Arcadia Group Ltd v Arcadia Group Pension Trust Ltd (as Trustee of the Arcadia Group Pension Scheme) and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 31 July 2014 |
| Neutral Citation | [2014] EWHC 2683 (Ch) |
| Docket Number | Case No: HC14001096 |
| Court | Chancery Division |
| Date | 31 July 2014 |
[2014] EWHC 2683 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN THE MATTER OF THE ARCADIA GROUP PENSION SCHEME
AND IN THE MATTER OF THE ARCADIA GROUP SENIOR EXECUTIVES PENSION SCHEME
Rolls Building, Royal Courts of Justice
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
Mr Justice Newey
Case No: HC14001096
Mr Keith Rowley QC and Miss Elizabeth Ovey (instructed by PricewaterhouseCoopers Legal LLP) for the Claimant
Mr Andrew Simmonds QC (instructed by Mayer Brown International LLP) for the Defendants
Hearing dates: 23–25 June 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This case concerns two pension schemes, the Arcadia Group Pension Scheme ("the AGPS") and the Arcadia Group Senior Executives Pension Scheme ("the AGSEPS"), where the claimant, Arcadia Group Limited ("Arcadia"), is the principal employer. The defendants are the trustees of the schemes.
The issues raised by the proceedings relate to the extent, if any, to which the Consumer Prices Index ("CPI") published by the Office for National Statistics ("the ONS") can be adopted in place of its Retail Prices Index ("RPI") for the purposes of calculating increases in pensions in payment and (in the case of the AGPS) revaluation of deferred pensions.
The trustees of the AGSEPS and AGPS are to be appointed to represent all members of the schemes (and persons claiming under them) in whose interests it is to argue for answers to the issues different from those contended for by Arcadia.
The context
Indices
RPI and CPI are both, of course, measures of inflation. RPI is the older of the two, dating back to the 1950s, and was in the past the dominant index in the United Kingdom. In more recent times, however, CPI, which was first published in the 1990s, has become the most commonly-used index. Early last year, the National Statistician concluded that RPI does not meet international standards, and a variant of RPI referred to as "RPIJ" (which uses the "Jevons", as opposed to the "Carli", method) began to be published. The present position is that the ONS provides figures for CPI, RPI and RPIJ.
Approval and registration of pension schemes
In the past, an occupational pension scheme had to be approved by the Inland Revenue if it was to enjoy the tax advantages available in relation to such schemes. The Inland Revenue published practice notes known as "IR12" that explained when such approval would be given. IR12 first appeared in 1979, and revised versions were issued in October 1991, July 1997 and March 2001.
The position changed in 2006 as a result of changes introduced by the Finance Act 2004. Pension schemes are now registered with HM Revenue & Customs ("HMRC"), not approved by them. It is no longer necessary for HMRC to subject a pension scheme's provisions to detailed scrutiny.
Revaluation
Statutory provision for the revaluation of deferred pensions was first introduced in the Social Security Act 1985. From 1991, initially under the Social Security Act 1990 and subsequently under the Pension Schemes Act 1993, the benefits payable to a member of a pension scheme whose pensionable service ended before he attained normal pension age have had to be augmented in respect of each of the intervening years by at least the lesser of a set percentage (5% as regards service until 6 April 2009, 2 1/2% as regards later service) and "the percentage which appears to the Secretary of State to be the percentage increase in the general level of prices in Great Britain" during that year. In practice, the Secretary of State always used RPI as the measure of the "increase in the general level of prices" up to 2010. On 8 July 2010, however, the Minister of State for Work and Pensions announced that CPI would in future be used for revaluation purposes. For 2011 onwards, therefore, the "increase in the general level of prices" has been determined on the basis of CPI.
