Pensions legislation and case law in 2009

While employers had their eyes on the fine detail of auto-enrolment and personal accounts last year, pension scheme members were more concerned with the High Court ruling affecting Equitable Life policyholders and the planned cut-back in tax relief on the pension contributions for high earners.

On this page:
Regulatory developments
Court rulings direct policy
Agenda for 2010
Selective list of statuatory and regulatory developments in 2009 concerning pensions
Selective summary of court and tribunal rulings in 2009 (or late 2008) concerning pensions (in alphabetical order).

Key points

  • Anti-forestalling measures introduced by the Finance Act 2009 were intended to prevent high earners who would be affected by the planned restriction on higher-rate tax relief in 2011/12 from making excessive contributions in the meantime.
  • Since April 2009, DB schemes have been able to cap the revaluation of deferred pensions at 2.5% per annum.
  • Also since April 2009, schemes have been able to choose to convert GMPs into ordinary scheme benefits.
  • The Pensions Regulator's new powers to issue a contributions notice were brought into effect and backed up by a new code of practice.
  • Three court judgments stood out in 2009. They conclusively ruled on: the UK's default retirement age of 65; which Equitable Life policyholders should be considered for ex gratia payments from the Government; and pensions accrued during a Barber window.
  • The agenda for 2010 is partly already determined, but a Tory election win could see a change of stance on personal accounts and tax relief on pension contributions for higher earners.

Probably the most important legal development in 2008 concerning pensions was the decision to reduce the tax relief available to high earners on their pension contributions from 2011/12. This affects those with a gross income of more than £150,000, and the recent Pre-Budget Report makes it clear that the value of employer pension contributions will count towards that limit where an individual has an income of more than £130,000. Although announced in the 2008 Budget, the legislation has yet to be brought in. However, the Finance Act 2009 did include anti-forestalling measures. These provisions are intended to prevent those who will be affected by the restriction on higher-rate tax relief from making excessive contributions in the meantime. Like so many other plans yet to be introduced, this could all change if Labour loses the impending general election.

There was no other primary legislation affecting pensions last year, but there were, as always, numerous regulatory changes and a trio of important court rulings. Below we summarise the main legislative and regulatory developments in 2009 and the most important court and tribunal rulings.

Regulatory developments

Regulations were laid that bring into force the provision in the Pensions Act 2008 that allows defined-benefit schemes to revalue deferred pensions by 2.5% per annum, or in line with price inflation if lower, rather than at up to 5% per annum. Of course, this is not a measure that will bite in the current low inflation environment.

Regulations were also introduced to allow schemes to convert guaranteed minimum pensions (GMPs) into ordinary scheme benefits. This was made possible by the Pensions Act 2007. Although the option appears attractive, given the complexity of administering GMPs few schemes are expected to make use of it.

Changes were effected during the year that allow the Pensions Regulator to issue a contributions notice if it sees any employer's action as materially detrimental to a scheme. Its Material Detriment Code sets out when it will use this power.

Last year also saw the first generic technical actuarial standards produced by the Board for Actuarial Standards. These concerned the checking and preparation of data and reporting of actuarial information.

Court rulings direct policy

There were three key court judgments during the year. In the action originally brought by Heyday, the High Court found that the operation of a default retirement age of 65 was lawful - but only just - and the ruling came shortly after the Government announced it was bringing forward its review of the default age to this year.

The High Court's decision in the judicial review proceedings brought by the Equitable Members' Action Group resulted in the Government widening the terms of the ex gratia payments scheme announced earlier in 2009 as a result of pressure brought by the Parliamentary Ombudsman. Sir John Chadwick's proposal on the design of the scheme is due early this year.

Finally, the Court of Appeal's judgment in Foster Wheeler seems to have resolved how pension benefits accrued during the so-called Barber window should be dealt with.

Agenda for 2010

The generally applicable minimum pension age of 55 takes effect in April. At the same time women's state pension age starts to increase from 60 to 65 over a period of 10 years. In addition, the coming year is expected to see:

  • the final detail on how auto-enrolment will operate;
  • the review of the default retirement age of 65;
  • the Equality Bill enacted; and
  • long-term strategy proposals on the Pension Protection Fund levy.

Much, however, will depend on the outcome of the general election. A Conservative win could see personal accounts (but not auto-enrolment) dropped and the removal of higher-rate tax relief on pension contributions of high earners rethought.

