G4S Plc v G4S Trusteees Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 12 June 2018 |
| Neutral Citation | [2018] EWHC 1749 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: PE-2017-000007 |
| Date | 12 June 2018 |
[2018] EWHC 1749 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch D)
PENSIONS
IN THE MATTER OF THE G4S PENSION SCHEME
The Rolls Building, Royal Courts of Justice
Fetter Lane, London EC4A 1NL
Mr Justice Nugee
Claim No: PE-2017-000007
Mr Richard Hitchcock QC and Mr Farhaz Khan (instructed by Herbert Smith Freehills LLP) for the Claimant
Mr Andrew Short QC (instructed by Gowling WLG (UK) LLP) for the First Defendant
Mr David E Grant (instructed by Pitmans LLP) for the Second Defendant
Hearing dates: 6 and 7 June 2018
JUDGMENT (Approved)
Introduction
I have before me a Part 8 claim in relation to a pension scheme now called the G4S Pension Scheme ( “the Scheme”). It raises a single question, and one that will be very familiar to pensions practitioners, namely whether a scheme that is closed to future accrual, but where the members' benefits continue to be linked to their final salary, is to be regarded as a “frozen” scheme for the purposes of regulations known as the Occupational Pension Schemes (Employer Debt) Regulations 2005 (SI 2005/678) (the “Employer Debt Regulations”) or as an “open” scheme (this is not a statutory expression but is a common and useful way of describing a scheme that is not frozen). That in turn depends on whether such members are to be regarded as “active members” and that in turn depends on whether they are to be regarded as in “pensionable service” as defined in s. 124(1) of the Pensions Act 1995.
The point is, as I say, well known to pensions practitioners and is one of some general importance. In a letter from the Claimant's solicitors, Herbert Smith Freehills, to the Chief Master, they said that around 40 per cent of defined benefit pension schemes in the UK have closed to future accrual and that a significant number of those, in their experience around 20% to 30%, contained a so-called “ Courage restriction” preventing the scheme from being amended so as to terminate the final salary link. Any scheme which has closed to future accrual but retained a final salary link will be in the same position as the Scheme in not knowing whether the scheme is frozen or open.
In the present case the Scheme is a sectionalised scheme and has three separate sections. By amendments made in 2011 all future accrual has stopped in two of those sections, but the members retain a final salary link. The question, therefore, is whether those sections are open or frozen. The question has a number of practical consequences: in particular, if a scheme (or section) is an open one, then if one of the employers participating in that scheme (or section) ceases to employ any active members, that will be an employment-cessation event for the purposes of the Employer Debt Regulations, which will trigger a potential liability on that employer to pay a so-called “section 75 debt” to the scheme, which can be of a very substantial amount; whereas if the scheme is frozen, an employer ceasing to employ the members will not be ceasing to employ active members so there will not be an employment-cessation event and no section 75 debt will be triggered. For this reason the Claimant, G4S plc, the Principal Employer of the Scheme, which appears by Mr Richard Hitchcock QC and Mr Farhaz Khan, contends that the relevant sections of the Scheme have no active members and are frozen. The Second Defendant, Miss Lee, has been joined to argue the contrary. She appears by Mr David Grant and contends that the relevant members remain in pensionable service and are active members and hence that the relevant sections of the Scheme are open. The First Defendant, G4S Trustees Ltd, the current trustee of the Scheme, which appears by Mr Andrew Short QC, is neutral on this question.
I am asked to, and have already indicated that I will, make interest-based representation orders such that the Second Defendant be appointed to represent the interests of all members, and those claiming through them, in whose interests it would be for the relevant sections to be open schemes for the purposes of the Employer Debt Regulations; and that the Claimant be appointed to represent the interests of the other members and those claiming through them. In addition, Mr Hitchcock has confirmed that all other Participating Employers, although not formally represented by means of a representation order, will be bound by the decision.
