What pensions cases will the courts have to deal with in 2019? From equalisation to age discrimination, the courts face another busy year on pension issues. In this update, we outline seven key pension cases that are likely to hit the headlines this year.
Seven key cases to look out for in 2019
1. GMP equalisation - tackling the unanswered questions
Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank Plc (Lloyds)
The High Court's landmark judgment in Lloyds fired a starting pistol for many in the pensions industry in the race to equalise guaranteed minimum pensions (GMPs). But that was one of 2018's biggest cases. Why is it making a follow-up appearance in this preview of 2019's pension cases?
Although Lloyds answered the big questions about whether and how to equalise due to inequalities in GMPs, there were a number of questions left to be answered at a later date. We expect another hearing to consider points such as:
- what duties do trustees have in respect of GMPs that accrued in their schemes but have been transferred out?;
- what duties do they have to equalise for GMPs that accrued in another scheme but which have been transferred in?; and
- can a different method can be adopted where the costs of implementing one of the methods considered is greater than the additional benefits that would be conferred as a result?
At this stage, it is also unclear whether there will be an appeal. In a further hearing held on 3 December 2018, Justice Morgan refused permission to appeal but the case could still be taken to the Court of Appeal.
2. Supreme Court to consider the scope of the 'proper purpose' principle
British Airways plc v Airways Pension Scheme Trustee Ltd (BA)
In June 2018, the Court of Appeal held that the decision of the trustee of the Airways Pension Scheme to exercise its unilateral power of amendment to introduce a new trustee power to provide discretionary pension increases was invalid.
Although the case focused on an attempted switch from retail price index (RPI) to consumer price index (CPI), it doesn't form part of the main line of judgments on revaluation and pension increases. Instead, BA has focused on two key issues:
- was the trustee's amendment to increase the new power within the scope of the scheme's amendment power?; and
- was the exercise of the power of amendment made for a proper purpose?
The Court of Appeal decided that the amendment to increase the new power was within the scope of the scheme's amendment power. The introduction of the rule was, however, invalid as it had been made for an improper purpose.
Just under a year later, in July 2019, the Supreme Court is scheduled to consider the scope of the 'proper purpose' principle and the extent to which it can restrict amendments even where they are within the scope of a scheme's amendment power.
The BA case is unusual as the trustee of the Airways Pension Scheme enjoys a unilateral power of amendment. The Supreme Court will, however, provide clarity on how far trustees can use their powers to shape benefits and may therefore provide some relief for employers.
3. PPF compensation case returns to Court of Appeal after European Court of Justice (ECJ) decision
Grenville Hampshire v Board of the Pension Protection Fund
Last year, the ECJ ruled that employees whose employers become insolvent are entitled to an "individual minimum guarantee" of 50% of the value of their entitlement to old-age benefits. This went against the UK government's preferred interpretation of the relevant EU legislation (i.e. that an average level of pension protection would be sufficient).
The Pension Protection Fund (PPF) issued a statement confirming that it is working with the Department for Work and Pensions (DWP) to understand what action it can take prior to any change to the law and before the UK proceedings are concluded.
The case will now return to the Court of Appeal to decide how the ECJ's judgment will apply in the specific circumstances.
4. How much due diligence do self-invested personal pension (SIPP) providers have to carry out on unregulated investments?
Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Ltd (Berkeley Burke)
Berkeley Burke is a provider of administration services for SIPPs. In 2018, it sought to have a decision by the Financial Ombudsman Service (FOS) judicially reviewed. The FOS had found that Berkeley Burke had failed to perform the required level of due diligence in accepting unregulated investments and, as a result, had not acted fairly and reasonably in its dealings with the customer.
Berkeley Burke has now applied for permission to appeal the High Court's decision. If the application is successful, Berkeley Burke will be heard by the Court of Appeal later this year.
This case, and the Financial Conduct Authority's (FCA) focus on the due diligence requirements for SIPP investments, will be keenly watched by those in the personal investment industry.
5. Parting gifts - will the ECJ bring a wrecking ball to equalisation?
Safeway v Newton (Safeway)
On 17 May 1990, the ECJ flung open the Barber window with its landmark ruling on equalisation. Since then, there have been a number of twists and turns as pension schemes attempted to amend scheme rules to ensure equal accrual of benefits.
Over the past decade, a degree of legal certainty emerged on what trustees needed to do in order to equalise benefits that accrued in the period of time between 17 May 1990 (i.e. the date of the ECJ's decision in Barber) and the date that they successfully amended their scheme rules. In short, trustees would have to 'level up' benefits to the best available to men or women rather than 'levelling down'.
This understanding was confirmed by Mr Justice Warren in Harland & Wolff Pension Trustees Limited v Aon Consulting Financial Services Ltd [2006] (Harland & Wolff). Warren J went further and said that this applied even where there was power under a scheme's rules to reduce benefits during that period, which has been exercised.
Fast forward 11 years, and we saw a stick thrust into the hornets' nest with the Court of Appeal's decision in Safeway. The Court of Appeal held that Harland & Wolff had been wrongly decided and referred the specific point outlined above to the ECJ.
In 2019, the ECJ is expected to hand down its ruling. Will one of the parting gifts of the European court be to tear down the certainty on equalisation?
If the ECJ decides that benefits cannot be levelled down retrospectively, even where a scheme's rules permit this, this will confirm the pension industry's current understanding of the effect of Barber.
But even if the ECJ decides that benefits can be levelled down, the impact will be limited to schemes:
- with a retrospective power of amendment;
- whose rules did not protect the accrued rights of members' benefits; and
where the retrospective power of amendment was exercised between 17 May 1990 and 6 April 1997 (i.e. the date that statutory protections for accrued benefits under section 67 of the Pensions Act 1995 came into force).
6. Is The Pensions Ombudsman a 'competent court'?
Burgess v Bic UK Ltd (Burgess)
In his High Court judgment on Burgess, Mr Justice Arnold stated his view that the Pensions Ombudsman was not a 'competent court'. Why did this point come up and why does it matter?
The dispute in Burgess focused on the recovery of pension overpayments by exercise of the equitable right of recoupment. Under section 91 of the Pensions Act 1995, only 'competent courts' are able to order recoupment where the amount to be recouped was disputed.
Perhaps unsurprisingly, in a recent determination the Ombudsman argued that it is a competent court for statutory purposes. The Court of Appeal is likely to consider this point and provide a definitive ruling when it considers Burgess later this year.
7. Are the government's reform of firefighters' and judges' pensions age discriminatory?
The Lord Chancellor & Anor v McCloud & Ors
At the end of 2018, the Court of Appeal ruled in favour of firefighters and judges on a long running dispute focused on public sector pension reforms. The court held that the transitional protections put in place by the government to mitigate against the impact of significant reductions in pensions entitlements were unlawfully discriminatory on the grounds of age.
So, is this victory for 6,000 firefighters and 200 judges? Not yet. The Government has asked for permission to appeal to the Supreme Court.
If permission is granted, expect to see the Supreme Court give a definitive ruling on the correct approach to take to the exercise of objective justification in the public sector context.
If permission is denied, the government will have to remedy the situation and consider whether it wants to tackle pension reform for firefighters and judges again. There could also be a wider public sector impact, with appeals from other public sector workers (e.g. police) stayed pending the outcome of this case.
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