Corporate travel company Hogg Robinson has incurred £10.5m in past service costs and £2.3m in legal costs following rectification of a mistake in a deed of amendment to the scheme.
Mistakes in trust deeds can be costly for pension schemes. Earlier this year supermarket Morrisons was landed with an extra £100m liability after it discovered a gender equalisation exercise had been carried out incorrectly.
There have to be pretty big sums at stake before you go to court
Anne Marie Winton
Despite the seemingly high cost of the case for Hogg Robinson, its most recent report says the amount is “materially offset by the settlement of a claim in respect of this mistake”.
In 1999, a subsidiary company of Hogg Robinson announced a reduction in the rate of increases on pensions in payment and deferment to match the retail price index with a maximum of 5 per cent rather than a fixed 5 per cent.
A mistake was made when amending the scheme rules so it did not cover increases on pensions in deferment, but the administration and accounting of the scheme were carried out as though it did.
Claiming against advisers
In the company’s results for the financial year 2014-15, it said: “The group has settled a claim against its advisers in respect of this mistake conditional upon the High Court confirming the correct basis for providing increases on pensions in deferment under the scheme.”
The High Court granted rectification of the document earlier this year.
Anne-Marie Winton, partner at law firm Arc Pensions Law, said attempts to recover costs from the advisers brought their own challenges.
“You may not get all the money you need for that,” she said. “The advisers may say, ‘You were supposed to read the document before you signed it’.”
She added that the fact Hogg Robinson claimed against its advisers hinted at a strong evidence trail.
Winton said: “The problem with pension documents is you have to take them on face value… There have to be pretty big sums at stake before you go to court. In some cases people just get stuck with it.”
On top of this, she added, such errors can be hard to find and further changes made since can complicate the process.
“Since 1999 there will be multiple amendments to the trust… it makes it more and more difficult to find the error.”
Lesley Harrold, partner at law firm Norton Rose Fulbright, said summary judgments such as the one rectifying the Hogg Robinson scheme rules, were increasingly common.
“That’s good news for employers,” she said. “It’s much less costly.”
Harrold said problems with scheme deeds were often found – similar to problems with equalisation exercises – following the appointment of new advisers to the scheme.
An alternative way to correct mistakes in scheme documents
Mistakes in a pension scheme document are usually corrected by applying to the court for an order rectifying it, but there might be another way, say Norton Rose Fulbright's Susan Dingwall and Lesley Harrold.
“If you’re instructed on a new scheme, the first thing you usually do is go through all the documentation,” she said.
Existing advisers are more likely to miss such mistakes, she added, given how often they would have gone through the scheme documentation.
Schemes or employers seeking summary judgments on rectification of deeds should be aware of the need to give in-depth evidence about the employer’s and trustees’ common intention before the changes are approved.
“At the time [Hogg Robinson and the scheme trustees] decided to make the amendment, they would have had a common intention; that change was not subsequently reflected accurately in the documentation,” she said.
