme had entered into a PPF assessment period and an independent trustee had been appointed.

Interpreting the amendment power

Following previous case law, it was argued that the trust deed should be interpreted so as to give best practical effect to the scheme and that the amendment power should be interpreted accordingly. However, the Court held that the terms of the amendment power were very clear and the Court was not prepared to "allow the consequences of the avoidance of the various trust documents to dictate how the clause is construed". It further concluded that it was "impossible to come up with a definitive and clear re-drafting of the clause to give effect to the desire… to save the offending variations".

Could the provision of section 67 certificates serve as actuarial advice within the meaning of the amendment power?

Section 67 certificates had been necessary in respect of two of the amendments. Therefore, it was argued that, in the case of those two amendments, the section 67 certificate served a double-purpose and did, in effect, constitute actuarial advice within the terms of the amendment power. However, in rejecting that argument, the Court noted that section 67 required the actuary to exercise his judgement on a different actuarial basis.

Could the changes be brought within the augmentation power?

A further argument was put forward, based on the scheme's augmentation power. The Court declined to sever the benefit improvements made by the various amendments and bring them within the augmentation power. In particular, the Court noted that the augmentation power did not allow the trustees to change general classes of benefit and, in any event, also required actuarial advice (albeit not in writing).

Representation issues

A further point of interest surrounded the nature of representation in the case. The Court noted that there were many divergent interests at stake (for example, some members had an interest in a partial upholding of an amendment, whereas others would be advantaged by the amendments being upheld in their entirety). The Court decided that it would be impractical to have representative beneficiaries for every one of the divergent interests and, instead, one firm of solicitors was appointed to argue that all of the amendments were valid, with an opposing firm of solicitors arguing that all amendments were invalid.

The importance of adhering to clear formalities

The decision demonstrates the limitations of Trustee Solutions v Dubery and similar cases which push for a practical and purposive interpretation of scheme rules. In Walker Morris, the Court declined to overlook the breach of a clear formality simply because the consequences of adhering to the strict wording of the amendment power were incredibly complex or, arguably, unfair.

High Court considers limitation periods and loss in equalisation claim

Harland & Wolff Pension Trustees Limited v Aon Consulting Financial Services concerned advice given by Aon in March and November/December 1993 on the equalisation of the normal retirement ages of male and female members of a pension scheme. Prior to the implementation of Barber, the scheme had a normal retirement date of 65 for men (cut to 63 after April 1986) and 60 for women. The deed which implemented the Barber principles by introducing a normal retirement age of 63 for all members was retrospective and held to be invalid under EU law. However, in the belief that the amendments had been valid, the trustees proceeded to implement pension increases, not realising that the scheme would incur greater costs at a later date because of the invalid equalisation amendment.

The High Court held that a claim based on the subsequent decision to implement pension increases was an additional "head of loss" and not a new claim in its own right; therefore, it was not statute-barred.

High Court allows independent representation notwithstanding the appointment of representative beneficiaries

In PNPF Trust Company v Taylor, the High Court allowed a company which was already covered by a representative beneficiary to be independently represented in spite of the fact that the representative beneficiaries and other parties objected.

The case concerned an industry-wide scheme. The trustees had applied to the Court to clarify the powers under the trust deed and rules to force participating employers to contribute to the scheme. Different classes of employer were represented by a different representative beneficiary. However, one company, Teesport, wanted to be represented in its own right, broadly because it regarded the proceedings as hostile and also because it had a significant financial interest in the outcome of the action. The other parties objected to this independent representation on the grounds of convenience, proportionality, delays and costs.

They argued that Teesport had no distinct legal interest in the action which required special treatment and did, in fact, have community of interest with another company which was acting as a representative beneficiary. There was no reason to believe that the other company would not promote the case of its class fully and properly. Those opposed to Teesport's representation also argued that there would inevitably be an increase to the length and cost of the hearing and that it could lead to the joinder of other affected employers, with the result that the proceedings "would become unwieldy and could even become unjusticiable". They also argued that it would be unjust for Teesport to be placed in a special position merely because it preferred to have its own representation.

However, the High Court, in rejecting these arguments, concluded that the "fair course" was to allow Teesport to be heard through its own voice with the corollary that it would be bound by the outcome of the action.

The Court did also, however, emphasise that questions of fairness and what "best satisfies the requirement of the overriding objective" has to be decided on the facts of each case. It would appear, therefore, that the case is not a carte blanche for every aggrieved party to demand independent representation in a case more properly conducted through the involvement of representative beneficiaries.

Court of Appeal holds that a claimant who has failed to go through an internal dispute resolution procedure cannot bring a High Court claim

In Booth v Oldham, a member of the Local Government Pension Scheme (LGPS) suffering from depression had been dismissed from his job and had subsequently brought a claim in the Employment Tribunal for unfair dismissal; he also brought a claim under the Disability Discrimination Act and claimed an ill-health pension. The ill-health pension claim was rejected because the member was not considered to be permanently incapable of discharging his duties under the rules of the LGPS. Given that the claim under the Disability Discrimination Act had failed (and that this was a lower threshold of incapacity than that under the rules), it was felt that there was no need to refer Mr Booth's case for further medical assessment as was provided for under the terms of the regulations which govern the LGPS. Mr Booth brought a claim to the High Court for breach of contract based on the refusal to refer him to a medical examiner, and then appealed that decision.

