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Pension Litigation – the members fight back! (Part 1)

Pensions form an important part of an individual’s lifetime savings. So it is not surprising that people will, if they feel they have been, or seem likely to be done down, work hard to get public opinion on their side and threaten court action. And over the last few months this has been a familiar pattern, with some of the most vocal groups of members being those connected with the BHS pension scheme, the Tata Steel pension scheme and the Halcrow pension scheme. Each group has briefed the press and key Members of Parliament and successfully harnessed public opinion to highlight their plight.

Those member groups whose pension benefits have been challenged by corporate change seem to have mostly successfully fought off the prospect of huge pension change. While the members of the BHS pension scheme continue to play their part in the ongoing saga, acceptable terms on pensions are likely to be agreed with Sir Philip Green in due course without the members themselves having actually to resort to litigation and without their benefits being reduced to PPF levels of compensation – Parliament and The Pensions Regulator are there protecting member interests. Similarly the members of the Tata Steel pension scheme are in such a high profile position that they can be fairly certain that their interests will continue to be represented and looked after. Proposals to make the scheme’s deficit more manageable by changing what pension increases are granted have been successfully batted away, at least for the time being, although the Scheme’s ultimate fate may still to fall into the PPF, if an acceptable compromise over benefit increases cannot be found.

The members of the Halcrow pension scheme are in a different position. Their scheme’s sponsoring employer, and its overseas parent, has gone to extraordinary lengths to push through benefit changes for members. This was done because the scheme’s sponsoring employer was close to insolvency and so unable to afford its pension obligations, despite being part of a wider fairly successful international group of companies. Actions taken by the employer and the trustees included having a “secret” court hearing, with the support of The Pensions Regulator, to determine the legality of a bulk transfer of members, a transfer without members’ consent, to another pension scheme which provided significantly reduced benefits but which were set at a level to be supportable. The court rejected this strategy as the actuarial certificate (the statutory safeguard put in place to prevent this type of action) needed before the transfer could go ahead could not be provided because of the level of benefits in the receiving scheme.

As the approach to court was unsuccessful, the group then negotiated a regulated apportionment arrangement with the PPF and The Pensions Regulator to allow the scheme to enter the PPF. Members were then given a very stark choice – agree to join the new scheme that has been set up with reduced benefits voluntarily or stay in the existing scheme and get PPF level benefits as the scheme transfers to the PPF. The vast majority of members are likely to choose to transfer to the new scheme as benefits are slightly better than PPF benefits, but there remains some lasting member dissatisfaction with how the trustees and The Pensions Regulator dealt with the situation. In particular the scheme’s long standing pensioners’ association remain disappointed that the body was not at least used as a sounding board about such fundamental changes to the members’ benefits.

In practice both member associations and trade unions can be very helpful to all parties, employers, trustees and members in helping to explain difficult pension messages and smoothing through controversial changes. What the pensioners’ association has found is that the cost of challenging the actions of The Pensions Regulator and trustees in court is astronomical and puts individuals at too much of a personal risk that the court might decide that the individuals have to pay all parties’ costs of the litigation if the members lose their case.

This risk of costs has not however deterred a group of members who have challenged the legality of the PPF compensation cap for long serving members or members with higher benefits. With this, as with much of pension law, the underlying driver for this legislation was an EU Directive. So in Hampshire v the PPF, the Court of Appeal decided that while it had its own ideas on the legality of the cap and its operation, the European Court of Justice needed to be asked exactly how the Directive applies in the UK before the Court of Appeal can opine fully on the UK legislation. In theory as a lot more judges have been appointed at the European Court of Justice in the last 12 months, there should not be too much of a wait until the European Court gives its opinion and the matter can go back to the Court of Appeal for their further consideration.

The latest news on Pensions for your business

September 2016

Key Contact

Penny Cogher