Alexander Forbes Trustees Services Ltd v John Doe and Another
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Purle |
| Judgment Date | 16 December 2011 |
| Neutral Citation | [2011] EWHC 3930 (Ch) |
| Docket Number | Claim No 1BM30078 |
| Court | Chancery Division |
| Date | 16 December 2011 |
[2011] EWHC 3930 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
The Rolls Building
7 Fetter Lane
London
EC4A 1NL
His Honour Judge Purle QC
(Sitting as a Judge of the Chancery Division)
Claim No 1BM30078
Ms Wendy Mathers appeared for the Claimant
Mr Christopher Nugee QC appeared for the First Defendant.
Mr Keith Rowley QC appeared for the Second Defendant. (all Counsel being instructed by Eversheds)
In this action I am required to determine a short but difficult point of law relating to section 73 of the Pensions Act 1995 and regulation 13 of the Occupational Pensions Scheme (Winding-up) Regulations 1996.
There are two pension schemes affected, namely the Sunley Turiff Pension Scheme, which is now governed by a definitive trust deed dated 14 March 1995 ("the Sunley scheme") and the Singer UK Limited Employee Benefits Plan ("the Singer scheme"), which is governed by a definitive deed dated 5 April 1987. The Singer scheme has been in wind-up since 30 June 2000 and the Sunley scheme has been in wind-up since 2 March 2003. The versions of section 73 and of the 1996 regulations then in force were slightly different on those two dates, but not significantly so for present purposes.
I take the basic facts from the witness statement of Andrew Bakewell of the claimant trustee. He explains that there are three types of schemes which are well known to pension lawyers, though they were not well known to me until the considerable assistance I had in this case from all counsel. A money purchase pension scheme is the first. Under such a scheme the benefits are payable to an individual member and are calculated by reference to contributions paid into the scheme in respect of that member, increased (it is hoped) by the investment return achieved. At retirement the member's accumulated fund, or pot, is used to purchase an annuity or scheme pension. The pension is therefore dependent on the level of contributions, investment return and the prevailing annuity rate at retirement.
The second type of scheme is a defined benefit pension scheme (sometimes called a "final salary scheme"). That is a scheme that promises the member a defined level of benefit on death or retirement, typically a pension of one-sixtieth of final salary for each year of service. The members generally pay a fixed rate of contribution calculated as a percentage of salary. Employers' contributions have then to be determined from time to time by an actuary so as to cover the balance of the cost of the promised benefits.
The third type of scheme is known as a "hybrid scheme", which is partly money purchase and partly defined benefit. Hybrid schemes usually have different sections in which members accrue benefits on either a money purchase or defined benefit basis. In some instances members accrue both types of benefit at the same time.
Each of the schemes in this case is a hybrid scheme. Moreover, each scheme has one fund out of which all the benefits, both money purchase benefits and defined benefits, have to be paid.
The Sunley scheme was decided explicitly by Warren J in Bainbridge v Quarters Trustees Limited [2008] EWHC 979 (Ch) to constitute a single fund, from which all benefits are payable. The Singer scheme is materially indistinguishable for present purposes. It was common ground before me that that also was a single fund scheme.
As from 6 April 2005, the Pension Protection Fund was established under the Pensions Act 2004. This has now been replaced by the Financial Assistance Scheme, which is relevant to these two schemes. Each of the schemes is in deficit by a clear margin. The defined benefit members, but not the money purchase members, qualify for compensation from the Financial Assistance Scheme.
The applicant is the statutory independent trustee of both schemes and seeks a determination of the point of law arising in this case. The issue relates to the order of priority in which the available assets should be applied. The essential question is: can money purchase pots be diverted from money purchase members to support the defined benefit members? This point is especially pertinent for money purchase members because as the law currently stands they do not qualify for support from the Financial Assistance Scheme. This is because that scheme has been designed on the assumption that the applicable law already operated fully to safeguard money purchase benefits upon the wind-up of hybrid pension schemes. These proceedings have been instituted to test that assumption. The assumption of those setting up the Financial Assistance Scheme is not, of course, material at all towards the issue of construction that I have to resolve.
