EWHC 979 (Ch)
In our September 2008 Pensions update, we reported on the High Court decision that, as a matter of construction, the money purchase section of a scheme was part of a single fund which also included the final salary section. This decision confirms that for hybrid schemes which began winding up before 6 April 2005, clear words are needed in the scheme’s trust deed to ‘ring-fence’ money purchase benefits. The booklet and scheme accounts indicated that money purchase assets were segregated, but the trust deed and rules took precedence in accordance with recent case law. As such, the ordinary priority order applied on winding-up even where this might have reduced the benefits of a defined contribution member to zero and even where the benefit statement had suggested that there would be ring-fenced funds.
Comment: this case emphasises how essential it is for scheme documentation to set out clear provisions separating defined benefit and defined contribution funds. It seems the courts will apply the strict rules of the definitive deed, even where the intention of the trustee, the employer and the drafting lawyer may have been to create a segregated defined contribution fund.
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