Pensions Legal Update

Size: px

Start display at page:

Download "Pensions Legal Update"

Blaise Bryant
5 years ago
Views:

Issue 127 Jauary 2008 Pesios Legal Update Reproduced with the kid permissio of PLC Magazie Pesios Bill. The Pesios Bill has bee published. P.1 Scheme rules: draftig errors.

1 Issue 127 Jauary 2008 Pesios Legal Update Reproduced with the kid permissio of PLC Magazie Pesios Bill. The Pesios Bill has bee published. P.1 Scheme rules: draftig errors. The High Court has rejected the use of two alterative remedies to rectificatio i order to correct a draftig error i the scheme rules. P.1 Fiacial Assistace Scheme. The Departmet for Work ad Pesios has aouced a series of extesios to the Fiacial Assistace Scheme. P.3 Scheme fudig regime. The High Court has cosidered the costructio of a scheme s employer cotributio rule ad how the ew scheme fudig regime applies. P.4

2 Issue 127 Jauary 2008 Pesios Legal Update Pesios Bill Summary. The Pesios Bill has bee published. Backgroud. I December 2006, the Departmet of Work ad Pesios published a White Paper settig out its proposals for persoal accouts uder the proposed atioal defied cotributio scheme. The persoal accouts scheme is expected to be established from Facts. Key provisios i the Bill iclude: Framework legislatio for persoal accouts. The Pesios Bill eables the Secretary of State for Work ad Pesios to establish this ew pesio scheme. The Persoal Accouts Delivery Authority (established by the Pesios Act 2007) will have exteded powers to oversee the establishmet. The Pesios Bill also itroduces requiremets for employers to erol employees automatically ito a pesio scheme (which may be the ew persoal accout scheme or aother scheme which meets miimum quatity requiremets). Abolitio of safeguarded rights (beefits derived from cotracted-out beefits where pesios are shared o divorce) from a uspecified future date. Provisio for revaluatio of deferred pesios eared through service after a uspecified future date i lie with price iflatio with a 2.5% cap (rather tha the curret 5% cap). The Pesios Bill also itroduces requiremets for employers to erol employees automatically ito a pesio scheme (which may be the ew persoal accout scheme or aother scheme which meets miimum quatity requiremets). Provisios allowig compesatio uder the Pesio Protectio Fud to be shared o divorce or made the subject of a pesio earmarkig order. Provisio for chargig iterest o late paymet of Pesio Protectio Fud levies. Source: Pesios Bill as itroduced ito the House of Commos o 5 December gov.uk/mediacetre/pressreleases/2007/dec/pes asp Scheme rules: draftig errors Summary. The High Court has rejected the use of two alterative remedies to rectificatio i order to correct a draftig error i the scheme rules. Backgroud. A court order for rectificatio of a scheme rule requires a high stadard of evidetial proof (Lasig Lide Ltd v Alber). Recet case law suggested the availability of two alterative remedies to that of rectificatio: To apply the rule developed from re Hastigs-Bass decd ([1975] Ch 25). This applies where the effect of exercisig a trustee discretio is differet from what was iteded by the trustees, ad it is clear the trustees would have acted differetly had they ot failed to take ito accout cosideratios which they ought to have take ito accout, or take ito accout cosideratios which they ought ot to have take ito accout. The High Court has rejected the use of two alterative remedies to rectificatio i order to correct a draftig error i the scheme rules. To seek relief i equity from the cosequeces of a mistake. (see for example Gibbo v Mitchell ([1990] 1 WLR 1304)) Mayer Brow is a global legal services orgaisatio comprisig legal practices that are separate etities ( Mayer Brow Practices ). The Mayer Brow Practices are: Mayer Brow LLP, a limited liability partership established i the Uited States; Mayer Brow Iteratioal LLP, a limited liability partership icorporated i Eglad ad Wales; ad JSM, a Hog Kog partership, ad its associated etities i Asia. The Mayer Brow Practices are kow as Mayer Brow JSM i Asia. 1