The details of the schemes do not matter very much, although they have been helpfully set out in a note prepared in neutral terms by the trustee's' junior counsel, for which I am very grateful. It is sufficient to note that under the priorities set out in the definitive deeds, money purchase members come after defined benefit members. There are a considerable number of money purchase members in the Sunley scheme, though in the Singer scheme there may only be one non-contracted-out money purchase deferred member who is potentially adversely affected by my decision.
The issue arises under section 73 of the Pensions Act 1995, which, to the extent that it applies, overrides the scheme priorities. I shall read the version which was in force in June 2000 which relates to the Singer scheme. As I have said, there is no material difference between this and the version in force for the purpose of the Sunley scheme. Section 73 provides as follows:
"73. Preferential liabilities on winding-up
(1) This section applies where a salary related occupational pension scheme to which section 56 applies" — and it was agreed on all sides that section 56 applies in this case — "is being wound up to determine the order in which the assets of the scheme are to be applied towards satisfying the liabilities in respect of pensions and other benefits (including increases in pensions).
(2) The assets of the scheme must be applied first towards satisfying the amounts of the liabilities mentioned in subsection (3) and, if the assets are insufficient to satisfy those amounts in full, then —
(a) the assets must be applied first of all towards satisfying the amounts of the liabilities mentioned in earlier paragraphs of subsection (3) before the amounts of the liabilities mentioned in later paragraphs; and
(b) where the amounts of the liabilities mentioned in one of those paragraphs cannot be satisfied in full, those amounts must be satisfied in the same proportions.
(3) The liabilities referred to in subsection (2) are …."
There then follow several subparagraphs which, as indicated in subsection (2), are to be met in order. Subsection (3) ends with the following words:
"and for the purposes of subsection (2) the amounts of the liabilities mentioned in the various subparagraphs are to be taken to be the amounts calculated and verified in the prescribed manner."
Those words are important because the amounts calculated and verified in the prescribed manner need not be, and will ordinarily be less than, 100% of the benefits due to the members under the scheme rules.
"(4) To the extent that any liabilities as calculated in accordance with the rules of the scheme have not been satisfied under subsection (2), any remaining assets of the scheme must then be applied towards satisfying those liabilities as so calculated in the order provided for in the rules of the scheme."
That ties in with the explanation I have just given in relation to the closing words of subsection (3). The scheme liabilities may be and often will be greater than the amounts calculated in the prescribed manner, and in relation to those additional liabilities the scheme rules apply. That has no impact in the present case because there will be no remaining assets after dealing with the liabilities calculated in the prescribed manner.
Those provisions were modified by the 1996 Regulations. Again, I shall read the regulation which was in force in 2000. There are no material differences today. Regulation 13 deals with hybrid schemes, that is to say schemes of the type which I am considering. It reads as follows:
"13. Hybrid schemes
(1) In relation to any scheme —
(a) which is not a money purchase scheme, but
(b) where some of the benefits that may be provided are relevant money purchase benefits,
section 73 applies as if —
(i) the liabilities of the scheme did not include liabilities in respect of those benefits, and
(ii) the assets of the scheme did not include the assets by reference to which the rate or amount of those benefits is calculated.
(2) In paragraph 1 'relevant money purchase benefits' means money purchase benefits other than —
(a) benefits derived from the payment by any member of voluntary contributions, or
(b) underpin benefits.
(3) In this regulation 'underpin benefits' means money purchase benefits which under the provisions of the scheme will only be provided in respect of a member if their value exceeds the value of other benefits in respect of him under the scheme which are not money purchase benefits."
It is apparent that some money purchase benefits will be underpin benefits and therefore not relevant money purchase benefits within the meaning of the regulation, but many money purchase benefits are not underpin benefits. That is the position here in relation to substantial amounts.
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