Bridge Trustees Ltd v Houldsworth and another (Secretary of State for Work and Pensions intervening)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date04 March 2010
Neutral Citation[2010] EWCA Civ 179
Docket NumberCase No: A3/2008/1520
Date04 March 2010

[2010] EWCA Civ 179





Miss Sarah Asplin QC (Sitting as a Deputy High Court Judge)

Before: Lord Justice Mummery

Lord Justice Wilson


Lord Justice Rimer

Case No: A3/2008/1520


(1) Mark Houldsworth
(2) John Hunter
(1) Bridge Trustees Limited
(2) John Yates
Secretary of State for Work and Pensions

MR ANDREW SIMMONDS QC and MR NICOLAS STALLWORTHY (instructed by Lee & Priestley LLP) for the Appellants

MR KEITH ROWLEY QC (instructed by Eversheds LLP) for the First Respondent

MR PAUL NEWMAN QC and MISS EMILY CAMPBELL (instructed by Pinsent Masons LLP) for the Second Respondent

MR CHRISTOPHER NUGEE QC and MR JONATHAN HILLIARD ( instructed by Department for Work and Pensions Legal Group) for the Intervener

Hearing dates: 9 th, 10 th & 11 th June 2009


This is the judgment of the Court to which all members of the Court have contributed.

A. Overview


This case is about the winding up of a substantial occupational pension scheme. The dispute is about the order in which members' benefits should be paid.


An occupational pension scheme called “The Imperial Home Décor Pension Scheme” (the Scheme) was established with effect from 1 January 1972. Over the following 30 years it underwent major structural changes. The legislation changed. The Scheme rules were amended. The principal employer then became insolvent. The Scheme began to be wound up in October 2003. The estimated value of the Scheme assets is significantly less than the cost of securing the members' benefits. The deficit is in the region of £40m. Not all the members will receive their pension benefits in full.


A sole independent trustee of the scheme, Bridge Trustees Limited (the Trustee), was appointed. It applied to the court. The purpose of the application was to get authoritative answers to questions. There were doubts about the interpretation of the winding up provisions in the pensions legislation and their application to the Scheme. The answers to the questions affect the order in which the assets of the Scheme will be used to satisfy the Scheme's pension liabilities to its members. The appeals are about whether the court of first instance gave wrong answers to some of the questions.


The Trustee discovered that there were some basic difficulties in the winding up of the Scheme. That occurred soon after the principal sponsoring employer company, Imperial Home Décor Group (UK) Limited, went into administrative receivership on 26 June 2003. Liquidation followed. Unfortunately for the members, the Scheme is not eligible for admission to the Pension Protection Fund. That is a “lifeboat” introduced by the Pensions Act 2004 and funded by levies on eligible occupational pension schemes. The Scheme is not eligible, as the winding up began before 6 April 2005. The members may be eligible to have their benefits topped up under the Financial Assistance Scheme (FAS). That is a publicly funded “lifeboat” also introduced by the Pensions Act 2004. The FAS applies to schemes where the winding up commenced between 1 January 1997 and 5 April 2005. It is applicable where the principal employer has been, as here, subject to “an insolvency event.” However, as counsel for the Trustee was careful to explain to the court, the FAS does not necessarily offer a solution for all members. The court is not asked to rule on the application of the FAS.


The relevant legislation deals with preferential liabilities in a winding up. It lays down the order in which Scheme assets should be applied towards satisfying liabilities to the members for pensions and other benefits. Section 73 of the Pensions Act 1995 (the 1995 Act) sets out, in order of priority, the different kinds of pension benefits affected. The Occupational Pension Schemes (Winding up) Regulations 1996 (the 1996 Regulations), in particular regulation 13, modified the application of s73 in important ways. It did so by excluding certain kinds of benefits from it, though with exceptions. The way in which that was done is the cause of considerable uncertainty and controversy in this case.


Section 73 does not apply to the winding up of every kind of pension scheme. It applies only to the winding up of a “salary related occupational pension scheme” and to the benefits specified in that section, as modified. The fundamental problem is whether the order of payment in s73 applies at all to some of the main benefits under the Scheme. The benefit structure of the Scheme is complex. The Scheme began life in a simple “salary related” form. Pension benefits provided to members were related to their final salary. The Scheme was later amended. The changes introduced additional and new pension benefits. They are not calculated in the same way as salary related benefits. Are those benefits covered by s73?


