The High Court has delivered a substantial judgment, which considers complex factual and legal aspects of both rectification and the preservation requirements, in the case of IBM UK Pensions Trust Ltd v IBM UK Holdings Ltd and others.
The trustee requested that the court rectify the 1983 trust deed and rules of the IBM Pension Plan, and also the subsequent deed and rules made in 1990, so that both active and deferred members would have a right to retire between the ages of 60 and 63 without an actuarial reduction and without employer consent (which was termed "Flexible Retirement"). The judge, Mr Justice Warren, found that, after the trustee board and the employer (the "Decision Makers") had agreed that active members would be able to take Flexible Retirement, a benefit consultant had advised that employer consent should be required to avoid falling foul of the preservation requirements, and that this advice had been incorporated in the 1983 deed without it being communicated to or agreed by the Decision Makers. He found that the Decision Makers intended for active members to be able to retire from age 60 without employer consent and without reduction and therefore granted rectification in respect of the active members (including new joiners after 1983), but declined to do so for deferred members.
The judgment, which can be read by clicking here, contains a number of interesting points, including the following:
- The trustee did not have to prove a positive continuing intention in order to succeed in arguing that the 1983 deed should be rectified in respect of new joiners, nor for the rectification of subsequent deeds.
- The employer could have contracted with new joiners that they did not have a right to Flexible Retirement, but in this case provisions in the employee handbook fell short of having contractual effect.
- If the difference in treatment between active and deferred members had been in breach of the preservation requirements, this would not have been a bar to rectification. The judgment suggests that this difference is not a breach of the preservation requirements as they currently stand after amendments introduced by the Pensions Act 2004. However, some questions may remain unanswered, in particular the judge left open whether IBM would be in breach of its duty of good faith if it denied deferred members the opportunity to take an unreduced early pension in respect of benefits which are attributable to service before 6 April 2005.