Selective list of statuatory and regulatory developments in 2009 concerning pensions

Abbreviations used

HMRC = HM Revenue & Customs
NI = national insurance
PPF = Pension Protection Fund

MAIN STATUTES THAT RECEIVED ROYAL ASSENT IN 2009

Available to download from the Office of Public Sector Information website; printed copies can be ordered from: The Stationery Office, enquiries: 0870 600 5522.

  • Finance Act 2009: sets out the changes announced in the Budget, including the anti-forestalling measures to be applied before the planned removal of full tax relief on pension contributions for those earning £150,000 or more from 2011/12, and measures to ensure that payments made from the Financial Assistance Scheme and the Financial Services Compensation Scheme are treated as pensions. Received royal assent on 21.7.09.

MAIN PENSION REGULATIONS MADE IN 2009 (INCLUDING SOME MADE IN DECEMBER 2008, BUT EXCLUDING ALL CONCERNING STATUTORY OCCUPATIONAL SCHEMES)

Available to download from the Office of Public Sector Information website, using the year followed by the SI number; printed copies can be ordered from: The Stationery Office, enquiries: 0870 600 5522.

  • Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008 (SI 2008/731): reissued on 17.8.09 having had a number of cross-referencing errors corrected.
  • Pensions Act 2008 (Commencement No.1 and Consequential Provision) Order 2008 (SI 2008/3241): brings into effect from 16.12.08 certain provisions of the Pensions Act 2008 relating to restrictions on the purchase of annuities by schemes in the Financial Assistance Scheme.
  • Christmas Bonus (Specified Sum) Order 2008 (SI 2008/3255): provides that for 2008, the Christmas bonus payable to pensioners is increased from £10 to £70.
  • Pensions Act 2008 (Commencement No.2) Order 2009 (SI 2009/82): brings into effect a number of provisions of the Pensions Act 2008, including: with effect from 6.4.09, reducing the cap on the indexation of deferred benefits to 2.5%; with effect from 26.1.09, extending the Pensions Regulator's powers in relation to scheme funding so that it can intervene if it is concerned about the actuarial methods and assumptions used in respect of a fund valuation; and abolishing "safeguarded rights" (contracted-out rights shared on divorce) from 6.4.09.
  • Social Security (Contributions) (Amendment) Regulations 2009 (SI 2009/111): reflect changes made by the Pensions Acts 2007 and 2008 and the National Insurance Act 2008 in respect of the upper accrual point, which replaces the upper earnings limit (UEL) for the purposes of calculating the state second pension (S2P) from April 2009, including: ensuring that S2P calculations, contracting-out rebates and minimum contribution calculations can be effected for people who receive earnings other than weekly; introducing new administrative procedures; and, with effect from 6.4.09, setting the primary threshold at £476 a month, the secondary threshold at £5,715 a month; and the monthly and annual equivalents of the UEL at £3,656 and £43,875 respectively.
  • Occupational Pension Schemes (Levy Ceiling - Earnings Percentage Increase) Order 2009 (SI 2009/200): provides that the PPF levy ceiling, the maximum amount of levy that can be collected in a 12-month period, will be increased by 3.6% for the 2009/10 PPF levy year.
     
     

    Anti-forestalling measures introduced by the Finance Act 2009 were intended to prevent high earners who would be affected by the planned restriction on higher-rate tax relief in 2011/12 from making excessive contributions in the meantime.

