The Supreme Court has thrown the DWP into a summer spin with its judgment in the case of Houldsworth v Bridge Trustees  UKSC 42.
The judgment of the Supreme Court can be found here
The case concerns the definitions of “money purchase benefits” and “money purchase scheme” in section 181 of the Pensions Schemes Act 1993. The key finding is that there is no absolute requirement that the assets of such schemes must always equal the liabilities (as had been suggested in 2005 by the Court of Appeal in the KPMG case).
In Bridge Trustees, employee contributions to the scheme were at a specified rate with the employer matching those contributions. Some members benefited from a Guaranteed Interest Fund (GIF) – where a minimum notional return was guaranteed on the contributions regardless of actual return. The Supreme Court held that the GIF mechanism did not “unhitch” a member’s eventual benefits from the contributions made and that those benefits were “money purchase benefits”. The statutory definition does did not require that benefits must be calculated solely by reference to the contributions. The Supreme Court also held that the provision of internal annuities is not incompatible with the provision of “money purchase benefits”.
The difficulty this case has caused is that although the equilibrium of assets and liabilities has been found not to be a requirement of a “money purchase scheme”, other pensions legislation has been adopted on that assumption (for example the exclusion of “money purchase schemes” from the PPF, employer debt and scheme funding requirements). The DWP has announced that it will be urgently considering new legislation, retrospective at least to the date of this judgment, to “make it clear that benefits cannot be regarded as money purchase benefits if it is possible for a funding deficit to arise in respect of any of those benefits”.
Here is the DWP’s response to the judgment