UK: The Newell Decision: The Latest Authority On Re-Visiting Historic Pension Scheme Changes

The judgment in the case of Newell Trustees Ltd v Newell Rubbermaid UK Services Ltd and another was handed down last week. Among the first significant pensions cases of 2024, the decision considers a number of key principles of pensions law - including the construction of interim deeds, the operation of amendment power restrictions and the effect of extrinsic contracts. We look at the decision in brief and identify some of the key takeaways.

What was the case about?

The case was brought by the trustee of the pension scheme (the Trustee) and was defended by Newell Rubbermaid UK Services Limited (the Company) and a Representative Beneficiary who was disputing the Company's position (the Rep Ben). The case mainly concerned the validity of the conversion of certain scheme members' final salary (FS) benefits to money purchase (MP) benefits and the related establishment of a MP section within the scheme. It also examined a claim that the different application of the changes to different age categories of members constituted age discrimination.

However, the judgment is also notable in that it analyses a number of other important points of pensions law, including the construction of interim deeds, the validity of extrinsic contracts, the application of amendment power restrictions and the honouring of final salary underpins. So it is a bit of a tour de force of some of the most significant pensions case law from the last few decades (e.g. Bestrustees v Stuart, Hodgson v Toray Textiles, Buckinghamshire v Barnado's, Walker v Innospec) including, of course, the infamous trio of landmark cases on the operation of restrictions in amendment powers (Courage, IMG and Gleeds).

Issue 1 - the final salary "conversion" issue

The first main limb of the claim was disputing: (i) the legality of the conversion of FS benefits to MP benefits for those members under 40 and the related establishment of the MP section of the scheme; and (ii) the validity of the scheme documentation effecting the changes.

Mr Justice Green examines in detail the scheme rule requirements, each relevant deed (primarily the 1979 Rules in force at the time of the changes, the 1992 interim amending deed and the 1993 definitive deed and rules) and the related member communications and booklets. His findings were as follows:-

• The relevant deeds in question (1992 and 1993 Deeds) were valid and effective: the 1992 Deed validly converted FS benefits to MP benefits and set up the MP section for those members under age 40 and those between 40-44 who chose to go into the MP section; and
• Whilst the restriction on the scheme's amendment power did not prohibit the changes, it did not permit the final pensionable salary link to be broken for members transferring to the MP section. He held that the FS underpin should be calculated retrospectively and that the Trustee should calculate whether the transfer sum was lower or higher than the accrued FS benefits as at 1 January 1992 (the date of the conversion and transfer).
• There were numerous other ancillary points which he examined in lesser detail because his findings above meant they were less relevant. For example, if the 1993 deed could be applied retrospectively, whether the members' consent was validly given and whether, if the 1992 and 1993 deeds were not valid, there could be construed to be extrinsic contracts between the Company and the members who were aged between 40 and 44.

Issue 2 - the age discrimination issue

The second main limb of the action related to age discrimination claims as a result of different age-related categories of members being treated differently (under 40s were automatically transferred to the new MP section, 40-44 year-old members were offered the option to transfer and over 44s had no choice and were left in the FS section).

Mr Justice Green's over-arching view was that what had happened in 1992 could not have been unlawful given that the relevant discrimination legislation was not in force at that point (and indeed he noted that the Company and the Trustee were not even incorporated in 1992).

However, after further analysis of the relevant age discrimination regulations and equality legislation, he held that that there was no rule in the scheme that was in conflict with the non-discrimination rule. The trustee would not be in breach of the non-discrimination rule by administering the scheme in accordance with its existing rules. He held that there had not been any unlawful age discrimination against the under-40s.

Similarly to the first limb of the action, Mr Justice Green did briefly examine some other ancillary age-related discrimination points but felt they could not be properly or meaningfully considered because of his answer to the main issue above. He did however note that even if he had thought there was discrimination, he would have found the Company to have sufficiently proved that there was justification for the alleged less favourable treatment of the under-40s.

Takeaways

This is clearly a resounding victory for the Company. Mr Justice Green found in its favour on almost all of the contested grounds (other than the salary link - the possible impact of which should not be underestimated) and indeed went so far as to praise the thorough approach the Company (and the Trustee) took in relation to the exercise back in 1992. He noted that "The fact that it wanted to make the changes so as to improve its balance sheet is actually irrelevant to whether it was carried out lawfully, fairly and properly, including without misleading anyone or pressuring the members to do one thing or another."

As Mr Justice Green noted several times throughout the judgment, the facts of the case took place over 30 years ago. It was acknowledged by him that this might mean that not all evidence would be available. But he was very clear that this should not automatically mean an assumption that the deeds were invalid or that they should now be set aside. Indeed, he noted that "The fact that the evidence appeared incomplete should not mean that every issue is taken to trial, at the expense of the Company, and there should in my view have been more concentration on the more realistic issues". Perhaps a suggestion here from the Court that the parties could take a more pragmatic approach in selecting the issues which are taken to trial.

Finally, it may be of interest to note that Mr Justice Green very briefly touched on some of the issues considered in the very recent Avon Cosmetics case andwhether there could be severance between a valid and an invalid exercise of a power. But he ultimately dismissed that as being irrelevant on the basis that he was satisfied that conceptually there were two separate exercises (conversion of the benefits and establishment of the MP section) both of which he had held were legal, valid and effective.

As always, if you have any questions please do get in touch with your usual contact in the Pensions Team.

This article was written by Mairi Carlin.

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.