Scheme assets are held on trusts. The court has jurisdiction to determine issues arising “in the execution of trusts”: CPR Part 64. The Trustee's application to the court and the judgment of the court below have generated 7 issues on these appeals. All of them relate to the order of application of the Scheme's assets in the trusts. The answers to the questions as to whether s73 applies to various benefits turn mainly on the interpretation and application of the definitions of key terms in the 1995 Act. The definitions are not easy to understand or to apply.


The main point is whether particular pension benefits under the Scheme are “money purchase benefits” (MP benefits). The expression is defined in the legislation (s 181 of the Pension Schemes Act 1993 (the 1993 Act), as imported into the 1995 Act by s124(5)):

“…benefits the rate or amount of which is calculated by reference to a payment or payments made by the member or by any other person in respect of the member and which are not average salary benefits.”


The definition focuses on how the amount of the members' benefits is calculated: the calculation must be “by reference to” payments made into the Scheme by or in respect of the member. MP benefits are not calculated by reference to some other form of payments, for instance salary payments to the member. Must MP benefits be calculated only by reference to contribution payments? The definition is of crucial importance: if the benefits in question are MP benefits, they are, in general, excluded from s73. That is the effect of the modification of s73 made by regulation 13(1) of the 1996 Regulations.


If the benefits are MP benefits, the other main point is whether any of the MP benefits excluded from s73 are “underpin benefits.” They are defined in regulation 13(3). Underpin benefits, by way of exception to the general exclusion, fall back into s73. They are defined in regulation 13 (3) as

“…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.”

That definition gives rise to problems. How does it work in the case of benefits that have a minimum or guaranteed element?


Another definition central to the application of s73 is that of a “salary related occupational pension scheme.” That is the only kind of pension scheme to which s73 applies on a winding up. The legislation defines a “salary related” pension scheme in a negative way. It says what a salary related scheme is not: it is an occupational pension scheme “which is not [our emphasis] a money purchase scheme”: see s125(1) of the 1995 Act. This default definition means that, if an occupational pension scheme is not a money purchase scheme, then it is a salary related scheme, though that does not mean that all the benefits under it are salary related benefits.


The term “money purchase scheme” (MP scheme) is defined. It is positively defined as a scheme under which all the benefits that may be provided are MP benefits. That takes you back to the definition of MP benefits. What is the overall effect of those definitions? It is, in general, that s73 does not apply to MP schemes, or to MP benefits, unless they qualify as underpin benefits.


The application of the definitions to the Scheme and the benefits under it is not a straightforward exercise. The Scheme provides members with both salary related benefits and with MP benefits. It is agreed that the Scheme is not an MP scheme: not all the benefits under it are MP benefits. Some benefits dating from the Scheme's early days and simpler structure are clearly salary related. The Scheme itself may be described as “salary related” in the sense that it is not an MP scheme. However, as already noted, that does not mean that all the benefits under the Scheme are salary related. It has to be asked of each benefit in question: is it an MP benefit within the statutory definition? It does not necessarily follow that, if a benefit is not an MP benefit, then it must be a salary related benefit. That is not the way the legislation works. A benefit may quite simply fail to qualify as an MP benefit. A benefit may fall outside the definition of an MP benefit without necessarily itself being salary related. We emphasise, at the risk of repetition, the key question. It is not whether the benefits are salary related: it is whether they are calculated “by reference to” payments contributed to the Scheme by or in respect of members. If they are calculated in that way, they are MP benefits...

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2 cases
  • Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank Plc
    • United Kingdom
    • Chancery Division
    • 26 October 2018 comprising two elements made up of a GMP and the excess above it.” 235 The second of these cases was Houldsworth v Bridge Trustees [2010] ICR 921 where the court was dealing with a money purchase benefit called “MoneyMatch” which had a defined benefit underpin benefit, namely the members......
  • Bridge Trustees Ltd v Houldsworth and another (Secretary of State for Work and Pensions intervening)
    • United Kingdom
    • Supreme Court
    • 27 July 2011
    ...[2011] UKSC 42 THE SUPREME COURT Trinity Term On appeal from: [2010] EWCA Civ 179 Lord Walker Lady Hale Lord Mance Lord Collins Lord Clarke Houldsworth and another (Respondents) and Bridge Trustees Limited and another (Respondents) and Secretary of State for Work and Pensions (Appellant) Ap......

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