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The opdu Report - Issue 20, June 2006 Over the last year, there have been several court or ombudsman decisions of interest, dealing with such matters as rectification of scheme documents, discriminatory treatment, the precedence of pension scheme rules over booklets, the effect of representations made by the employer and the ability of trustees to reduce pension benefits. A summary of some of the more significant decisions is set out here. Matthews v Kent and Medway Towns Fire Authority ([2006] HL 8) This case concerned the different pension treatment received by part-time firefighters when compared with their full-time colleagues. The part-time firefighters were excluded from the full-time firefighters' pension scheme and received less favourable treatment under the sick pay scheme. In accordance with regulation 5 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 a part-time worker has the right not to be treated by his employer less favourably than the employer treats a "comparable" full-time worker. The key issue, in this case, was whether a part-time firefighter was "comparable" with a full-time firefighter. In ascertaining whether one worker is "comparable" with another, it is necessary to consider whether the workers are employed by the same employer under "the same type of contract" and whether the workers are engaged in "the same or broadly similar work". At the initial hearing before the Employment Tribunal, and in the Court of Appeal, it was held that the part-time and full-time firefighters were not "comparable", as they were not engaged in "the same or broadly similar work". The part-time firefighters appealed to the House of Lords. The House of Lords held that the part-time and full-time firefighters were employed under the "same type of contract". The House of Lords clarified that, in order to judge whether workers are engaged in "the same or broadly similar work", it is important to examine the whole of the work in which the workers are engaged. The fact that the two kinds of worker may have had different levels of qualification, skills and experience was relevant only to the extent that it affected whether the work in which they were actually engaged was different. In other words, the relevant question was, in essence, even though the full-time job, by nature, has broader responsibilities, is the work undertaken in the part-time job similar? The House of Lords emphasised that the purpose of the legislation in this area is to be able to compare full-time and part-time workers in order to prevent discrimination. Having clarified the factors to be examined in addressing whether workers were engaged in the "same or broadly similar work", the House of Lords remitted the case to the Employment Tribunal for reconsideration of whether the workers were, in fact, involved in the "same or broadly similar work". Capital Cranfield Trustees Ltd v Walsh ([2005] EWCA Civ 860) A pension scheme contained an employer contribution rule under which the contributions to be made to the pension scheme by the employer were determined by the trustees. In 1997, the employer gave notice to terminate its liability in relation to the scheme with effect from 31 March 1998. The trustees later closed the scheme, discovered there to be a substantial "buy out" deficit and decided to wind up the scheme. By this point, the employer, having terminated its liability in relation to the scheme, was not liable to make up the deficit. The court held that the trustees had the power, at any time between the employer giving notice to terminate its liability and the date of termination of the employer's liability in relation to the scheme, to make an appropriate demand for a contribution from the employer. As there was no express restriction in the employer contribution rule, the trustees were able to demand a level of contribution to cover any deficit (although, on the wording of the section, the trustees could not have demanded a contribution which would produce a surplus). The trustees' power to demand such a contribution expired on the termination date and did not revive on the winding-up of the scheme. The decision is significant in noting that the employer contribution rule can, in some circumstances, give trustees wide powers to demand contributions from the employer. In this instance, the employer was still liable throughout the period of notice to terminate liability to contribute to the scheme. Mr F Holden (Pensions Ombudsman - N00322) Mr Holden was a member of the occupational pension scheme provided by his employer. While Mr Holden was a senior executive of the employer, the employer wrote to Mr Holden on two occasions in 1997 stating that his pension benefits would be enhanced, and Mr Holden replied confirming his agreement and understanding of the terms. When the trustees later refused to provide these enhanced benefits, Mr Holden made an application to the Pensions Ombudsman. Stec and Others v United Kingdom (ECHR 65731/01) The European Court of Human Rights ("ECHR") heard an application that the UK was acting in a discriminatory fashion by the use of different age limits for men and women with regard to the reduced earnings allowance and the retirement allowance, contrary to Article 14 of the European Convention on Human Rights. The UK offered a reduced earnings allowance to employees who had suffered an injury through work, to compensate for the loss of earnings they experienced as a result of the injury. The entitlement to a reduced