     
  • Pensions Act 2004 (Commencement No.12) Order 2009 (SI 2009/325): brings into force provisions of the Pensions Act 2004 relating to the duty of the PPF to pay scheme benefits that were unpaid at the assessment date.
  • Pensions Act 2007 (Commencement No.3) Order 2009 (SI 2009/406): with effect from 1.3.09, gives the Government power to make Regulations in respect of converting guaranteed minimum pensions into other benefits and allows any such provisions to take effect from one month later.
  • Pension Protection Fund (Miscellaneous Amendments) Regulations 2009 (SI 2009/451): make a number of changes to the provisions governing the PPF, including: allowing certain institutions in the European Economic Area to apply to the PPF; extending the circumstances in which the PPF can make payments in respect of certain members who have died; ensuring that the PPF does not revalue benefits if the scheme rules in question make no provision for revaluation; allowing the PPF to pay compensation in respect of certain pension transfers and contribution refunds; and making a large number of technical amendments.
  • Guaranteed Minimum Pensions Increase Order 2009 (SI 2009/477): with effect from 6.5.09, increases by 3% any guaranteed minimum pension payable by contracted-out defined-benefit schemes that is attributable to earnings factors for the tax years from 1988/89 to 1996/97.
  • Social Security Benefits Up-rating Order (SI 2009/497): provides for the annual up-rating of a wide range of social security benefits, including increasing by 5% the basic state pension for a single person and the additional pension based on a married man's contributions to £95.25 a week and to £57.05 a week respectively; and increasing the pension credit standard minimum guarantee by 4.8% to £130 a week for a single person and £198.45 for a married couple or civil partner. The pension increases take effect in the week commencing 6.4.09.
  • Pensions Act 2008 (Abolition of Safeguarded Rights) (Consequential) Order 2009 (SI 2009/598): removes from secondary pensions legislation all references to safeguarded rights that arose when a member's rights in a contracted-out pension scheme were shared on divorce or dissolution of a civil partnership following the abolition of safeguarded rights by the Pensions Act 2008.
  • Social Security Revaluation of Earnings Factors Order 2009 (SI 2009/608): with effect from 6.4.09, increases the earnings factors in respect of the calculation of additional pension or guaranteed minimum pension by 3.1% for the 2008/09 tax year and by specified amounts for earlier tax years.
  • Social Security Pensions (Low EarningsThreshold) Order 2009 (SI 2009/610): increases the low earnings threshold for the purposes of calculating the state second pension from £13,500 to £13,900 and increases the lower earnings limit for payment of NI contributions from £4,680 to £4,940 for 2009/10.
  • National Insurance Contributions (Application of Part 7 of the Finance Act 2007) (Amendment) (No.2) Regulations 2009 (SI 2009/612): simplify the procedure under which users of notified NI contribution avoidance schemes report scheme reference numbers and other information to HMRC.
  • Occupational, Personal and Stakeholder Pensions (Miscellaneous Amendments) Regulations 2009 (SI 2009/615): make a large number of amendments to the statutory instruments governing occupational, personal and stakeholder schemes, including: the introduction of overriding provisions which allow schemes to take advantage of the reduction in the cap on the revaluation of benefits accruing from defined-benefit occupational schemes on or after 6.4.09 from 5% to 2.5%, where they would not otherwise be able to do so under their scheme rules; simplifying the payment rules for benefits payable as a result of a pension-sharing order; removing the need for schemes to consult with trade unions if ceasing to contract out because of being wound up; and imposing certain restrictions on investment including transposing the provisions of the EU's IORP Directive (Directive 2003/41/EC) that impose a 5% limit on the amount of resources an occupational scheme can invest in the sponsoring employer.
     
     

    Since April 2009, DB schemes have been able to cap the revaluation of deferred pensions at 2.5% per annum.

     
  • Pensions Regulator (Miscellaneous Amendment) Regulations 2009 (SI 2009/617): with effect from 6.4.09, remove the requirement for the Pensions Regulator to be notified in respect of certain scheme events and extend the look-back provisions in respect of financial support directions from 12 to 24 months.
  • Social Security (Additional Class 3 National Insurance Contributions) Amendment Regulations 2009 (SI 2009/659): make provision for individuals who attain state pension age between 6.4.08 and 5.4.15 to pay voluntary Class 3 NI contributions for up to an additional six tax years from 1975/76 providing they already have at least 20 existing qualifying years for a state pension.
  • Financial Assistance Scheme and Incapacity Benefit (Miscellaneous Amendments) Regulations 2009 (SI 2009/792): make provision for people over age 55 with significantly reduced life expectancy but who do not meet the terminal illness conditions to receive unreduced Financial Assistance Scheme payments before their scheme's normal retirement age.
  • Occupational Pension Schemes (Levy Ceiling) Order 2009 (SI 2009/794): specifies that the PPF levy ceiling for the year beginning 1.4.09 is £863,412,967, an increase of 3.6% on the previous year's ceiling.
  • Pension Protection Fund (Pension Compensation Cap) Order 2009 (SI 2009/795): with effect from 1.4.09, increases the level of the PPF compensation cap by 3.5% to £31,936.32, thus increasing the maximum level of benefit payable to members below normal pension age, which is 90% of the capped amount, to £28,742.69.
  • Pensions Act 2008 (Commencement No.3 and Consequential Provisions) Order 2009 (SI 2009/809): changes the method of calculation of deferred compensation payable under the PPF to allow for the reduction in the cap on the revaluation of deferred defined-benefit pensions from 5% to 2.5% per annum.
  • Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009 (SI 2009/846): set out how the actuarial equivalence is to be determined when the GMP element of a member's benefit is converted to an actuarially equivalent scheme benefit and also details the circumstances in which survivors' benefits must be payable in respect of the converted guaranteed minimum pension benefits.
  • Registered Pension Schemes (Authorised Payments) Regulations 2009 (SI 2009/1171): provide for a number of payments to be added to the categories of authorised payments that a registered pension scheme can make, including commutation of certain small pensions, payments made in error and payments that represent arrears of pensions due after the scheme member has died.
  • Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2009 (SI 2009/1172): with effect from 1.6.09, makes transitional provisions in relation to trivial commutation lump sums whereby pension schemes can convert small pensions into a lump sum without attracting an unauthorised payments charge, subject to a number of conditions, including that the member is aged between 60 and 75 and that the lump sum is no more than £2,000.
  • Pension Schemes (Reduction in Pension Rates) (Amendment) Regulations 2009 (SI 2009/1311): with effect from 6.4.06, extend the circumstances in which pensions in payment may be reduced without infringing the rules in the Pensions Act 2004 against reducing pensions (which, if infringed, attract a tax charge) and include provisions to cover the situation where a pension scheme is being wound up and the fund has insufficient assets to continue to pay pensions at the full rate, and as a result pensions are reduced, unless it is being done as part of an avoidance arrangement.
  • Pension Protection Fund (Entry Rules) (Amendment) Regulations 2009 (SI 2009/1552): allow the PPF to give directions that would enable it to stop trustees from making rule changes during an assessment period that would have the effect of increasing the scheme's protected liabilities.
  • Pensions Act 2004 (Code of Practice) (Material Detriment Test) Appointed Day Order 2009 (SI 2009/1565): brings into effect from 29.6.09 the Pensions Regulator's Code of Practice No.12: Circumstances in Relation to the Material Detriment Test.
  • Pensions Act 2008 (Commencement No.4) Order 2009 (SI 2009/1566): brings into effect from 29.6.09 the provisions of the Pensions Act 2008
     
