The High Court has ruled in favour of participating employers in the Wedgwood Group Pension Plan, who terminated their liability to contribute to the scheme in 2006.
The case concerned whether notices served by the employers were effective to stop future accrual and break the final salary link.
The notices were served under Rule 62(a) of the 2001 scheme rules, which permitted participating employers to cease contributions to the scheme by submitting written notice to the trustee.
Trustees don’t really see it as adding much value to replace one set of legal documents that hardly anyone ever reads with another set
Stephen Scholefield, Pinsent Masons
Rule 62(a) replaced Rule 48 of the 1995 scheme rules, which allowed participating employers to stop contributing only if they found it “impracticable or inexpedient” to carry on participating in the scheme.
The rules also allowed employers to end contributions for only some members, instead of full withdrawal.
The key issue was whether the new rule had been validly introduced, in relation to the scope of the amendment power.
Employers and members should both be protected
High Court judge Penelope Reed QC ruled that a proviso in the scheme amendment rules barring any alteration that would “prejudice or adversely affect any pension or annuity then payable or the rights of any member” referred solely to accrued benefits, and not to any future benefits under the scheme.
The court supported the validity of Rule 62(a), with the proviso that it provided the additional protection previously provided by Rule 48. The result was that a notice could only be validly served if the employers would have found it “impracticable or inexpedient” to maintain their contributions.
“A power of amendment which prevented the employer from curtailing the right of existing members to continue to accrue benefits in circumstances where the employer was in financial difficulties and finding it difficult to fund the plan, makes far less sense than a construction which protects rights members have gained through past employment, but enables the employer to stop those benefits accruing in the future,” she said.
The majority of the Wedgwood companies became insolvent in 2009. The scheme’s ‘last man standing’ rules, which held the last surviving company responsible for the whole scheme, pushed that company into insolvency in 2010.
The scheme has been in Pension Protection Fund assessment since 2010.
Put more resources into drafting scheme rules
James Bingham, associate director at law firm Sackers, acted for the members in the case (Wedgwood Pension Plan Trustee Limited v Salt).
Bingham emphasised the importance of understanding the power of amendment when making benefit changes, “and making sure that previous rules don’t give rise to any uncertainty as to what method you should use”, he said.
Thales case shines light on power of scheme rules
A High Court case involving Thales and trustees of its pension scheme has concluded it cannot move from the retail price index to the consumer price index for some benefits, highlighting how the wording in a scheme’s rules dictates the measure of inflation that is used.
Stephen Scholefield, partner at law firm Pinsent Masons, said that “a lot of the complexity went back to how the rules had been drafted”, and that this process merits far more attention than it currently gets.
“That’s always a bit of a thankless task, that no one really wants to spend any money on, or spend much time on, because I think lots of trustees don’t really see it as adding much value to replace one set of legal documents that hardly anyone ever reads with another set,” he added.