earnings allowance expired when the employee reached the statutory age for pension entitlement. Some employees receiving a reduced earnings allowance were switched to a retirement allowance, but this also correlated with retirement age. The statutory retirement age in the UK is 60 for women and 65 for men, although the retirement age for women will gradually increase to 65 by the year 2020. Individuals in receipt of a retirement allowance or a reduced earnings allowance applied to the ECHR for a decision on whether the differing cash payments received by men and women in similar circumstances were discriminatory. Steria Ltd & others v Ronald Hutchison and Others ([2005] EWHC 2993) This case concerns the issue of estoppel and the extent to which the rules of a pension scheme should take precedence over the statements made to a member in other documents setting out a member's entitlements under the scheme. It represents a significant development on the previous case law on this point. Mr Hutchison joined his employer's final salary pension scheme. A few years later, Mr Hutchison was promoted and offered the chance to become a member of a different scheme run by the same employer. Mr Hutchison transferred his accrued benefits to the new scheme and received a letter and booklet from the employer which stated that he would be able to take early retirement at 62 with no actuarial reduction, provided that he had completed 20 years' service. The booklet noted that the trust deed and rules prevailed over the booklet on any question of interpretation. Several years later, Mr Hutchison was informed by the Pensions Officer of Steria Ltd that he would not be able to take early retirement at 62 with no actuarial reduction, because the deed and rules provided that the normal retirement date was 65 for the purposes of an unreduced rate, rather than 62. Mr Hutchison complained to the Pensions Ombudsman who upheld his right to retire at 62 without actuarial reduction. The employer and the trustees appealed to the High Court. The court dismissed the appeal. The statements made to the member in successive booklets and letters constituted clear and unambiguous representations as to his benefits on early retirement. The warning to look at the trust deed did not negative the clear and unambiguous representation. The fact that Mr Hutchison had the opportunity to test the truth elsewhere was not justification for not giving effect to the representation. Accordingly, the employer and trustees were held to be stopped from denying that Mr Hutchison could take early retirement without actuarial reduction at age 62. The court noted the previous trend of court decisions in this sort of case to uphold that the rules of the scheme should take precedence over the booklet where there is any inconsistency. The court, however, confirmed that representations in scheme booklets were capable, in principle, of giving rise to an estoppel; and held that the present case was one in which an estoppel arose. Aon Trust Corp Ltd v KPMG ([2005] EWCA Civ 1004) Further to the case summary provided in Issue 18 of the OPDU Report, this case has now been heard by the Court of Appeal. KPMG were arguing that its pension scheme, the KPMG Staff Pension Fund, was a money purchase scheme, so it should not have any statutory funding obligations in relation to it. The pension entitlement under the scheme rules was, essentially, calculated by adding the total contributions made by the member and the employer (the scale benefits) to the value of all bonuses received and multiplying this figure by a factor correlating to the number of years worked by the member. The court held that the Fund was not a money purchase scheme, but a defined benefit scheme, as the benefits provided under the Fund were not "money purchase benefits". Although the court considered the whole structure of the Fund in coming to its decision, particular importance was attached to the fact that an actuary was required to calculate the value of the benefits earned. The court discussed whether a reduction in pension benefits pursuant to the power contained in the Fund rules constituted a modification within the meaning of section 67 of the Pensions Act 1995. The court held that the member's current right to a future pension was an accrued right, and consequently, any reduction in the value of the right was a modification to which section 67 applied.. The court did not give any guidance of general application on the impact of section 67 on the use of the power to reduce benefits, but held that, in this instance, section 67 was an effective restriction on amendments to reduce the benefits provided under the Fund. The Court of Appeal stated that the power to reduce pension benefits did not apply to pensions in payment under the Fund, and a power to do so would require clear wording. Also, the power to reduce benefits was stated to apply only to benefits that were "secured or accruing". Cornwell v Newhaven Port and Properties Ltd ([2005] EWHC 1469) An employer withdrew from a multi-employer final salary scheme, and the trustees instructed the actuary to calculate the debt on the employer under section 75 of the Pensions Act 1995. The actuary calculated the debt and apportioned a percentage (16%) of the debt to the withdrawing employer. The trustees served notice on the withdrawing employer to pay the amount due. The withdrawing employer complained that the amount was in excess of that which was necessary and challenged the actuarial certificate. The trustees applied to court to