3 Facts. It was discovered that the rules of oe of the pesio schemes operated by S cotaied a draftig error i the early retiremet rule for deferred members. A deferred member could draw a immediate pesio at 60 (rather tha 65) without sufferig a actuarial reductio. Further, a employed member could also take advatage of the error i the rule ad draw beefits ureduced from 60. S cosidered makig a applicatio for rectificatio, but decided ot to proceed. The reaso for this was ot disclosed to the Court, but it is assumed that there was isufficiet evidece to support a applicatio. S, therefore, sought to rely o two alterative remedies. Decisio. The court rejected the use of both alterative remedies. Regardig the rule i Hastigs-Bass: There should be o rectificatio by the back door. Rectificatio serves the purpose of substitutig a corrected versio of what a rule ought to have said. By cotrast, successfully applyig the rule i Hastigs-Bass reders a rule void; it is ot possible for the parties later to execute a deed of udertakig such that if a rule is made void by the courts they agree to apply the rule o the basis of what it ought to have said. The rule i Hastigs-Bass is oly available to trustees actig i accordace with a fiduciary duty, ad the adoptio of the defiitive trust deed ad rules i this case was essetially a act of the sposorig employer ot the trustees of the pesio scheme. Although the trustees owed a fiduciary duty to members to esure that defiitive pesio scheme documetatio was put i place, the requiremet to highlight to S errors which if ot corrected worked to the members advatage was ot a relevat factor the trustees ought reasoably to have take ito accout uder the rule i Hastigs-Bass. Uless a order for rectificatio ca be obtaied, it will be difficult to get the court s approval to correct draftig errors i pesio scheme rules. I relatio to the equitable remedy of mistake, the compay could oly set aside a deed o equitable priciples if it had etered ito the trust deed ad rules volutarily. This could ot be the case where the scheme was established pursuat to cotracts of employmet of relevat members. Fially, a couterclaim by the represetative beeficiary attemptig to improve the beefits of members was rejected. Commet. Uless a order for rectificatio ca be obtaied, it will be difficult to get the court s approval to correct draftig errors i pesio scheme rules. Case: Smithso & others v Hamilto [2007] EWHC 2900 (Ch). 2

4 Issue 127 Jauary 2008 Pesios Legal Update Fiacial Assistace Scheme Summary. The Departmet for Work ad Pesios (DWP) has aouced a series of extesios to the Fiacial Assistace Scheme (FAS). Backgroud. The Pesios Act 2004 itroduced the FAS, which is iteded to provide fiacial assistace to members of defied beefit pesio schemes who have lost beefits because their pesio scheme was woud up i deficit, usually as a result of employer isolvecy. The FAS covers occupatioal pesio schemes that commeced wid-up betwee 1 Jauary 1997 ad 5 April 2005 (the date whe the Pesio Protectio Fud was itroduced). The DWP cosulted o chages to the FAS i August Facts. The extesios to the FAS provide for icreases i the level of compesatio ad cover for members whose employers were still solvet whe their scheme was woud up. The mai chages are: Assistace will be icreased for those affected, from 80% to 90% of their accrued pesios at the date their scheme bega wid-up (subject to a aual cap of 26,000). Assistace paymets derived from post-1997 accrual will be icreased i lie with iflatio. The extesios to the FAS provide for icreases i the level of compesatio ad cover for members whose employers were still solvet whe their scheme was woud up. Assistace will be paid from each failed scheme s ormal retiremet age (subject to a lower age limit of 60 years). People who are uable to work due to ill-health ca apply for early access to paymets from age 60. Members may be able to draw a tax free lump sum. Cover will be exteded to people i schemes woud up by qualifyig solvet employers. This is likely to apply to schemes that have woud up uderfuded where a compromise agreemet is i place, without which the employer would have become isolvet. Source: DWP aoucemet, 17 December 2007, available at mediacetre/pressreleases/2007/dec/pes asp. 3

