The much anticipated judgment in the case of IBM United Kingdom Pensions Trust Limited v IBM United Kingdom Holdings Limited & ors has upheld that the rules of the IBM Pension Plan executed in 1983, and all subsequent deeds and rules, should be rectified to include a right for active members to retire between the ages of 60 and 63 on an unreduced pension without employer consent.

The High Court ruled that on the evidence provided the intention was there and that the documents must now be rectified. IBM has stated that it will cost the organisation £100m to comply with the ruling.  

Background

The IBM Pension Plan, a large occupational scheme with defined benefit and defined contribution sections, was originally established in 1957. The case was brought by the Trustee to seek rectification of various deeds and rules which governed a sub-section (the “C Plan”) of the defined benefit section of the IBM Pension Plan. In addition to rectification issues, the Trustee also raised matters relating to the statutory preservation requirements for early leavers

The C Plan 1983 deed and rules, and all subsequent deeds, required employer consent for active member retirement between the ages of 60 and 63. Deferred pensions paid between ages of 60 and 63 would be “subject to actuarial reduction”.  

The main issue was that the Trustee contended that when the C Plan was set up, active members had a right to retire on unreduced pension between the ages of 60 and 63 without employer consent. The 1983 trust deed and rules were therefore incorrectly drafted and did not reflect the parties’ intention at the time the document was drafted. The Trustee also argued that deferred members should also be permitted to take their deferred benefits at age 60 with no actuarial reduction. It followed therefore that the 1983 deed and rules should be rectified to confirm this. The C Plan had a normal retirement age of 63.

The decision

Mr Justice Warren (in his 140 page judgment!) held that there was “compelling evidence” that it was the intention of both the Trustee and the Principal Employer that active members of the C Plan should have a right to retire on an unreduced pension without employer consent, between ages 60 and 63.

The Trustee’s claim for rectification in relation to deferred members failed. The judge held that there was no intention that deferred members should enjoy the same rights to early retirement without consent as active members.  

Issues with preservation

The fact that rectification was granted for active members but not for deferred members raised a number of interesting issues under the statutory preservation requirements. The Trustee argued that the preservation legislation, as it stood prior to 6 April 2005, gave deferred members a right to take an early unreduced pension from age 60 where the scheme rules gave active members the same right. The Trustee’s suggested that the 1983 deed and rules should therefore be rectified to allow deferred members a right to an unreduced pension from age 60 (at least in relation to benefits accrued before 5 April 2005). An amendment made to the legislation on 6 April 2005 means that deferred members do not need to be paid their pension until age 65 (although it may be payable at an earlier age if specified in the scheme rules).

Mr Justice Warren concluded that rectification should not be given in relation to deferred members and they will not be able to draw an unreduced pension before age 63. He found that neither the Trustee nor the deferred members could now seek to invoke legislation which has been replaced (and which did not contain a specific transitional protection). This issue may not however be closed and we understand that the Trustee is requesting an amendment to the IBM Pension Plan rules to give effect to the pre-2005 preservation requirements.  

Comment

  • The judgment is an important example of the pitfalls which can befall employers and trustees when benefits are not clearly documented;
  • Subsequent amending deeds and rules do not necessarily undo rectification and therefore any subsequent amending documents should also be rectified to provide for the intended benefits;
  • Where the evidential trail is strong, this case illustrates that the Courts will not hesitate in ordering rectification even where the document in question was executed nearly 30 years ago; and
  • Employers and trustees alike should always seek legal advice on decisions relating to pension scheme changes and ensure that documents are clear, precise and as exhaustive as they can be.

This may not be the end of IBM’s troubles as complaints relating to its other pension schemes are due to be heard by the High Court in February 2013. The Wedlake Bell pensions team will report in the new year.