The Court of Appeal has partially upheld an equalisation ruling that could add more than £100m to the liabilities of the Safeway Pension Scheme, but has asked a European court to clarify whether benefits can be revised downwards in certain circumstances.
It is the latest in a steady stream of judgments resulting from the European Court of Justice’s 1990 Barber ruling, which held that having different normal pension ages for men and women was discriminatory.
Instead of lowering the age for men to 60, supermarket chain Safeway, now owned by WM Morrison Supermarkets, had attempted to revise the NPA for women upwards in December 1991.
There’s this overriding European principle that says you can’t go back and make people worse off
Sue Tye, Baker McKenzie
Changes must follow strict rules
However, in the High Court Mr Justice Warren found the 1991 change to be invalid, as it had been made using a written announcement to members rather than a formal amendment by deed, which was made later in May 1996. The scheme's rules did not give it the power to make the amendment via a member announcement.
This part of the judgment, upheld by the Court of Appeal, means the scheme only equalised NPAs at that later date, potentially adding substantial amounts to its liabilities.
Although largely a legacy issue, lawyers said the ruling outlined the importance of paying careful attention to the required procedure for any rule changes.
“The key point from today’s judgment for us as providers of legal advice to many trustees and companies is that, where scheme rules set out a clear way to amend pension scheme benefits, that provision in the scheme rules needs to be given very careful consideration before making any changes,” said John Gordon, counsel at law firm Ashurst.
Gordon said any departure from the “strict requirements” of a particular scheme’s rules was liable to be found invalid years later in court, and could result in significant liabilities for the scheme.
“In this case, as in all other cases where a deed that closes off or caps liabilities has been found to be invalid… companies in particular will be worried that this could lead to a material increase in the scheme deficit,” he said.
Referral made to CJEU
The impact on Safeway’s pension liabilities is unclear, despite the judgment's confirmation that about £100m is at stake.
This is because the judgment also concerned the scheme’s power to equalise by retrospectively increasing female members’ NPA, rather than by lowering the retirement age for men.
This dilution of accrued benefits was later made illegal by section 67 of the Pensions Act 1995, but was not in effect when the Safeway scheme made its formal amendment in May 1996.
That meant that the scheme could, according to its rules, treat all NPAs as 65 from its chosen date in April 1998, closing the ‘Barber window’ with no impact on its liabilities.
The High Court had found that this was in contravention of the principle of equal treatment expressed in the EU Treaty of Rome, the very article upon which the Barber case had been decided.
“There’s this overriding European principle that says you can’t go back and make people worse off,” said Sue Tye, of counsel at law firm Baker McKenzie.
But the Court of Appeal has refused to either confirm or overrule this decision, referring the matter back to the Court of Justice of the European Union for clarification.
That UK courts are continuing to refer cases to the CJEU amid uncertainty over Brexit arrangements makes the eventual outcome even more difficult to predict, according to Tye. She said the outcome could have significant cost implications for employers in similar positions, but did not foresee a huge backlash from members.
“What we're really trying to do is establish what their entitlement is… the members’ expectation was probably the lower level anyway,” she said.
Will other schemes be affected?
James Bingham, an associate director at law firm Sackers, said this element of the case was “unlikely to have significant wider application”, owing to the unusual specifics of the scheme’s power to act retrospectively.
No changes to Johnston Press equalisation despite missing documents
In April, a legal dispute involving trustees of the Johnston Press Pension Plan about the equalisation of retirement ages was put to bed by the Scottish Court of Session, using a quirk of law known as the “presumption of regularity”.
He expected the equalisation case to be one of the last brought before courts, as most schemes have already taken action in light of previous court decisions and should know that using an announcement to equalise is unlikely to be valid.
“An announcement just won’t do the job… I suspect even those arguing the case wouldn’t be surprised,” he said.
