Axminster is the latest case to 'give the axe' to limitation under the Limitation Act to claims for pension arrears in a mammoth judgment which surveys the history of limitation back to the Trustee Act 1888 and applicable case law.
The Axminster Case
Under its full title, Punter Southall Governance
Services Limited (as Trustee of the Axminster Carpets Group
Retirement Benefits Plan) v Jonathan Hazlett (as a representative
defendant), known as the "Axminster" case, the Court
has ruled that the usual six year limitation period under the
Limitation Act 1980 does not apply to members' claims for
pension arrears. Axminster follows tand confirms the earlier Lloyds
decision where it was held that the recovery of trust property is
not subject to the six year limitation period under section 21(3)
Limitation Act 1980 as this was disapplied by section 21(1)(b) of
the Act.
The ruling that unclaimed pensions arrears are not time-barred is subject to section 92(5) of the Pensions Act 1995 which allows benefits that have been unclaimed for six years to be forfeited if this is provided for in the scheme rules. The Axminister case emphasises the importance of the exact wording used in schemes rules when it comes to the forfeiture of unclaimed pension arrears. For example, clause 25 of the relevant Axminster deed and rules was not itself a forfeiture clause whereas rule 36 of the relevant Axminster rules was a forfeiture provision. The judge held that rule 36 could be operated in the circumstances permitted by section 92(5)(b) of the Pensions Act 1995 to forfeit unclaimed benefits from more than six years ago.
The distinction the judge made was that clause 25 was a power to deal with unclaimed monies, such as in relation to a missing beneficiary. Clause 25 did not contain any wording which directly deals with the forfeiture of an entitlement to be paid arrears of benefits, rather it was a power to augment certain benefits or reduce the employer's contributions to the plan. Furthermore, clause 25 did not contain any wording which operates as a time-bar on claims for payment of pension arrears.
The judgment also considered a number of ancillary issues in relation to limitation and forfeiture including:
- what the trustees could properly do with monies which had been forfeited, for example, in terms of applying them to pay scheme expenses and/or reducing employer contributions;
- what factors and considerations trustees should take into account in exercising any discretion to forfeit unclaimed pension arrears under the applicable scheme rules;
- the court did not rule that failing to put right all the underpayments for all the relevant beneficiaries would necessarily be incorrect;
- that interest is payable generally at 1% over base rate (as in Lloyds); and
- that the ruling in relation to limitation
In addition to the issues of limitation and forfeiture, the court was also asked to approve a proposed compromise agreement by the parties of certain issues concerning the pension increase rule and other scheme changes. The court generally approved the compromise agreement with certain caveats including in relation to whether certain rule amendments were valid given that there was no certificate issued under section 37 of the Pensions Act 1993 in relation to the amendments (altering rules of contracted out schemes). The judge has given the parties further opportunity to make submissions about whether it is appropriate for the court to approve a compromise - so we wait to see what happens on that front!
Comment
This case demonstrates the importance for trustees to know and
understand, firstly, whether trustees have a
forfeiture provision under their scheme rules, secondly, how the forfeiture
provision is exercised, for example, at the trustees'
discretion or as an absolute power and, thirdly, what factors and
considerations trustees should take into account in
exercising any discretion to forfeit unclaimed pension arrears.
Schemes should consider undertaking a legal review of their
forfeiture provisions in light of the Axminster case, consider
whether any amendments are needed and take advice on what to
consider when exercising any discretion.
Section 67 of the Pensions Act 1995 is not a barrier to amending forfeiture provisions. In broad terms, section 67 provides members with protection against amendments to occupational pension scheme rules that could adversely affect pension rights that have accrued in the past. If any amendments are needed to a scheme's forfeiture provisions, these amendments would not fall foul of section 67 as there is a carve out of section 67's application in prescribed circumstances which include the forfeiture of any or all of a member's or survivor's subsisting rights in a manner not prohibited by section 92 of the Pensions Act 1995 (pursuant to Regulation 3(b) of the Occupational Pension Scheme (Modification of Schemes) Regulations SI 2006/759).
When it comes to amending the scheme rules there are, however, a number of hurdles that remain including:
- would amending the scheme's forfeiture rules be a proper exercise of the scheme's alteration power; and
- would the proposed amendments be prohibited by any provisos to the alteration power?
Axminster is also an important case in the context of GMPs, particularly, any GMP equalisation exercises being undertaken by schemes. The question of payment of pension arrears arises where an existing pensioner's pension is increased due to GMP equalisation uplifts. This should be a simple matter and relatively inexpensive where the pension has come into payment only recently but can be legally complex and potentially costly where many members' pensions have been in payment for many years. Schemes will, therefore, need to consider the impact of any forfeiture provisions in light of Axminster.
It follows that this is an area that scheme trustees should seek legal advice on to ensure that trustees fully understand how their forfeiture provisions operate (if any) in light of the Axminster decision and in the context of GMPs and GMP equalisation exercises. Please do not hesitate to contact a member of our team if we can be of any further assistance on this case or more generally.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
