The Wembley pension scheme saved £3m by pursuing a court decision to uphold an amendment on indexation. Ian Smith and Pippa Stephens look at how other schemes can profit from the decision
The High Court has upheld a scheme amendment on pensions indexation made by gaming company Wembley in 2000, saving the scheme from a £3.4m lift in liabilities.
The decision makes it easier for schemes to pursue similar claims to remedy minor technical errors in previous changes to their benefits.
This decision may help to provide a sensible solution for schemes currently grappling with irregularities
Failure to uphold these changes can cause a big jump in schemes' liabilities, reducing the security of their members' retirement income.
Lawyers for Wembley plc, which formerly owned the national football stadium and which is now in administration, estimate the cost of pursuing the case to be around £200,000.
At stake was £3.4m in extra liabilities, if the case had not been upheld. The decision therefore saved the former shareholders of the liquidated company more than £3m.
Other schemes struggling with past changes to equalisation of retirement ages, pensionable salary, or pension increases will be heartened by the verdict.
The Singapore Airlines case, for example, centred on the definition of pensionable age.
Both cases demonstrate the advantage of regular checks of scheme documents to manage the risk of litigation.
Recovering past errors
Outline of the Wembley case
The case centres on an amendment to the Wembley 1989 Pension Scheme made in July 2000.
Pensions in payment, in respect of benefits accrued after April 6, 2000, were indexed to the retail prices index with a 5% cap.
This was to bring the scheme into line with section 51 of the 1995 Pensions Act.
Previously, the pensions in payment had been increased at 5%, but trustees expressed "their concern at the increase in the contribution rate" and decided to switch.
Only four out of five trustees signed off the claim, so the proportion of members affected – those still accruing benefits after April 2000 – put in a claim that the change was invalid.
The judge supported the change on a legal principle of fairness.
The success of the Wembley case (see summary, right) relied on the fact the procedural mistake was very minor.
One of the scheme's trustees had not signed off on a change to the indexation of pension increases in 2000, even though she had been present at the previous meeting where the amendment was discussed.
Mr Justice Vos, presiding, said: "Law and equity would be made to look ridiculous if it were powerless to correct what has been an obvious administrative error like the one in this case."
This has provided hope to other schemes with similar problems, where mistakes in changing the scheme risk a huge additional cost.
They can now refer to the Wembley case as a precedent to resolve these mistakes and consolidate past changes.
Chantal Thompson, a partner at Baker McKenzie, who represented the liquidated employer in the case, said: "I have had people saying, 'we're trying to run this one now in other situations.'"
The employer interviewed the trustee who had failed to sign the agreement, who said she was willing to sign it now.
"She had been at the previous meeting where they had discussed the amendment and she was aware of it, and didn't object to it," said Thompson.
Schemes in similar situations have to make sure it is financially sensible to pursue the case, assessing whether it is as likely as the Wembley case to agree the changes.
Thompson added: "It has to be worth it financially and an investment of £200,000 was worth it in that sense."
Mark Grant, partner at CMS Cameron McKenna, said the case will provide a “ray of hope” to schemes having similar difficulties with past changes to benefits.
“This decision may help to provide a sensible solution for schemes currently grappling with irregularities in how past benefit changes were documented,” he said.
“In particular, equalisation of retirement ages for men and women, pensionable salary definitions and the rate of increases on pensions in payment and deferment.”
