Indpendent Trustee Services Ltd v Hope and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 10 November 2009 |
| Neutral Citation | [2009] EWHC 2810 (Ch) |
| Docket Number | Case No: HC08C02331 |
| Court | Chancery Division |
| Date | 10 November 2009 |
[2009] EWHC 2810 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Henderson
Case No: HC08C02331
Mr Andrew Simmonds QC (instructed by Taylor Wessing LLP) for the Claimant
Mr Keith Rowley QC and Mr Pushpinder Saini QC (instructed by Eversheds LLP) for the First and Fourth Defendants
Mr Nigel Giffin QC and Mr Jonathan Hilliard ( instructed by the PPF) for the Second Defendant
Mr Michael Tennet QC ( instructed by the Pensions Regulator) for the Third Defendant
Hearing dates: 24, 27, 28 and 29 July 2009
Introduction
This is an application for directions by the trustee ("the Trustee") of an occupational pension scheme, the Ilford Pension Scheme ("the Scheme"). The question, shortly stated, is whether the Trustee may properly implement a proposal to purchase annuities for Scheme members, in exercise of a power to "buy out" benefits conferred by the Scheme rules, in circumstances where the sponsoring employer of the Scheme is insolvent, the Scheme is significantly underfunded, and the Trustee intends in due course to take steps to cause the Scheme to enter the Pension Protection Fund ("the PPF"), which was established as a "lifeboat" for schemes whose employers are insolvent and whose funding levels fall below that set by the Pensions Act 2004.
There is a particular feature of the proposal which makes this an unusual and important case. The proposal has been specifically designed to take advantage of the compensation prospectively available for members and beneficiaries of the Scheme under the PPF, and seeks to apply in the purchase of annuities, before the Scheme enters the PPF, a disproportionately large share of the Scheme assets in a way that could not possibly be justified if the PPF did not exist. The proposal does not, however, contravene any express provision in the legislation establishing the PPF. It is intended to secure a better outcome for the great majority of members and beneficiaries than they would otherwise obtain when, as is almost bound to happen, the Scheme does in fact enter the PPF.
To elaborate the point a little further, when a scheme enters the PPF its assets vest in the PPF, and those assets are one of the sources of funding of the PPF. (The other main source of the PPF's funding, as I will explain, is derived from annual levies on schemes which are eligible to enter the PPF.) It follows that any reduction in the assets of an eligible scheme, before it enters the PPF, will prejudice the PPF when the scheme does enter, unless the liabilities of the Scheme have also been proportionately reduced. The vice of the present proposal, from the PPF's point of view, is that the bulk of the Scheme assets will be spent in the purchase of annuities, but there will not be a corresponding reduction in the Scheme's liabilities. The reason for this is that only some members' benefits will be bought out in full, and the other annuities will cover only the expected shortfall between the compensation prospectively available to members under the PPF and their contractual rights under the Scheme. In other words, the cost of the proposal, to the extent that it involves the expenditure of more than a proportionate share of the Scheme assets in purchasing the annuities, will be thrown onto the PPF.
Unsurprisingly, the features of the proposal which make it objectionable to the PPF make it attractive, if it may properly be implemented, to the Trustee. Indeed, if there were no legal or practical impediments to the proposal, it would prima facie be the duty of the Trustee to implement it. However, the Trustee was advised by leading counsel (Mr Andrew Simmonds QC) in October 2006 that the proposal was an improper one, either because in exercising its discretionary power to buy out benefits the Trustee is bound to take into account the interests of the PPF, or (counsel's preferred formulation) because the availability of PPF compensation is not, in law, a relevant factor for the Trustee to take into account in exercising the power. Either way, a decision by the Trustee to implement the proposal would be fatally flawed, and if it went ahead the Trustee would be at risk of a claim for breach of trust at the suit of the PPF.
The initial impetus for the proposal came from a small group of relatively high-earning employees who had taken early retirement on favourable terms in 2000 or 2001, and whose pensions (which became payable immediately, and were not deferred until normal retirement age) would be very substantially reduced, in some cases by amounts approaching or even exceeding 50%, if the Scheme were to enter the PPF without their benefits having been bought out beforehand. There are two features in particular of the compensation regime under the PPF which can lead to this result. First, members who have not attained normal pension age receive only 90% of their basic scheme entitlement. Secondly, the compensation is subject to a cap prescribed each year by the Secretary of State for Work and Pensions, the level of which for 2009/10 is £31,936.32, subject to adjustment upwards or downwards for members older or younger than 65.
These members formed a pressure group, and obtained advice from leading counsel to the effect that the proposal was one which the Trustee could properly implement. In these circumstances the Trustee decided to apply to the court for directions, and the present action was begun by a Part 8 claim form issued on 15 August 2008.
The claimant is the present trustee of the Scheme, Independent Trustee Services Ltd.
