Bridge Trustees Ltd v Houldsworth and another (Secretary of State for Work and Pensions intervening)
| Jurisdiction | England & Wales |
| Judge | LORD MANCE,Lord Collins,LORD WALKER,Lord Clarke,Lady Hale |
| Judgment Date | 27 July 2011 |
| Neutral Citation | [2011] UKSC 42 |
| Date | 27 July 2011 |
| Court | Supreme Court |
[2011] UKSC 42
Lord Walker
Lady Hale
Lord Mance
Lord Collins
Lord Clarke
and another
and another
Appellant
Christopher Nugee QC
Jonathan Hilliard
(Instructed by DWP/DH Legal Services)
Respondent (Houldsworth)
Andrew Simmonds QC
Nicolas Stallworthy QC
(Instructed by 3volution LLP)
Respondent (Bridge Trustees Ltd)
Keith Rowley QC
(Instructed by Eversheds LLP)
LORD WALKER (with whom Lady Hale, Lord Collins and Lord Clarke agree)
Introduction
This appeal raises a question of some importance on the law relating to occupational pension schemes. The agreed statement of facts and issues ("SFI") sets out three issues, but they are all variations on the same general theme, that is the dividing line, for regulatory purposes, between defined benefit (normally earnings-related) schemes and defined contribution (or money purchase) schemes.
The general nature of the distinction between these two types of scheme is familiar, and it may be helpful to start with that (though counsel on both sides properly reminded us that we are concerned with a particular statutory definition, and not with the range of meanings in which imprecise expressions may be used). Under a defined benefit scheme (the commonest variety of which is a final salary scheme) the primary benefit to which a scheme member is prospectively entitled, on retirement at normal pension age, is a pension for life calculated (in a final salary scheme) by reference to the member's pensionable salary at retirement. A typical formula for calculating the pension was N/60ths, where N is years of pensionable service, but today the formula is more often N/80ths. The member pays contributions (typically a fraction, such as 5%, of current pensionable salary) and the employer is under a general obligation to pay the balance needed to provide all the benefits under the scheme. Final salary schemes are therefore also referred to as balance of cost schemes. What the member pays makes an important contribution to the benefit, but the amount of the benefit is not calculated by reference to the amount of the member's contributions, and the risk of a disappointing investment return on the pension fund is assumed by the employer.
Under a defined contribution scheme, by contrast, the member's benefit is calculated by reference to the contributions that the member makes, and those that the employer makes in respect of that particular member (for instance the member may pay 4% of his or her current pensionable salary, with the employer matching that with an equal contribution). These contributions, and the investment return on them, are the measure of the member's benefits, and for that reason these schemes are also called money purchase schemes. The member, and not the employer, takes the risk of the investment return disappointing expectations. That is one of the main reasons why large numbers of employers have, since the last years of the 20 th century, closed their final salary schemes (either completely or to new entrants) and introduced money purchase schemes.
There is a variety of techniques by which, under a money purchase scheme, the amount of the contributions by or for a member, and the investment return on them, are mathematically transposed into quantifying the pension that is the primary benefit that the member expects to receive. Indeed the appellant's case is that some of the techniques (and in particular, those applicable to the voluntary investment planning ("VIP") and MoneyMatch benefits under the scheme that are the subject of this appeal) take the scheme outside the statutory definition of "money purchase benefits" in section 181 of the Pension Schemes Act 1993 ("PSA 1993") as applied for the purposes of section 73 of the Pensions Act 1995 ("PA 1995"). Section 73 provides a statutory order of priority in the winding up of pension scheme but it does not apply to money purchase schemes, and it applies only in a limited way to "hybrid schemes" (under which some but not all of the benefits provided are money purchase benefits).