     

    Since April 2009, schemes have been able to choose to convert GMPs into ordinary scheme benefits.

     
    relating to contribution notices and financial support directions.
  • Companies (Shareholders' Rights) Regulations 2009 (SI 2009/1632): implement Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies in so far as those rights do not already exist in the UK. They are intended to overcome problems in the cross-border exercise of such rights, particularly voting rights, detail information companies must make available, notably in relation to general company meetings, and deal with proxy voting and shareholders' right to ask questions.
  • Pensions Regulator (Delegation of Powers) Regulations 2009 (SI 2009/1888): permit the Pensions Regulator to delegate certain powers that will apply from 2012 to enable it to meet more effectively the new enforcement responsibilities laid on it by the Pensions Act 2008 in respect of automatic enrolment and the prohibition on employers of inducing opt-outs from qualifying pension schemes.
  • Taxation of Pension Schemes (Transitional Provisions) (Amendment No.2) Order 2009 (SI 2009/1989): provides that with effect from 6.4.06 certain benefits may be paid to dependent children over age 23 without attracting an unauthorised payments charge in circumstances not covered by existing transitional arrangements, mainly where the child was caring for elderly parents.
  • Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) (Amendment) Regulations 2009 (SI 2009/2033): with effect from 1.9.09, insert a new description in the tax avoidance Regulations in respect of the anti-forestalling measures introduced by the Finance Act 2009 requiring the disclosure of tax avoidance schemes that seek to avoid or reduce the new restrictions on pensions tax relief.
  • Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2009 (SI 2009/2047): clarify the rules governing the lump sums a relevant non-UK scheme may pay to ensure that they do not attract an inappropriate member payment charge where the member has elected that a benefit crystallisation event be treated as occurring.
  • Social Security (State Pensions and National Insurance Credits) Regulations 2009 (SI 2009/2206): make a number of amendments to the legislation governing state pensions resulting from the equalisation of state pension ages and the reforms to state pensions introduced by the Pensions Act 2007.
  • Pensions Act 2007 (Supplementary Provision) Order 2009 (SI 2009/2715): permits individuals to appeal against decisions regarding their entitlement to an NI contribution credit on the grounds of being a parent or carer, following the introduction of a new scheme by the Pensions Act 2007 to replace home responsibilities protection.
  • Occupational and Personal Pension Schemes (Authorised Payments) Regulations 2009 (SI 2009/2930): make a number of amendments to occupational and personal pensions legislation to update references to take account of the Registered Pension Schemes (Authorised Payments) Regulations 2009 (SI 2009/1171), which add to the list of payments made by pension schemes that are deemed to be authorised payments, and so do not attract penalty tax charges.
  • Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2009 (SI 2009/3055): override any provision in the rules of registered schemes that require the approval of HMRC before scheme amendments can take effect following the removal from 6.4.06 of the requirement for scheme rule amendments to be approved by HMRC, and apply from 6.4.06 until the earlier of the end of the 2010/11 tax year or the date a pension scheme amends its rules to have the same effect as the modification in these Regulations.
  • Pensions Act 2004 (Code of Practice) (Trustee Knowledge and Understanding) Appointed Day Order 2009 (SI 2009/3068): brings into effect from 26.11.09 the second version of the Pensions Regulator's Code of Practice No.7: Trustee Knowledge and Understanding (TKU).
  • Pensions Act 2007 (Supplementary Provisions) (No.2) Order (SI 2009/3094): amends the legislation governing NI rebates paid into contracted-out personal pension arrangements by replacing the amounts of age-related rebates already laid down in legislation for the 2010/11 and 2011/12 tax years with new rates that reflect changes to the rates of accrual of the state second pension.

