Caroline Linda Ann Danks and Others v Qinetiq Holdings Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Vos |
| Judgment Date | 14 March 2012 |
| Neutral Citation | [2012] EWHC 570 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC11C04105 |
| Date | 14 March 2012 |
[2012] EWHC 570 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Vos
Case No: HC11C04105
Mr Michael Tennet QC and Mr James McCreath (instructed by Burges Salmon LLP) for the Trustees
Mr Keith Rowley QC and Ms Elizabeth Ovey (instructed by Allen & Overy LLP) for the first Defendant employer
Mr Andrew Spink QC (instructed by Maurice Turnor Gardner LLP) for the second Defendant
Hearing dates: 1 st and 2 nd March 2012
Introduction
The Claimants are the trustees (the "Trustees") of the QinetiQ Pension Scheme (the "Scheme"). The first Defendant, QinetiQ Holdings Limited ("QinetiQ"), is the principal employer under the Scheme. It is part of a group of companies (the "QinetiQ Group") that operate in the defence, aerospace, and technology markets.
The second Defendant, Martin Pocock ("Mr Pocock"), became a member of the Scheme when it began on 1 st July 2001. He accrued benefits until he left QinetiQ's employment on 31 st May 2011. Mr Pocock is now 57 years old, and will reach his normal retirement date of 65 under the Scheme on 12 th January 2020. Mr Pocock has, therefore, an accrued right to a deferred pension, and will, when he reaches 65, become entitled to a pension in payment.
This is the trial of a Part 8 claim issued on 22 nd November 2011. In essence, the Trustees have asked whether, on the true construction of the deed and rules of the Scheme dated 18 th June 2010 (the "2010 D&R"), the exercise of their power under Rule 49 and/or the definition of "Index" in Part A of Appendix 1 to the 2010 D&R to adopt the Index of Consumer Prices ("CPI") rather than the Index of Retail Prices ("RPI") as a suitable cost of living index under the Scheme, would be potentially voidable under sections 67 to 67I of the Pensions Act 1995 ("PA 1995"), if the power were exercised in certain different specified ways, to which I shall turn in a moment.
As is now well known, the CPI is, at the present time and for the foreseeable future, a generally lower and less favourable index, since it excludes housing costs and is calculated as a geometric rather than an arithmetic mean. Elias LJ provided a detailed explanation of the comparison between RPI and CPI at paragraphs 7–15 in his recent judgment in R (on the application of Staff Side of the Police Negotiating Board) v. Secretary of State for Work and Pensions [2012] Pens LR 31. The purpose of the Trustees' wish to adopt CPI is to reduce the Scheme's substantial deficit, which was calculated as at 31 st December 2010 at £191 million on a technical provisions basis. I am told that the question is far from academic in that negotiations between the Trustees and QinetiQ to agree a deficit reduction strategy are well advanced. If, however, the court were to determine that the adoption by the Trustees of CPI rather than RPI would engage section 67 on the grounds that it would or might adversely affect any subsisting rights, I am told that the Trustees would not be prepared to go ahead with a decision to adopt CPI, because of the uncertain consequences of the decision being voidable under section 67(2).
Chronological background
On 6 th September 1971, Mr Pocock started work as an apprentice at the Royal Radar Establishment (which became from 1996 the Defence Evaluation and Research Agency ("DERA")).
On 2 nd June 1972, Mr Pocock became a member of the Principal Civil Service Pension Scheme ("PCSPS").
The Scheme was established by a Definitive Trust Deed and Rules dated 29 th June 2001 (the "2001 D&R").
With effect from 1 st July 2001, the activities of DERA were divided between the QinetiQ Group and the Government's Defence and Science Technology Laboratory. At that time, Mr Pocock transferred his employment to QinetiQ, and the benefits he had accrued in the PCSPS were transferred to the Scheme.
In February 2003 the Government sold 37.5% of the QinetiQ Group to private investors. In 2006, the Government sold the remainder of its interest in the QinetiQ Group to private investors.
With effect from 1 st June 2008, the Scheme was amended so as to require those in pensionable service to choose between three optional categories of contributions and benefits.
