Ireland: Omega Pharma: The Appeal

Last Updated: 28 March 2015
Article by Philip Smith, Keith Smith and Orla M. Clayton

As we reported last December, the Court of Appeal affirmed the High Court's judgment in the Omega Pharma case requiring the employers to make contributions to the employees' defined benefit pension scheme in excess of the statutory minimum funding standard in circumstances where the scheme was being wound up. Arthur Cox acted for the successful trustees.

On 10 February last, the Court of Appeal gave reasons for its decision and handed down its written judgement.


There were two key issues in the High Court case, which were appealed by the employers to the Court of Appeal. The first related to when the employers' contribution liability terminated. The Court of Appeal upheld the High Court decision in finding that the parties had agreed three months' notice in accordance with the notice provisions in the trust deed.

The second issue was whether the trustees were entitled to make a contribution demand in excess of the statutory minimum funding standard in circumstances where the scheme was solvent on the statutory minimum funding standard basis.

In the High Court, the employers argued that there was no justification for the contribution demand, given that the scheme was solvent on the minimum funding standard basis and that the employers' obligation had therefore been satisfied. This argument was rejected by the High Court, which concluded that the trustees had come to a reasonable decision as to the amount of the contribution demand in the absence of any engagement by the employers.

In the Court of Appeal, the employers conceded that the statutory minimum funding standard was not sufficient to "support the Fund in order to provide the benefits under the Scheme". The second issue was therefore not argued before the Court of Appeal. Accordingly, the Court of Appeal found that the contribution demand which the trustees had sought was the "shortfall" for the purposes of the scheme and that the trustees were entitled to recover this shortfall.


What do the decisions in the Omega Pharma case mean for the defined benefit pensions schemes in Ireland?

The strongest message provided by the judgments in the Omega Pharma case is that employers may not be able to limit their contributions to pension schemes to the level required by the minimum funding standard. In practice, this will depend on the provisions of the trust deed in each case. In circumstances where a very significant number of defined benefit pension schemes in Ireland are in deficit when measured against the statutory minimum funding standard, this may come as news to some employers, particularly those who are contributing at the level required by the statutory minimum funding standard and believe that this is the extent of their liability.

For employees, the message is one of encouragement that they may be entitled to additional funding of their pensions above the statutory minimum funding standard in circumstances where there is an obligation under the scheme provisions, and the employer has the necessary resources. Depending on the provisions of the trust deed and rules, trustees may be able to validly assert that the statutory minimum funding standard may not be sufficient to provide members' benefits. In particular, contribution demands issued during notice periods prior to wind-up are likely to be upheld where they are made in a manner consistent with the provisions of the trust deed and rules.


For employers, in considering their treatment of pension schemes and, in particular, any plans which they may have to wind them up, they will need to be aware of the following:

  • if the scheme documentation provides for pension benefits which require funding in excess of the minimum funding standard, employers may be liable to meet any shortfall on a winding up;
  • any notice provisions which may permit trustees to seek additional contributions in the period prior to the wind up date. While not specifically addressed in the Omega Pharma case, employers also need to be aware that there is English case-law which suggests that, where there is no express provision for the giving of notice in a scheme, the courts may be prepared to imply a term requiring employers to give reasonable notice of an intention to stop contributing to a scheme; and
  • any provisions requiring the employer to engage and consult with the trustees in relation to the amount of any funding required. The failure of the employers in the Omega Pharma case, as in the Element Six case, to engage or consult with the trustees on this issue was criticised by the High Court and resulted in a larger contribution demand being made, which the employers were ultimately required to pay.


For trustees, in the event of an employer notifying the trustees of its intention to cease contributions or wind up a scheme, it is very important that trustees:

  • obtain an accurate actuarial assessment of the current and projected funding level of the scheme so that they can fully understand and assess the extent (if any) of any likely shortfall in the scheme;
  • fully understand the extent (if any) of their powers to determine the required current and projected funding level for the scheme and demand any contribution from the scheme employers; and
  • fully understand any contractual or other notice provisions which place any temporal limitation on the period within which they can engage with, or demand contribution from, the scheme employers.


Several questions remain unanswered. Trustees, employers and members still do not know:

  • the requisite funding level which is "sufficient" to provide benefits on wind-up of a scheme;
  • the method which a scheme actuary should use to calculate the level of contributions if the funding level is deemed insufficient; and
  • to what extent (if any) could this method of calculation be negotiable on a case by case basis (the High Court judgment in the Omega Pharma case suggests that these sums are a matter for negotiation in each case).

In light of the judgments in the Omega Pharma case, any employers who are considering making changes to the structure of schemes (especially where those changes relate to the closure or winding up of a scheme), and any trustees who are made aware of these changes, should seek both legal and actuarial advice on the financial impact of the proposed changes.

In summary, the outcome of the Omega Pharma case is likely to have significant consequences for the future operation of defined best pension schemes in Ireland.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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