Increases in pensions in payment
Statutory requirements for pensions in payment to be increased to take account of inflation have existed since the 1990s. The Pensions Act 1995 ("the 1995 Act") stipulated that, with effect from 6 April 1997, pensions in payment earned by service from that date had to rise each year by, as a minimum, the "revaluation percentage" used for the statutory revaluation of deferred pensions. In 2004, the 1995 Act was amended to provide that, as regards pensions earned by service from 6 April 2005, the annual increase was to be the lesser of the "revaluation percentage" and 2 1/2%. In practice, therefore, pensions had to be raised by the lower of (a) RPI and (b) 5% insofar as a pension was attributable to service from 6 April 1997 up to 5 April 2005 and 2 1/2% to the extent that the pension derived from service after that date. Following, however, the switch from RPI to CPI mentioned in the previous paragraph, a pension in payment must now rise each year by at least the lesser of (a) CPI and (b) 5% insofar as a pension was earned by service up to 5 April 2005 and 2 1/2% to the extent that the pension stems from service after that date.
Guaranteed minimum pensions
Under legislation in force from 1978, it was possible for employment to be contracted out of the State Earnings Related Pension Scheme, with consequential reductions in national insurance contributions. Contracting out depended on the provision of guaranteed minimum pension benefits (or "GMPs") under an occupational pension scheme.
GMPs are subject to a special statutory regime with respect to pension increases and revaluation and are not governed by the provisions outlined above. The questions I have to decide relate only to the excess of a member's pension over the GMP.
The schemes
The AGSEPS
The AGSEPS was established in 1972 as "The Burton Group Senior Executives Pension Scheme". The scheme's first definitive deed, executed in 1974, contained no provision either entitling members to have pensions in payment increased or for the revaluation of deferred pensions. Indexation was first mentioned in the scheme's documentation in a deed of variation dated 29 July 1982. A clause headed "Maximum benefits" imposed limits on the benefits that a member could receive without the prior consent of the Inland Revenue. As regards pensions in payments, these were not to exceed specified amounts as "increased by reference to the proportionate increase in the Index". The term "Index" was defined to refer to:
"the Index of Retail Prices published by the Department of Employment (or any replacement of that Index)".
A further deed of variation, dated 7 October 1985, introduced a new set of rules with effect from 1 September 1982. These provided for pensions in payment to increase each year, but the aggregate of such increases since the date on which the pension started to be paid was not to exceed "the percentage rise since that date in the Index of Retail Prices published by the Department of Employment (or any replacement of that Index)".
That set of rules was replaced by a new one, effective from 1 November 1993, under a deed of variation dated 12 December 1997. Once again, pension increases were not to exceed "the percentage rise … in the Index of Retail Prices published by the Department of Employment (or any replacement of that Index)". The employer could award pension increases additional to the set percentages for which the rules provided "subject to Revenue Limits". "Revenue Limits" were summarised in an appendix. This stated, among other things, that the maximum pension could be "increased whilst in payment at 3% pa. compound or (if greater) in line with RPI". The expression "in line with RPI" was explained in these terms:
"'in line with RPI' over a period means in proportion to increases between figures for the months in which that period begins and ends in the General Index of Retail Prices published by the Department of Employment (or a replacement of that index not prejudicing Approval), with appropriate restatement of the later figure if the Index has been replaced or rebased during the period."
"Approval" was stated to mean "treatment of the Scheme as an exempt approved scheme under Chapter I of Part XIV of the [Income and Corporation Taxes Act 1988]".
The rules relating to the AGSEPS were amended again pursuant to a deed of variation of 31 March 2006. As revised, they stipulated (in rule 13.2) that the aggregate of pension increases was not to exceed "the percentage rise … in the Retail Prices Index (or any replacement of that Index)". The "Retail Prices Index" was stated to mean:
"the Government's Index of Retail Prices or any similar index satisfactory for the purposes of the Inland Revenue".
The definition of "in line with RPI" in the "Revenue Limits" appendix remained unchanged.
The AGSEPS is at present governed by the deed and rules annexed to a deed of variation dated 15 September 2009. Rule 13.2 stipulates that the aggregate of pension increases since a pension commenced to be paid:
"will not exceed the percentage rise since that date in the Retail Prices Index (or any replacement of that Index)".
By rule 1.1, "Retail Prices Index" means:
"the Government's Index of Retail Prices or any similar index satisfactory for the purposes of HM Revenue and Customs".
Although pension schemes must nowadays be registered with, rather than approved by, HMRC, a "Revenue Limits" appendix states that the maximum...
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