The July 2009 High Court decision concerning the Yorkshire Chemicals Pension Scheme is a welcome example of the Court using simple procedures. However, the decision is also a stern reminder of the great importance of complying with formalities when altering schemes.
Over the years the Courts have struggled with how to structure pension proceedings where parties have different interests. Different classes of members - active, deferred and pensioners - may have opposing interests and within the same class there may be conflicting interests. Participating employers in a multi-employer scheme may also find their interests are not identical. The Court attempts to deal with multiple interests by making “representation" orders. Individuals are appointed by the Court to represent an entire class. This can be problematic where there are many different classes as demonstrated by the recent decision in the Yorkshire Chemicals Pension Scheme.
As the Court needed to consider the validity of numerous scheme amendments since 1982 there were many different categories of member potentially affected. The Court directed that:-
- There should be just two categories of members represented (in addition to the Trustee bringing the proceedings) namely one class arguing for the validity of the amendments and the other class arguing against the amendments; and
- pension professionals (pension solicitors) should be appointed to be the representative beneficiaries and they would respectively instruct Counsel.
These directions simplified the Court process, reducing the time and expenses of the Court application. So far so good.
Unfortunately, not in the case of the Yorkshire Chemicals Pension Scheme.
Since the scheme’s inception in 1982 there had been many scheme alterations. The question before the High Court was whether the amendments were valid. The Scheme's amendment power could be exercised only if the actuary had given a written opinion that the amendments did not prejudice members' pensions. Unfortunately, except for a couple of amendments no written actuarial opinions could be found.
After considering the arguments made by the independent Trustee and the two sets of representative beneficiaries the Court decided that in the absence of the required actuarial written opinions most of the scheme amendments since 1982 were invalid. Amendments making scheme improvements were also invalid even though the Court recognised that a written actuarial opinion would have confirmed the amendments were not prejudicial. The Court was not prepared to take a creative approach and say that part of the amendments (such as the improvements) were valid.
This emphasises the importance of taking full actuarial and legal advice as part of the scheme amendment process. Pension Protection Fund compensation is payable only in respect of valid scheme benefits, and so challenges to scheme benefits are likely to increase as more and more schemes enter PPF assessment periods. This is in addition to the PPF's statutory duty to ignore certain changes made in the 3 years preceding the assessment period.
It is an open question whether the Court would have reached a different conclusion had there been more categories of members represented and further arguments put to the Court. There is always a balance between facilitating the Court process and ensuring justice is done.
Employers with different interests
The issue of combining simple procedures with fairness to different parties also arose in the High Court in July 2009 in the context of the industry wide marine pilots scheme.
The Trustee asked the Court about its contribution powers. One of the participating employers applied to be joined as an additional party as it objected to a single employer representative being appointed to represent the interests of all the employers.
The High Court decided that justice demanded the employer in question be a separate party to the proceedings with its own legal representation. An appeal against the High Court decision is pending.