The first defendant, Mr Paul Hope, is a senior manager who took early retirement on 30 April 2001, four days before his 55 th birthday. At the time when the claim form was issued, it was clearly in his interests to argue in support of the proposal.
The second defendant is the Board of the PPF, which is a statutory corporation. For the reasons which I have already indicated, the PPF opposes the proposal.
The third defendant is the Pensions Regulator, a statutory corporation created under Part 1 of the Pensions Act 2004. It performs the functions previously vested in the Occupational Pensions Regulatory Authority (which was abolished by the 2004 Act) and certain other regulatory functions conferred on it by the 2004 Act: see section 4(1). In essence, its function is to protect members of occupational and personal pension schemes, and to reduce the risk of claims being made on the PPF: see section 5. The Pensions Regulator asked to be joined as a party to the proceedings. It too opposes the proposal, and although it has been separately represented its reasons for doing so are very similar to those of the PPF.
The fourth defendant, Mr Alan Slater, is a deferred member of the Scheme who is below normal pension age. He was joined by amendment pursuant to an order of Norris J dated 17 June 2009, after it had emerged that there was an unresolved dispute whether Mr Hope's normal pension age is 63 or 65. If it is 63, an age which he attained on 4 May 2009, he would in fact now suffer no (or comparatively little) detriment if the court were to determine that the proposal is unlawful. The reason for this, in brief, is that neither the 10% reduction nor the cap apply to pensions already in payment to members who have reached normal retirement age before a scheme enters the PPF. It was thought inappropriate that such a member should be the sole representative of the class arguing in favour of the proposal. By contrast, it is indisputably in the interests of Mr Slater to do so. In the event, he and Mr Hope have joined forces and been represented by the same solicitors and counsel.
Evidence has been filed by or on behalf of all the parties in two rounds, the first in September and October 2008 and the second in May 2009. There are witness statements before the court:
(a) on behalf of the Trustee by Mr Christopher Martin, who has been its managing director since 1997 and has extensive experience in implementing buy-out proposals;
(b) by Mr Hope himself, and by Mr Christopher Alcraft who was the finance director of the Ilford group of companies until he took early retirement with effect from 31 December 2000. Mr Alcraft was also a director of the former trustee of the Scheme, Ilford Pension Trust Ltd;
(c) by Mr Partha Dasgupta, who was chief executive of the Board of the PPF from 22 June 2006, and by Mr Alan Rubenstein, who succeeded Mr Dasgupta in that post on 1 April 2009; and
(d) by Mr Justin Wray, who was the head of the pensions administration and governance practice at the Pensions Regulator in 2008, and by his successor in that role, Mr Stephen Soper.
None of the witnesses was cross-examined, and there is no dispute about any of the background facts. There is, however, some disagreement about the inferences that I should draw from the evidence about the possible consequences for the PPF if the proposal were to be approved.
The relief sought in paragraphs 1 to 3 of the amended claim form is as follows:
"1. Directions as to whether [the Trustee] may, in the circumstances set forth in the witness statement of [Mr Martin] made in support of the Claimant's application, properly exercise its powers under Rule 12.3(b) of the Scheme Rules to purchase buy-out policies in respect of Scheme members (or any of them) prior to the commencement of an assessment period (as defined in section 132 Pensions Act 2004) in relation to the Scheme.
2. If paragraph 1 above is answered in terms that the Claimant may properly purchase buy-out policies in such circumstances, directions as to whether the Claimant should apply the entire fund which...
To continue reading
Request your trial
-
Granada UK Rental & Retail Ltd v The Pensions Regulator
...of the PPF when deciding whether to continue the Scheme or to wind it up. Having analysed the decision of Henderson J in Independent Trustee Services v Hope [2009] EWHC 2810 (Ch), [2010] ICR 553, the Tribunal stated: “It is quite clear to us, therefore, that Henderson J was not seeking to......
-
Independent Trustee Service Ltd v GP Noble Trustees and Others
...In law I agree with the rejection of this argument by Henderson J in his decision of Independent Trustees Services Ltd v Hope and Ors [2009] EWHC 2810 at paragraphs 107 and 118–120. 73 The various disadvantages suffered by the pensioners were summarised in paragraphs 82 and 85 of the unchal......
-
Grenville Holden Hampshire v The Board of the Pension Protection Fund Secretary of State for Work and Pensions (Interested Party)
...8 does not mandate any particular level of individual protection. 28 We were referred to the decision of Henderson J in Independent Trustee Services Ltd v Hope [2010] ICR 553 which was an application by the trustee of a company pension scheme with an insolvent scheme employer for direction......
-
ITV PLC and others v The Pensions Regulator with Box Clever Trustees Ltd as an Interested Party
...of the important purposes of s 43 PA 2004: see the observations of Henderson J in this regard in Independent Trustee Services v Hope [2009] EWHC 2810 (Ch) at [55] and However, as is apparent from the discussion set out above as regards the purposes of the legislation, moral hazard is only o......