Before coming to the detail, I will give an example illustrating the point, which is one that was used in argument, as I personally have always found it easier to discuss questions such as this by reference to a concrete example. Suppose a typical defined benefits scheme under which a member is entitled at normal retirement date ( “NRD”), say age 65, to a pension calculated as 1/60 of his final pensionable salary for each year he has been a member. The formula for his pension at NRD is thus n/60 x FPS, where n is the number of years of membership, and FPS is the member's final pensionable salary, and hence such a scheme is commonly referred to an n/60 scheme. Suppose a member joins aged 35. If he remains in service, and a member, until he attains age 65 and then retires and his final salary is then, say, £90,000, his pension at NRD will be 30/60 x £90,000, or £45,000 per year. If, however, he leaves service before NRD, he will be entitled, due to statutory requirements known as “preservation”, to a pension calculated in the same way but deferred to NRD. If, therefore, he leaves at age 55 with 20 years' service as a member and his salary is then £60,000, his prospective pension when he leaves will be 20/60 x £60,000, or £20,000. That will be deferred to age 65 and due to other statutory requirements known as “revaluation” will be subject to certain mandatory increases in deferment. Suppose that, instead of leaving service at age 55, the scheme is closed to future accrual when the member is 55 but he remains in service. If there is no Courage restriction on the amendment power and the final salary link is not preserved, the result will be that the member, although remaining in service with his employer, will cease to qualify for any further benefits under the scheme. That means he will cease to be in pensionable service and will again become a deferred pensioner entitled to a deferred pension at age 65 of £20,000, subject to revaluation in deferment. But if the scheme has a Courage restriction on the power of amendment and the final salary link is preserved, it will mean that this member, although ceasing to accrue any more years of pensionable service, will continue to see his future pension grow if and when his salary grows. If, therefore, he leaves at age 65 when his salary is £90,000, his pension will then be 20/60 x £90,000, or £30,000. The central question is whether that right to have his pension increase in line with salary increases has the consequence that he is in pensionable service after the date on which the scheme is closed to future accrual, which I will call the “closure date”.
There is one more introductory point that can usefully be mentioned now. In Merchant Navy Ratings Pension Fund Trustees Ltd v Stena Line Ltd [2015] EWHC 448 (Ch) (“ MNRPF”), Asplin J had to consider a similar point. The case raised a number of issues in relation to the MNRPF, but one of them was the effect of the fact that the scheme had closed to future accrual but certain members retained a right to a higher rate of revaluation if they remained in seagoing employment. Asplin J decided that that continued right to revaluation did not mean that the members were in pensionable service and active members, and hence that the scheme was a frozen scheme. Mr Hitchcock says that is both in material respects indistinguishable and right, and invites me to follow it. Mr Grant says that to some extent it turned on its own facts, but in any event that not all the arguments he relies on were deployed in front of Asplin J, and invited me not to follow it. I will come back to MNPRF as appropriate below.
The facts
All parties accepted that what I am concerned with is a question of statutory construction and that the particular facts in relation to the Scheme are not likely to make a difference. Nor is there any dispute in relation to them. In these circumstances I can set them out relatively briefly. The Scheme was established by deed dated 19 December 1994 by the then Principal Company, Securicor Group plc, with effect from 1 January 1995, and was then called the Securicor Group Pension Scheme. It provided for a number of different benefit structures, but for Category I Members the primary benefit was a pension on retirement at NRD (age 65) of n/60 of Final Pensionable Salary or, in certain circumstances, the details of which do not matter, n/80 of Final Pensionable Salary. It contained an amendment power in Rule 24 as follows:
“The Principal Company may at any time by deed or resolution alter, amend, extend, modify or add to, all or any of the provisions of the Trust Deed or the Rules and any alteration, amendment, extension, modification or addition may have retrospective effect.
Provided that it shall not:
(1) in any way prejudice the rights of any Member accrued in respect of Pensionable Service up to the date of any such alteration, amendment, extension, modification or addition except with the prior consent of the Member so affected.”
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