On 27 th June 2008, Mr Pocock's choice of option 1 (continuing to pay 5% contributions and receipt of a pension based on 1/90ths of his career average salary) was confirmed. The brochure (the "Brochure") put out to Scheme members by the Trustees in preparation for the 2008 changes stated, in relation to option 1 that "[p]ension increases [would be] in line with [RPI] to a maximum of 4% a year", and generally that "[p]ension built up prior to 1st June 2008 will be increased in payment each year by the full increase in RPI from one year to the next. Under options 1 and 2 pensions built up after 1 June 2008 would have each year's increase capped at either 4% or 5%". Option 3 had increases at RPI without a cap, and the Brochure said in particular: "With this option and unlike option 2, if the RPI increases above 5% in retirement your pension would be guaranteed to increase at the full rate of the RPI". The Brochure also told the reader not to forget that: "Benefits earned by you before 1st June 2008 are untouched – they are protected. When you take your pension they will be calculated on the current basis". There was a discussion during the hearing as to the Trustees' precise intentions in relation to the adoption of CPI in the light of their acknowledgement that they might need first to establish the effect of the documentation surrounding the June 2008 changes. After the hearing, the Trustees' intentions were clarified as follows in a letter from their counsel to the court:
"As regards pension benefits accrued after 1 June 2008, the Trustees' present intention is to adopt CPI in place of RPI to revalue such benefits over the period of any deferment. For completeness we should mention that (again as regards benefits accrued after 1 June 2008) the current intention is that RPI will be maintained as the Index not only for increases to pensions in payment …, but also for the purposes of the revaluation of CARE benefits, and the indexation of the earnings cap applied to final pensionable salary under the rules of the Scheme …".
Since that letter was written, I have been told that still further discussions have taken place. As a result, I am informed by the Trustees' solicitors that the Trustees' latest intentions in relation to CARE benefits for members in active service are to provide revaluation by reference to RPI in respect of each annual block of pension accrued prior to any change to CPI, for the period between the year in which that block of pension was accrued up to the date of the change, and by reference to CPI thereafter. Members in active service who accrue further CARE benefits after the date of any change to CPI will have those benefits revalued annually by reference to CPI until they retire or leave service. And a member with accrued CARE benefits who has or acquires a right to a deferred pension on leaving service will have the deferred pension revalued by reference to CPI in the same way as a member with an ordinary final salary pension.
On the 18 th June 2010, the 2001 D&R were replaced by the 2010 D&R. It has not been suggested by any party that the differences between the 2001 D&R and the 2010 D&R are material to the questions I have to decide.
On 22 nd June 2010, the Chancellor of the Exchequer announced in his budget statement that CPI would be used rather than RPI as the basis for uprating most state benefits and public sector pensions.
On 8 th July 2010, the Minister of State at the Department of Work and Pensions announced that the Government believed that CPI provided a more appropriate measure of pension recipients' inflation experiences and was consistent with the measure used by the Bank of England, and that it was right to use the same index in determining increases for all occupational pensions and payments made by the Pension Protection Fund and Financial Assistance Scheme.
On 1 st January 2011, the Occupational Pensions (Revaluation) Order 2010 came into force, under which CPI, rather than RPI, was the index selected by the Secretary of State.
On 31 st May 2011, Mr Pocock was made redundant by QinetiQ.
On 21 st November 2011, the Trustees sent out an announcement in respect of the intended commencement of these proceedings to all 8,277 Scheme members, referring to Mr Pocock as the proposed representative beneficiary.
On 22 nd November 2011, the Trustees issued their Claim Form asking the following 3 questions pursuant to Part 64 and Rule 19.7 of the Civil Procedure Rules and/or the inherent jurisdiction of the Court:—
i) Whether on the true construction of the [2010 D&R] the exercise of the Trustees' power pursuant to Rule 49 and/or the definition of "Index" in Part A of Appendix 1 to the 2010 D&R to choose the [CPI] as a suitable cost of living index other than the [RPI], is potentially voidable under [sections 67 to 67I of the PA 1995], if the power were exercised:
a) so as to affect the rate of increase when in payment of pensions which have already accrued by reference to service ("Service") with an employer under the Scheme prior to the date on which the power is exercised;
b) so as (i) to affect the rate of revaluation of deferred pensions where the deferred pension has already accrued by reference to Service prior to the date on which the...
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