On 27 July 2011 the Supreme Court issued its first decision on a pensions case in Houldsworth and Anor v Bridge Trustees Limited & Anor and the Secretary of State for Work and Pensions. The Secretary of State for Work and Pensions appealed against the Court of Appeal Decision in Bridge Trustees v Yates which had previously decided that benefits calculated either set investment returns under a notional investment fund and pensions calculated by reference to actuarial factors set by the scheme did not stop those benefits from being "money purchase benefits".
The Supreme Court rejected the application of the Secretary of State and upheld the decision of the Court of Appeal that these benefits were in fact "money purchase benefits". In this case the point was important because of the provisions of section 73 of the Pensions Act 1995 (winding-up) prevented monies contained within those "money purchase" accounts being used for the general purposes of winding up any DB benefits under the Scheme.
The decision, in our opinion is entirely rational given that the definition of money purchase benefits only makes reference to the fact that they have to be "calculated by reference to" contributions made rather than having to be calculated "only by reference to" the contributions.
Since the decision was issued the Government has said: "is clear ... that the judgment will result in some schemes being regarded as providing money purchase benefits under the current legislation, even if it is possible for funding deficits to arise in respect of those benefits."
The Government believes that the judgment has created uncertainty and places some schemes outside the scope of a wide range of legislation, including legislation governing: scheme funding, employer debt, the Pension Protection Fund and, the Financial Assistance Scheme.
The Government also said: "Workers who up to now thought their rights were protected have been put in doubt by this ruling of the Supreme Court. In the circumstances, the Government intends to ensure these rights are clarified through retrospective legislation."
We understand that it is the Government's intention to bring in new legislation with retrospective effect (at least from the date of the judgment) to make it clear that: "benefits cannot be regarded as money purchase benefits if it is possible for a funding deficit to arise in respect of any of those benefits. The Government will consider transitional protection in respect of events occurring between the date from which the legislation is effective and the date of this statement if, for example, this retrospective change would have adverse consequences for individuals."
The Government's stated aim in bringing in such legislation is to ensure that the legal definition of money purchase benefits has the meaning that the Government believes is commonly held by most people. The Government said that it considers that new legislation is needed to ensure "appropriate protection for pension scheme members".
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