MAIN EU LEGISLATION WITH IMPLICATIONS FOR PENSIONS ISSUED IN 2009

Available to download from the EU's website.

MAIN HM REVENUE & CUSTOMS GUIDANCE OF RELEVANCE TO PENSIONS ISSUED IN 2009

Available to download from the HMRC website.

MAIN PENSIONS REGULATOR GUIDANCE ISSUED IN 2009

Available to download from the Pensions Regulator's website.

MAIN ACTUARIAL GUIDANCE ON PENSIONS ISSUED BY THE BOARD FOR ACTUARIAL STANDARDS IN 2009

Most actuarial guidance is now the responsibility of the Board for Actuarial Standards (BAS) and is available to download from its website.

MAIN ACTUARIAL GUIDANCE ON PENSIONS ISSUED BY THE FACULTY AND INSTITUTE OF ACTUARIES IN 2009

Available to download from the profession's website.

  • The Actuaries' Code (PDF format, 555.95K): a new code of conduct outlining ethical standards for actuaries, which supersedes the Professional Conduct Standards (PCS) and is effective from 1.10.09. Unlike the PCS, a breach of the new code will not of itself be grounds for disciplinary action.

MAIN GUIDANCE ISSUED BY THE PENSION PROTECTION FUND IN 2009 (INCLUDING ABOUT THE FINANCIAL ASSISTANCE SCHEME)

Available to download from the PPF's website.

MAIN GUIDANCE OF RELEVANCE TO PENSIONS ISSUED BY THE DEPARTMENT FOR WORK AND PENSIONS IN 2009

Available to download from the Department for Work and Pensions' website.

MAIN GUIDANCE PUBLISHED BY THE ACCOUNTING STANDARDS BOARD WITH IMPLICATIONS FOR PENSIONS IN 2009

Available from website of the Accounting Standards Board.

MAIN GUIDANCE PUBLISHED BY INSTITUTIONAL SHAREHOLDERS' COMMITTEE IN 2009

Available to download from the Institutional Shareholders' Committee's website.

  • Code on the Responsibilities of Institutional Investors (PDF format, 121.57K): a new code that sets out best practice for institutional investors on monitoring companies in which they invest, on dialogue with company boards and on voting at general meetings. It is aimed at those institutions that choose to engage with companies as part of their investment strategy, but is entirely voluntary. Those adopting the code will be expected to comply or to explain why they have not done so.

MAIN GUIDANCE PUBLISHED BY BRITISH STANDARDS INSTITUTION WITH IMPLICATIONS FOR PENSIONS IN 2009

Can be ordered from website of British Standards Institution.

  • Data Protection - Specification for a Personal Information Management System, BS10012:2009: provides a framework to enable the effective management of personal information in organisations within the context of the Data Protection Act 1998 principles and includes a requirement for a member of senior management to be accountable overall for the management of personal information and for at least one qualified worker to have day-to-day responsibility for compliance with the standard.

MAIN GUIDANCE PUBLISHED BY BRITISH COMPUTER SOCIETY AND INFORMATION SECURITY AWARENESS FORUM WITH IMPLICATIONS FOR PENSIONS IN 2009

Available to download from website of British Computer Society.

Selective summary of court and tribunal rulings in 2009 (or late 2008) concerning pensions (in alphabetical order)

Compensation for loss of final-salary benefits incorrect

Aegon UK Corporate Services Ltd v Roberts, Court of Appeal [2009] EWCA Civ 932

Aegon appealed against the decision of the Employment Appeal Tribunal that in an unfair redundancy dismissal case the employment tribunal had been correct in awarding compensation based solely on the loss of final-salary pension rights. The claimant had obtained a better remuneration package with the position she took after being made redundant, but her new employer only operated a defined-contribution scheme. The appeal was allowed on the grounds that the tribunal should not have separated pension rights from any other heads of losses when determining if any compensation was due.

