PENSION—PENSION SCHEME—COMPANY PENSION SCHEME

Court of Appeal, Civil Division
Ward, Tuckey LJJ and Sir Peter Gibson
26 July 2007

Members of a wound-up company’s occupational pension scheme who have the right to retire at age 60 in respect of any part of their service and who were aged between 60 and 64 at the date that the scheme commenced winding up, fall within s 73(3)(b) of the Pensions Act 1995 (PA 1995) but not in respect of pension or other benefits accrued by service to which a normal retiring age of 65 applies.

Nicolas Stallworthy (instructed by Nabarro Nathanson) for the trustees.
Keith Rowley QC for the first defendant.

Paul Newman (instructed by Lee & Priestley) for the second defendant.
The proceedings concerned a company’s final salary pension scheme contracted out of the State Earnings Related Pension Scheme. Its rules provided for the normal retirement date (NRD) of a male member to be age 65 and a female 60. The pensionable service of a member was limited to service in the period between the member becoming a member and the NRD of that member. In May 1990, in the case of Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] IRLR 240, [1990] 2 All ER 660, the European Court of Justice (ECJ) held that it was unlawful, under Art 141 of the EC Treaty for pension benefits to be payable on retirement at different ages for men and women.

It ruled that pensions were pay and had to be equal for both men and women. In 1992, the rules were amended so as to raise the NRD of female members to 65 with effect from October 1991. Thereafter the scheme was administered on the basis that benefits had been equalised. In 2001 the company went into liquidation and the scheme, as an unsecured creditor of the company, commenced winding up proceedings. The trustees applied to the court for directions as to, the priority of payments. The defendants were representative male and female members of the scheme. The judge held, that members of the scheme who had the right to retire at age 60 in respect of any part of their service and who were aged between 60 and 64 at the date that the scheme commenced winding up fell within the Pensions Act 1995 (PA 1995), s 73(3)(b) even in respect of pension or other benefits accrued by service to which an NRD of 65 applied. Section 73 of PA 1995 required the assets of a salary related occupational pension scheme which was being wound up to be applied in satisfying the liabilities of the scheme in respect of pensions and other benefits, including increases in pensions, in a particular order by reference to categories of liabilities specified in s 73(3). The first defendant appealed.

SIR PETER GIBSON:

Until the Barber decision given on 17 May 1990, British schemes usually mirrored the different ages at which state pensions were payable, namely 65 for males and 60 for females. In Coloroll Pensions Trustees Ltd v Russell [1995] ICR 179, [1995] All ER (EC) 23 (Coloroll) the ECJ decided further points arising out of Barber and in particular that: (i) for pensionable service prior to 17 May 1990 it was not unlawful for pension benefits to be provided at different NRDs for men and women; (ii) a scheme could be amended so as to equalise benefits up or down, for example to make the NRD for both men and women at age 60 or 65; and (iii) for pensionable service between 17 May and the date of any such amendment (a period known as “the Barber window”) men were entitled to be treated as if their NRD was the same as the NRD for women.

Thus in the usual form of scheme men were to be treated as having their NRD at age 60, but only in respect of benefits accruing from pensionable service in the Barber window.

The first defendant relied on the fact that a male member of the scheme who had accrued Barber window benefits by reference to pensionable service within the Barber window for which an NRD at age 60 applied would have a different NRD, namely at age 65, for benefits in respect of pensionable service prior to 17 May 1990 and similarly for benefits which accrued in respect of pensionable service continuing after the closing of the Barber window. The first defendant identified three possibilities in respect of the application of s 73(3)(b) to such a situation: (i) no entitlement to payment of pension or other benefit had arisen at all; (ii) entitlement to payment of the member’s Barber window benefits only had arisen; and (iii) entitlement to payment of the whole of his benefits, including his Barber window benefits and benefits in respect of any pensionable service before and after the Barber window, had arisen.

The judge found that (iii) was correct. The first defendant’s submissions were in favour of (i), but otherwise (ii). His lordship did not accept (i) and turned to possibility (ii).
The first defendant submitted that s 73 was not concerned with payment but with the order of priority in which the assets of a scheme in winding up should be applied. He pointed out that under s 73(3) members could have entitlements to different benefits with different priorities. Thus the liability for benefits derived from voluntary contributions came highest in the order of priority while the liability for pension increases came lowest. He argued that the key word in s 73(3)(f) was “entitlement” which pointed one to the rules which governed a member’s entitlement. While the rules had to be treated as modified by Barber to the limited extent indicated by Coloroll, that modification had no effect on the rules relating to benefits which accrued outside the Barber window.

His lordship accepted the first defendant’s submissions on possibility (ii). The judge had placed too much reliance on the fact that the rules and the Revenue requirements only contemplated a single pension payable on retirement at or after the NRD. But they never contemplated the situation that had arisen as a result of Barber and Coloroll, with more than one NRD being required where there had been pensionable service both in and outside the Barber window and benefits had accrued by reference to different NRDs. Barber was not retrospective and accordingly the rules continued to apply save to the extent of the necessary modifications.

Accordingly, his lordship would construe s 73(3)(b) as limited to pension and other benefits in payment or payment of which a member had a right to demand but as not extending to benefits accrued outside the Barber window when the member had not yet reached the NRD under the rules.

Lord Justice Tuckey and Lord Justice Ward agreed.