determine whether the actuarial certificate was conclusive. The withdrawing employer disputed the certificate and the apportionment, claiming that the actuary had failed to carry out his calculations in accordance with the Pensions Act 1995 and regulations made thereunder. The court held that the parties were bound by the certificate and opinion of the actuary in calculating the amount of the debt. The clear intention of the legislation was that the actuary's certified calculation was to be a binding calculation produced by an impartial expert according to prescribed rules and, as such, was not open to challenge. The court held that it was possible, in theory, to challenge the apportionment of the debt to an employer, but that, in this instance, there was no reason to question the apportionment. Akester v Kingston Communications (Hull) Plc ([2005] Pens. L.R. 153) The Kingston Communications Pension Scheme, a final salary scheme, provided that a member was entitled to enhanced benefits on early retirement provided that the member's retirement was at the employer's request or the employer had agreed to the request of the member for an immediate pension. The principal employer instituted a programme of redundancies. Initially, the principal employer requested voluntary redundancies but, once the supply of volunteers ran out, the principal employer selected some employees for compulsory redundancy. The trustees applied to the court for a direction as to whether either of the groups of members who had been made redundant were entitled to enhanced benefits on early retirement. The court held that the members who had been selected for compulsory redundancy were not entitled to enhanced retirement benefits. Compulsory redundancy does not fall within the normal meaning of "early retirement" and, as the redundancy was not at the request of the member, did not fall within the specific extension of the meaning of retirement provided by the scheme. The members who had volunteered for redundancy were entitled to enhanced benefits on retirement as they could be said to have retired at the employer's request. The case makes clear that the unilateral termination of employment, by way of compulsory redundancy, does not constitute retirement within the common meaning of the term. Drake Insurance Plc v MacDonald ([2005] EWHC 3287) This case concerns rectification of pension scheme documents. The deed and rules of the pension scheme in question originally provided that a member was able to take early retirement, subject to actuarial reduction, with the consent of the trustees and the principal employer. In 1996, the trustees introduced a cost-neutral system of early retirement scales and agreed that, due to the introduction of the new scales, there was no need for the member to obtain the consent of the principal employer and trustees. The employer and the trustees agreed to amend the scheme rules to the effect that the consent of the employer and the trustees was no longer required. The scheme rules were amended so that a member was able to take early retirement without the consent of the trustees and employer and with no actuarial reduction. The principal employer subsequently applied to the court for rectification of the amendment on the basis of mutual mistake, claiming that it had not been the intention of the principal employer or the trustees to remove the requirement for actuarial reduction of the pension benefits on early retirement. The court ordered rectification of the amendment made to the scheme rules on the basis that it did not reflect the true intention of the trustees and the employer, as clearly exhibited by the meetings of these parties prior to the amendment being made and their conduct subsequent to the amendment. The court noted that although the parties had purposefully chosen the words to make the relevant amendment, the earlier case of AMP (UK) plc v Barker, clearly confirmed that rectification was available where the chosen words had failed to bear the meaning intended by the parties. Z F Lemforder UK Ltd v Lemforder UK Pension Trustee Ltd and another ([2005] EWHC 2882) This case also concerned the availability of the remedy of rectification in connection with pension scheme documents. The scheme rules contained a definition of 'pensionable pay' for the purposes of calculating members' contributions which specified that, in calculating this figure a deduction should be made equal to the Lower Earnings Limit ("LEL") provided by statute. However, the definition of 'pensionable pay' for the purposes of calculating members' benefits, erroneously, did not allow for an LEL deduction to be made. The employer and trustees applied to the court for rectification of the scheme rules on the basis that both parties had always intended that the deduction should have been included in the definition of 'pensionable pay' used in the calculation of members' benefits. The court granted rectification of the scheme rules on the basis that the parties had exhibited a clear intention to include the LEL deduction before the rules were signed, and had conducted themselves since the execution of the rules as if an LEL deduction had been included. The LEL deduction had been excluded by the solicitors drafting the rules due to a misunderstanding. The case is an example of the rectification of a simple and uncontroversial error being granted following consideration by the court in a straightforward and practical manner. Malcolm Fitzsimons John Amberton
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