In Sovereign Trustees Ltd v Glover the High Court has emphasised the need to comply with the scheme’s power of amendment in order for amendments to be valid.
The trust deed and rules of a group DB scheme included provisions for a majority of the trustees to constitute a quorum for any trustee meeting and for a resolution in writing signed by all the trustees to have the same legal effect as a resolution passed at a trustee meeting. The power of amendment was exercisable by the trustees with the consent of the principal employer; no adverse amendments to accrued benefits were permitted; and the trustees were required to notify each member in writing of any amendment affecting his benefit entitlement.
Following a review of the scheme by benefit consultants on the principal employer’s instructions, the then trustees wrote to all active members to inform them that the company was introducing changes to the scheme: from 1 April 1998 future service benefits would be provided on a money purchase basis.
Contributions and benefits were then paid on the basis that the scheme had been amended. The scheme was discontinued on the disposal of the principal employer’s business. The present trustees asked the court whether the money purchase section of the scheme had been validly created.
The trustees contended that it had, relying on a resolution passed by two of the three trustees on 10 February 1998 that “the Company’s proposals be accepted in full”. Contrary to the recommendation of the benefit consultants, there was no evidence that any legal advice had been sought or obtained before the passing of the resolution.
The court ruled that the resolution was not effective to amend the scheme; it merely recorded the adoption of a policy now for implementation later by amendments made in accordance with the rules. The judge added that it was unlikely that the trustees would seek to make the extensive and complex amendments needed to implement the recommendations by means of a document as short and simple as the minute recording the resolution.
Accordingly the money purchase section of the scheme had not been validly created.
Comment: The outcome of this case is not surprising, but it reinforces the need to ensure that amendments are made in accordance with the scheme’s power of amendment and that when resolutions are passed it is clear to all concerned precisely what the scope of that resolution is. Further, where employer consent is required to an amendment, that requirement is not satisfied merely by fact that the amendment was originally proposed by that employer.