These proceedings have taken an unusual course. They began as Part 8 proceedings commenced in 2006 by Bridge Trustees Ltd ("the Trustee"), the independent corporate trustee of the Imperial Home D�cor Pension Scheme ("the Scheme"). Three members of the Scheme, that is Mr John Yates (a pensioner in receipt of his pension), Mr Mark Houldsworth and Mr John Hunter (who are entitled to deferred pensions) were joined as representative defendants to represent different classes with different interests. By then the principal employer, The Imperial Home D�cor Group (UK) Ltd ("the Company") was in administrative receivership and the Scheme was in course of being wound up. The claim form raised a number of questions of construction which were answered either by the deputy judge (Miss Sarah Asplin QC) or by the Court of Appeal (Mummery, Wilson and Rimer LJJ) and are not raised in this appeal. The issue which is before this Court was raised by a late amendment of the claim form which necessitated a postponement of the first-instance hearing. The appellant, the Secretary of State for Work and Pensions, was not a party to the first-instance proceedings, but regarded the decision as having serious policy implications. The Secretary of State was granted leave to intervene in an appeal (for which the deputy judge had given permission).
The Secretary of State agreed to pay the costs of all parties in the Court of Appeal on the indemnity basis. Before the Court of Appeal he failed to overturn the deputy judge's decision on the money purchase issue, and he now appeals to this Court on that issue as being of general public importance. It is also of great importance to the current and deferred pensioners interested under the Scheme, since if the Secretary of State is right part of the contributions paid by or in respect of members still in service or entitled to deferred pensions at the date of commencement of the winding up of the Scheme will be used, under the statutory order of priority in section 73 of PA 1995, to satisfy the rights of those already entitled to receipt of pensions at that date.
The history and structure of the Scheme
The Scheme was originally established as an exempt approved scheme by an interim trust deed dated 15 December 1971. It had three distinct periods in its history, summarised as follows in para 2.2 of the SFI (in which "MP benefit" means money purchase benefit within the meaning of the statute):
"(1) From its inception to 5 April 1983 it was a conventional final salary scheme under which the members received a pension based on 1/60 of their final pensionable salary for each year of service. Members contributed 5% of pensionable salary and the employer contributed the balance of cost. No question arises as to these final salary benefits: none of them is an MP benefit.
(2) The Scheme was restructured with effect from 6 April 1983. It continued to provide final salary benefits, albeit on a less generous scale, the members' contribution rate being reduced to 3% of pensionable salary and the accrual rate to 1/80 per year. This was known as the Core Plan. In addition members were able to pay further contributions and thereby accrue extra benefits. This part of the Scheme was known as Voluntary Investment Planning or VIP. Again no question arises as to the Core Plan benefits, which are not MP benefits; but whether the VIP benefits are MP benefits where they take the form of internal annuities (ie where a member's pension comes into payment it is provided by the Scheme itself rather than by way of an annuity purchased for the member from an external provider, which would also have the effect of terminating the individual's membership of the Scheme) is part of the third issue on this appeal.
(3) The Scheme was restructured again with effect from 6 April 1992, when a further benefit structure known as MoneyMatch was introduced. Some older and longer-serving existing members (those whose age plus years of membership equalled at least 64) were given the option of continuing to accrue benefit under the existing benefit structure, namely the Core Plan and VIP. Those who were either not given the option, or chose to switch, thereafter accrued benefits on the MoneyMatch basis rather than a final salary basis, as did all new joiners. Those who switched to MoneyMatch benefits for future service could also convert their accrued final salary benefits into MoneyMatch benefits, and were given an incentive to do so. The questions whether MoneyMatch benefits are MP benefits in whole or in part are the first two issues on this appeal and (where they take the form of internal annuities) the other part of the third issue on this appeal."
In para 12 of her judgment the deputy judge summarised the effect of these changes on the members of the Scheme:
"Therefore, after 1992 there were different categories of member:
(a) Option 1 members were those who had elected to convert their accrued final salary benefits into MoneyMatch and to accrue future benefits under the MoneyMatch section;
(b) Option 2 members were those who retained their accrued benefits in the final salary section but accrued future benefits under MoneyMatch; and
(c) Option 3 members were those who both retained their accrued benefits in final salary form and continued to accrue future benefits in final salary form and therefore, did not participate in MoneyMatch at all. They could accrue VIP benefits, this option being open only to those continuing to accrue final salary benefits.
In addition, new joiners after 22 April 1992 accrued benefits exclusively by reference to the MoneyMatch section of the Scheme."
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