Ombudsman's decision legally flawed

Arjo Wiggins Ltd v Ralph, High Court, Chancery Division [2009] EWHC 3198 (Ch)

Shortly before being made redundant in 1986 by Wiggins Teape (now Arjo Wiggins), Mr Ralph transferred his defined-benefit pension to an insurance company product which promised improved benefits. When, 20 years later, this proved not to be the case, he complained to the Pensions Ombudsman that he had been given negligent advice by his former employer's pension scheme. The ombudsman upheld his claim and ordered the company to either reinstate him in the scheme or pay for equivalent benefits. The company appealed this decision: first, on the grounds that the ombudsman should not have dealt with a claim that would have been time-barred in the courts; and second, because, on the facts, the ombudsman's decision was legally flawed. The appeal failed on the first ground, the court finding that under the terms of the legislation governing the ombudsman's function, he has jurisdiction to investigate a complaint even where a court could not, although he must give due consideration to a valid limitation defence. The court upheld the second part of the appeal on the grounds that the ombudsman had no power to award substantive relief in respect of a complaint that would have been defeated by a limitation defence had it been brought in a court.

Sufficient proof to rectify scheme rules

Colorcon Ltd v Huckell, High Court, Chancery Division [2009] EWHC 979 (Ch)

The rules of the scheme, for which the claimant was the principal employer, provided that deferred pensions would be increased by 5% a year. The claimant alleged that it was its joint intention with the scheme trustees that deferred pensions should be revalued by 5% a year or the increase in the retail prices index, if lower. Its application for rectification of the scheme rules to reflect this intention was allowed. The court held that, on the balance of probabilities, there was sufficient evidence in documents agreed since the rules were executed to indicate that the trustees accepted that this was the intention, even if it was not specifically expressed. The court confirmed that there was no need for an outward expression of accord between the company and the trustees for it to be able to rectify the scheme rules.

Trustee's action acceptable

Eastearly Ltd v Headway plc, Court of Appeal [2009] EWCA Civ 793

 
 

The Pensions Regulator's new powers to issue a contributions notice were brought into effect and backed up by a new code of practice.

 

When the defendant company's pension scheme, which was in deficit, was winding up, the trustee entered into a preliminary buyout contract to purchase annuities for former members who were not yet in receipt of pensions. It devised an arrangement to increase the s.75 debt recoverable by purchasing the buyout contract first and then using the additional money recovered to purchase further annuities for these members. The court was asked to determine whether the trustee could lawfully enter into the arrangement on account of its obligations in respect of guaranteed minimum pensions (GMPs) and whether the arrangement would result in the s.75 debt being increased to a level above the amount that would be recovered using the conventional approach. The Court of Appeal upheld the High Court's decision that the trustee's actions complied with commercial sense and accorded s.75 its natural meaning, and that the GMPs could be bought out.

Court seeks minimum interference approach

Foster Wheeler Ltd v Hanley, Court of Appeal [2009] EWCA Civ 651

Following the decision in Barber v Guardian Royal Exchange Assurance the claimant company and the trustees of the pension scheme purported to amend the scheme rules to equalise the normal retirement age (NRA) at 65 for men and women; previously it was 65 for men and 60 for women. However, during the so-called Barber window (between the date of the Barber judgment and the effective date of the change), men had an NRA of 60. The scheme was in deficit and the company sought a determination on the application of the early-retirement rule, in particular whether it could reduce benefits paid before age 65 where members had different NRAs for different periods of service, purely as a result of the decisions of the European Court of Justice. The Court of Appeal overturned the High Court's decision that the whole pension was payable from age 60 with no reduction. It adopted a "minimum interference" with the scheme rules approach and held that, although the entire pension could be paid at age 60, the periods of service should be treated separately and pension for service with an NRA of 65 should be reduced for early payment.

Pensions Ombudsman reached correct decision on ill-health rule

Hamilton v Monmouthshire County Council, High Court, Chancery Division, Bristol Registry [2008] EWHC 3101 (Ch)

Mr Hamilton was employed by the defendant on a fixed-term contract that expired in 2001. In December 2000, he went on sick leave and did not return to work before the expiry of his contract. In 2005, he applied for, and was granted, an ill-health early retirement pension. However, he claimed that it should have been backdated to 2001 when his contract expired. He appealed against the Pensions Ombudsman's decision that, first, on the facts, he was not entitled to an ill-health pension, and second, although he was entitled to elect for early payment of his deferred pension, it could only be backdated to the date of his election. The court upheld the ombudsman's findings, saying that the coincidence of leaving employment and permanent incapacity was not enough; Mr Hamilton's leaving should have been caused by the incapacity. Accordingly, the pension should not be backdated.

