CMG Pension Trustees has been given leave to appeal a court ruling over member payments.
The case was brought by the CMG trustees against the scheme’s sponsoring employer CGI IT UK. It hinged on the application of a specific part of the scheme’s rules when considering rectification of underpayments identified by the trustee that dated back to 2009.
The question of arrears due more than six years prior only arose in 2019 and resulted in a disagreement between employer and trustee over the application of rule 5.11.
The employer argued that the rule was, in effect, a forfeiture provision, while the trustee maintained that it was not.
Barber window opens
The underpayment issues arose partly from the Barber ruling, when the European Court of Justice decided in 1991 that the right to equal pay for men and women applied to occupational pension schemes.
Before that date, the UK operated unequal retirement ages between male and female members, typically 65 for men and 60 for women.
Following May 17 1990, pension schemes had to set a date for equalisation and, until that date came into effect, pension rights were gradually levelled up, in what was called the Barber window.
Those who had been disadvantaged were entitled to more favourable treatment, which generally meant male members were entitled to an earlier retirement age.
The scheme was administered on the basis that equalisation had taken place, but the deed and rules were not changed until some time after. This resulted in incorrect benefits being paid to some members. The trustee notified the employer of this in 2012 and again in 2014.
In 2016, the trustee resolved to correct members’ benefits, and has since done so with respect to future benefits, while paying all arrears accrued until 2017, though without interest.
Equalisation affected 116 members with underpayments amounting to around £1.2mn. The largest single underpayment was £54,567.
The delayed amendment to scheme documents led to another issue with the accrual rate, producing further arrears of £818,306. This figure could have been reduced to £378,509 had the arrears been restricted to the six-year period between October 2013 and October 2019.
The argument
While the employer argued that rule 5.11 prevented any need to make further payments, the trustee argued it was designed “to deal with missing beneficiaries and to prevent funds from being ‘orphaned or trapped within the scheme’”.
The rule was also not created with the intent to “extinguish the benefits of members where they could be identified and paid, or to extinguish benefits where they had been unrecognised (eg, as a result of a mistake by the trustee)”.
Furthermore, the trustee argued that the rule was not intended to “extinguish shortfalls”, such as where a lump sum or instalments had been “regularly underpaid”.
The employer acknowledged that the word “forfeiture” was not contained within the rule, but that it was a point of “genuine uncertainty” how the rule was in fact intended to be applied.
The employer pointed to statutory history allowing for the forfeiture of benefits that had been unclaimed for more than six years, and contended that the scheme in question had contained a forfeiture clause since its 1981 rules were drafted, albeit the word only appeared in headings and not in the body of the rules.
The ruling
Court dismisses trustee’s Barber window arrears claim
The High Court has ruled that members of the CMG UK Pension Scheme are not entitled to payment of arrears that fell due more than six years ago, despite the trustee’s attempts to continue paying them.
“It is also my judgment that rule 5.11 is not limited to missing beneficiaries but applies to all unclaimed benefits once the six-year period has expired,” he wrote.
He accepted that the wording of the rules did not refer to “forfeit” or “forfeiture”, but found that they did contain wording to the same effect: the phrase “shall be retained by the trustee for the purposes of the scheme”.
The judge further concluded that the rules did not distinguish between benefits unclaimed for six years because the beneficiary is missing, and those unclaimed because the beneficiary was unaware of their entitlement, arguing that “if the purpose of the rule was to draw such a distinction, one would have expected the drafter to use clear language to that effect”.
He ruled that the trustee’s construction or interpretation of rule 5.11 was “impractical” and would “[deprive] the rule of any real effect”.