In upholding the original High Court decision, the Court of Appeal found in favour of the local authority. It concluded that it was not necessary to consider whether a person who was found not to be under a disability under the Disability Discrimination Act will always fail to establish permanent incapacity under the LGPS regulations; there may be circumstances where that is not so. However, on the facts of this particular case, the "clear evidence… plainly established on the facts that he was not permanently incapable of discharging the duties of his employment". As there was no evidence to establish that he was permanently incapable at the relevant date, it was not, therefore, necessary to consider whether there was a duty to refer him for an assessment (as even if there was such a duty, there cannot have been any loss).

The Court of Appeal also stated that Mr Booth could not be allowed to continue his proceedings because he had failed to use the dispute resolution machinery entrenched in the LGPS regulations. The Court noted that Mr Booth failed to pursue his claim under the dispute resolution procedure despite initial steps to do so. In the Court's view, "that was the remedy he should have pursued and not the action which he brought many years later in the High Court". The Court further concluded that "Parliament specifically provided machinery through the regulations for the resolution of disputes. It is not possible for a person who has those remedies to attempt to bring an action in the High Court when he has failed to utilise the statutory machinery under the Regulations which create and embody the right that he seeks to enforce".

This is a very interesting decision, especially in relation to the role of the internal dispute resolution procedure and the fact that this prevented Mr Booth from bringing a High Court claim. However, the Court made numerous references to the "statutory" machinery under regulations approved by Parliament. Non-public sector schemes do not have their internal dispute resolution procedures embedded in statutory regulation and, therefore, it is not clear that this principle will apply to private sector schemes.

Court again decides that a pension is not a possession within the European Convention on Human Rights

Carruthers concerned a decision to forfeit 65% of a police officer's pension following his conviction for serious criminal offences (as was allowed under the appropriate regulations governing the scheme). The forfeiture had no effect on the spouse's or children's pensions.

The member claimed that his pension was a possession within the European Convention on Human Rights and also sought to challenge the decision on the Wednesbury principles (in particular, on the grounds that he had not been given full reasons for the decision). The Court held that the right to a pension arose only in the future and that, in this case, in any event, that right was conditional on (and subject to) the forfeiture provision. The Court also rejected the member's arguments that he was given insufficient reasons under Wednesbury.

The Pensions Ombudsman

Ombudsman considers time limits for bringing a maladministration claim

Mrs Montague was a member of the Teachers' Pension Scheme via her employment with the University of Hertfordshire. She complained that the University had both (i) failed to advise her that there was a 12 month time limit for her to make an application for a pension transfer from a previous scheme into the Teachers' Pension Scheme; and also (ii) failed to provide her with basic information about the scheme when she commenced her employment with them in 1990. She also brought a complaint against the Department for Children, Schools and Families (DCSF) in its capacity as scheme manager. Mrs Montague did not apply for a transfer within 12 months of her starting work with the University; but the DCSF exercised its discretion to allow a later transfer. However, this later transfer was made on a less generous basis than would have been the case if it had taken place within the initial 12 month period

The Ombudsman held that the University's failure to provide Mrs Montague with basic information about the scheme was time-barred, as it related to a maladministration claim. However, he exercised his discretion to hear Mrs Montague's complaint relating to the failure to advise specifically on the application of the 12 month limit on transfers. The Ombudsman stated that Mrs Montague "could not have been expected at the time to know that the Guide or any similar document would have been the source of the information about the limit. So though… she ought to have known that she did not have the Guide, it does not follow that she ought to have known that she had not been told about the limit".

The complaint was upheld in part because the Ombudsman concluded that the DCSF should have provided Mrs Montague with the information about the 12 month time limit as part of its role in administering the scheme.

Ombudsman finds that trustees should have exercised greater scrutiny over reasons for employee's dismissal in connection with the granting of an early retirement pension

The rules of the Yell Pension Plan provided that a member was entitled to an unreduced early retirement pension after completing five years' qualifying service in three sets of circumstances: (i) where he or she leaves service "in the interests of efficiency" (as determined by the Principal Employer); or (ii) where the member was made redundant; or (iii) where he or she leaves on "structural grounds" or on the "grounds of innovatory change in the nature of his or her work".

According to the terms of a compromise agreement, Mr Anderson's employment was terminated "by mutual agreement" by reason of "re-organisation". Mr Anderson was paid a substantial sum in full and final settlement of all claims he may have against his employer except any claims "in respect of accrued pension rights under the employer's pension scheme".

The company confirmed to the trustees that Mr Anderson had not left "in the interests of efficiency" and the trustees decided that he was not, therefore, entitled to an unreduced pension.

The Deputy Pensions Ombudsman noted that the trustees' primary obligation was to consider whether the criteria for granting an unreduced pension had been met and "it was a matter of judgement for them as to how they went about doing this". However, he also thought that this would involve looking into the actual circumstances behind the termination of Mr Anderson's employment. The Deputy Ombudsman noted that the trustees were aware that Mr Anderson's departure was not in accordance with the Company's usual practice and that this in itself "should have been cause for the trustees to look particularly closely at what happened" and that the trustees "should have looked more critically at the explanation from the company".

The Deputy Ombudsman directed that the trustees reconsider the circumstances underlying the termination of Mr Anderson's contract; and also that, if the trustees confirm their original decision in respect of Mr Anderson, that they "explain fully their conclusions". Given this lack of explanation in connection with the original decision, the Deputy Ombudsman found that there had been maladministration and directed that the trustees pay Mr Anderson £100 in respect of the distress and inconvenience caused.

This case highlights the need for trustees to make more detailed investigations where they are on notice of unusual circumstances (or facts) pertaining to a particular decision or the exercise of a discretion. However, it can be viewed as quite surprising in light of the fact that the decision as to whether a member was dismissed "in the interests of efficiency" lay with the employer under the scheme rules.