Change of amendment power invalid

HR Trustees Ltd v German, High Court, Chancery Division [2009] EWHC 2785 (Ch)

The original amendment rule of the IMG Pension Plan stated that no amendment could be made that would reduce the value of benefits secured by contributions that had already been made. Subsequently, a new amendment rule was inserted without that limit on the power. In 1992, the scheme switched from a defined-benefit (DB) to a defined-contribution basis for all service but there was no DB underpin in respect of contributions paid up to the date of the change. At the same time, existing DB members were required to sign a new application form saying that they consented to the change. The court held that the unfettered amendment rule was void so the original amendment power remained in force. In addition, it found that when signing the new application forms, DB members had not been giving informed consent.

Trustees must ignore existence of PPF

Independent Trustee Services Ltd v Hope, High Court, Chancery Division [2009] EWHC 2810 (Ch)

The trustee of the Ilford Pension Scheme, which was significantly underfunded and with an insolvent sponsoring employer, proposed to use its discretion under the rules to purchase annuities to buy out the benefits of certain scheme members prior to the scheme entering the Pension Protection Fund (PPF). The proposed annuity purchase, which was in respect of those who would benefit least from entry into the PPF, would have used a disproportionately large proportion of the scheme's assets, so that the PPF would effectively have had to fund the remaining members' benefits. The trustee admitted that it would not have considered this arrangement without the existence of the PPF. The court held that the availability of PPF compensation was not a relevant factor for the trustee to take into account when exercising its power to buy out benefits.

Council guilty of age discrimination

 
 

Three court judgments stood out in 2009. They conclusively ruled on: the UK's default retirement age of 65; which Equitable Life policyholders should be considered for ex gratia payments from the Government; and pensions accrued during a Barber window.

 

London Borough of Tower Hamlets v Wooster, Employment Appeal Tribunal, appeal no.UKEAT/0441/08, 10 September 2009

Mr Wooster was made redundant at the age of 49. If the council had kept him in service to age 50, it would have had to pay him an unreduced early retirement pension on redundancy. There was some evidence that it had deliberately taken this action to avoid increasing its pension costs and accordingly Mr Wooster claimed unfair dismissal and age discrimination. The council accepted the employment tribunal's finding of unfair dismissal but appealed against the finding that it was guilty of age discrimination. On the basis of the evidence that the council was trying to save pension costs, the employment appeal tribunal dismissed its appeal.

Trustees liable for missing beneficiaries

MCP Pension Trustees Ltd v Aon Pension Trustees Ltd, High Court, Chancery Division [2009] EWHC 1351 (Ch)

MCP alleged that Aon amended the records of the Maxwell Communications Scheme to remove details of about 32 members who had transferred from another employer. This was only discovered after the scheme wound up and, as a result, MCP had to provide benefits for about 15 extra people. As a preliminary issue the court considered Aon's argument that, under the Trustee Act 1925, MCP did not have to pay these people because none of them had responded to MCP's advertisements announcing its plan to wind up the scheme, as it had no notice of their claims and was protected under s.27 of this Act. The court accepted MCP's case that it did have notice of these former members' claims because the scheme administrator had been aware of the existence of their accrued benefits at an earlier date and it did not matter that this fact was overlooked at the date the scheme was wound up.

UK's default retirement age permissible

R (Age UK) v Secretary of State for Business, Innovation & Skills, High Court, Queen's Bench Division [2009] EWHC 2336 (Admin); European Court of Justice, Case C-388/7, 5.3.09 (known as Incorporated Trustees of the National Council on Ageing (Age Concern England) v Secretary of State for Business, Enterprise & Regulatory Reform at European Court)

The European Court of Justice found that the provision in the UK's age-equality legislation for a "default retirement" age of 65 falls within the scope of the EU's Equal Treatment Framework Directive (Directive 2000/78 EC) but that differences of treatment on the grounds of age may be allowable if they can be objectively justified as a proportionate means of achieving a legitimate aim, such as employment policy. When the case was referred back to the High Court, it found that the Directive had been correctly transposed and that the default retirement age could be justified as having a legitimate and proportionate social policy aim, although it questioned the suitability of age 65. (Details in OP, April and November 2009.)