5 Scheme fudig regime Summary. The High Court has cosidered the costructio of a scheme s employer cotributio rule ad how the ew scheme fudig regime applies. Backgroud. A was the pricipal employer of two defied beefit pesio schemes (the schemes). These were multi-employer schemes i deficit ad were subject to the ew scheme fudig regime uder the Occupatioal Pesio Schemes (Scheme Fudig) Regulatios 2005 (SI 2005/3377) (2005 Regulatios). The employer cotributio rules were the same i both the schemes. The High Court has cosidered the costructio of a scheme s employer cotributio rule ad how the ew scheme fudig regime applies. Where employer cotributio rates are determied by the actuary, without the agreemet of the employer, the actuary has to provide a extra elemet of actuarial certificatio (the actuarial uderpi) (paragraph 9(5), Schedule 2, 2005 Regulatios). Facts. The schemes had two employer cotributio rules: Rule 12.1 dealt with future collective cotributio rates ad Rule dealt with past service deficit collective cotributio rates. Rule provided that if the actuary s report disclosed a deficit, the employers shall collectively pay such amout (by lump sum or periodic paymet) which will i the opiio of the Actuary restore the solvecy of the Fud; such amout to be paid by the Participatig Compaies i such proportios as the Actuary shall certify ad withi such period as the Trustees may, o the advice of the Actuary, agree with the Pricipal Compay. A ad the trustees of the schemes agreed that the actuary (aloe) set the collective cotributio rates i Rule However, they disagreed o the costructio of Rule ad whether the actuarial uderpi applied. The issue was whether the words after the semi-colo (our emphasis added above) made it ecessary for the actuary to obtai the sposorig employer s agreemet i settig the cotributio rate. A was cocered that if the actuarial uderpi applied, employer cotributios would be frot-loaded (this meat that eve though the total amout of cotributios required to meet the schemes deficit would ot be affected, paymet of cotributios would be ot be spread evely ad A could have cash flow problems). A argued that Rule required employer agreemet to determie the cotributio rates ad therefore the actuarial uderpi did ot apply. The trustees argued that the actuary had power to set the cotributio rates (without employer agreemet) ad so the actuarial uderpi did apply. A asked the court about the costructio of Rule ad whether the actuarial uderpi applied. Decisio. The court foud i favour of the trustees ad held that the actuarial uderpi did apply to Rule The court took a practical costructive approach (as set out i British Airways Pesios Trustees Ltd & ors v British Airways plc & ors [2002] PLR 247). Rule should mirror Rule 12.1; the court did ot expect a rule goverig future cotributios to be drafted differetly from oe goverig past service deficit. Commet. This decisio is a useful example of the applicatio of the ew scheme fudig regime. Case: Allied Domecq (Holdigs) Limited v (1) Allied Domecq First Pesio Trust Limited ad (2) Allied Domecq Secod Pesio Trust Limited [2007] EWHC 2911 (Ch). 4

6 Mayer Brow offices Bagkok Beijig Berli Brussels Charlotte Chicago Cologe Frakfurt Guagzhou Haoi Ho Chi Mih City Hog Kog Housto Lodo Los Ageles New York Palo Alto Paris São Paulo Shaghai Washigto DC 11 Pilgrim Street Lodo EC4V 6RW T +44 (0) st Floor, 30 St Mary Axe Lodo EC3A 8EP T +44 (0) mayerbrow.com E lodo@mayerbrow.com Copyright 2008 Mayer Brow Iteratioal LLP. This Mayer Brow publicatio provides iformatio ad commets o legal issues ad developmets of iterest to our cliets ad cotacts. It is ot a comprehesive treatmet of the subject matter covered ad is ot iteded to provide legal advice. Readers should seek specific legal advice before takig ay actio with respect to the matters discussed i this publicatio. If you would prefer ot to receive future publicatios or mailigs from Mayer Brow Iteratioal LLP, or if your details are icorrect, please cotact us by post or by to busiessdevelopmet@mayerbrow.com. Mayer Brow is a global legal services orgaisatio comprisig legal practices that are separate etities ( Mayer Brow Practices ). The Mayer Brow Practices are: Mayer Brow LLP, a limited liability partership established i the Uited States; Mayer Brow Iteratioal LLP, a limited liability partership icorporated i Eglad ad Wales; ad JSM, a Hog Kog partership, ad its associated etities i Asia. The Mayer Brow Practices are kow as Mayer Brow JSM i Asia. 0156pe Jauary 2008

Pensions Legal Update

Pensions Legal Update Pesios Legal Update Reproduced with the kid permissio of PLC Magazie Pesio beefits o isolvecy. The Europea Court of Justice has ruled that UK pesios law is ot compatible with the Isolvecy Directive. p.1