Government's response to Equitable report inadequate

R (Equitable Members' Action Group) v HM Treasury, High Court, Queen's Bench Division [2009] EWHC 2495 (Admin)

Following the rejection by the Government of some of the findings of maladministration and injustice made by the Parliamentary Ombudsman in her report on the prudential regulation of Equitable Life, the Equitable Members' Action Group (EMAG) sought judicial review of the Government's response to her report. EMAG claimed that the Government had failed to put forward cogent reasons for rejecting the ombudsman's findings. The court upheld the claim in part, stating that the Government should not have concentrated on the narrow issue of its legal obligation when rejecting the findings. In ignoring the context in which the findings of injustice had been made, the Government's response to the ombudsman's report fell short of the statutory requirement.

No pension for unmarried partner

Ratcliffe v Secretary of State for Defence, Court of Appeal [2009] EWCA Civ 39

 
 

The agenda for 2010 is partly already determined, but a Tory election win could see a change of stance on personal accounts and tax relief on pension contributions for higher earners.

 

The claimant had had a long relationship with a naval officer who had given 36 years' service. After leaving the service in 1988 the officer had developed mesothelioma caused by exposure to asbestos during his naval service, and he had died in 2004. The claimant applied for a war pension but this was refused on the grounds that she did not meet the necessary conditions for receiving an unmarried partner's pension, including the requirement that the act or omission causing death occurred after 5.4.05. She argued that the refusal to pay her a benefit was incompatible with her rights under the European Convention on Human Rights. The court dismissed her appeal on the basis that where the alleged discrimination in the field of pensions was based on non-suspect grounds it would be reluctant to find that the discrimination was not justified. The decision on when unmarried partners were to be put in an analogous position to spouses in the field of pensions was a decision for government and not one with which the courts would normally interfere.

Objective factor for compulsory retirement age not justified

Seldon v Clarkson Wright & Jakes, Employment Appeal Tribunal, 19.12.08

Mr Seldon was a partner with a firm of solicitors. The partnership agreement required partners to resign at 65. He alleged age discrimination. At the tribunal hearing, the firm put forward six aims behind its policy, three of which the tribunal agreed justified its discriminatory behaviour. The claimant appealed on 22 grounds, most of which the Employment Appeal Tribunal dismissed. However, it did find that the assumption that performance deteriorated at 65, which lay behind the argument that the normal retirement age limited the "need to expel partners by way of performance management, thus contributing to the congenial and supportive" atmosphere in the firm, was not supported by the evidence in this case and involved stereotyping. The case was remitted to the tribunal to consider whether the need to achieve the other legitimate aims was sufficient to justify the rule.

Pension-sharing order not applicable to early retirement benefit

Slattery v Cabinet Office (Civil Service Pensions), High Court, Chancery Division [2009] EWHC 226 (Ch)

Mr Slattery, a member of the Civil Service Pension Scheme, divorced his wife in 2002, and a pension-sharing order was made in her favour. Several years after the order was made, he applied for, and was granted, approved early retirement, which entitled him to receive his full pension three years before his normal retirement date. The scheme administrator advised him that his pension had to be reduced in accordance with the terms of the sharing order. His complaint to the Deputy Pensions Ombudsman was rejected on the grounds that the pension-sharing order applied so as to affect his pension rights under the early retirement agreement. The court upheld Mr Slattery's claim that the deputy ombudsman had erred in his interpretation of the law and agreed that the pension-sharing order would only take effect when he reached his normal retirement age. This was because the additional benefits acquired as a result of the early retirement agreement were classed as a "contingent discretionary benefit" and were not part of the "shareable rights" to which the order applied.

Scheme amendments fail

Our research

In preparing this review of legislative, regulatory and case law developments in pensions during 2009, we drew almost exclusively on coverage in Occupational Pensions during the year.

 

Walker Morris Trustees Ltd v Masterson, High Court, Chancery Division [2009] EWHC 1955 (Ch)

The scheme in dispute was established in 1974. Although the amendment clause in its definitive deed required actuarial advice to be taken before the scheme was amended, it appeared that no such advice had been obtained in respect of the numerous changes that had been made since commencement. The trustee applied to the High Court for directions to be made that would enable it to transfer the scheme to the Pension Protection Fund or to wind it up. The defendants represented two opposing viewpoints: one that the amendment power did not in fact require actuarial advice to be taken if the proposed amendment took the form of an improvement in benefits; and the other arguing the opposite case. The court upheld the second defendant's arguments on the grounds that the first defendant's case required the court to allow the consequences of the avoidance of the trust document to determine how the amendment rule should be construed, which was clearly the wrong approach. Therefore all the amending deeds in dispute were ineffective.