Pension scheme trustees must comply with the formalities under the rules to introduce new benefits for members


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In the original case of Burgess & others v Bic, the High Court had to determine whether pension in payment increases referable to pre April 1997 pensionable service (the pre-1997 increases) had been validly granted.

The sponsoring employer successfully argued that the original attempt to introduce the pre-1997 increases in 1991/2 was invalid as there was a failure to comply with the formal requirements of the rules governing the pension scheme. However, the invalidity was not recognised at the time, meaning that pre-1997 increases were added to pensions in payment and included in the future funding of the scheme. It was only some 20 years later that the issue came to light and the sponsoring employer looked to address the issue.

The High Court looked at whether a later set of trust deed and rules (the 1993 Deed and Rules), which were expressed to take effect retrospectively from 1990, would have validated the steps then taken to introduce the pre-1997 increases. It considered that the pre-1997 increases were validly granted. The sponsoring employer (who was represented by Martin McFall and Michael Rhode of Trowers & Hamlins LLP) appealed the decision to the Court of Appeal.

The Court of Appeal considered a key issue was not only whether there was the relevant enabling power in the 1993 Deed and Rules, but also whether there was a proper basis for regarding that power as having been exercised at the material time. The Judges rejected the Trustees' arguments that the intention to exercise a power with retrospective effect could be implied or imputed. They considered that it was necessary to find positive evidence that the Trustees had applied their minds to the issue and addressed the matter explicitly.

The employer successfully argued that the fundamental problem with the Trustees' argument (and the High Court's decision) was that they failed to explain how the mere introduction of the 1993 Deed and Rules, backdated to 1990 for reasons unconnected with the increases issue, brought about the deemed exercise of the power to validate the invalid steps taken in 1991/2 to introduce the pre-1997 increases.

Take note: The decision in Bic demonstrates that a previously invalid exercise of a power of amendment cannot be retrospectively validated by the mere introduction, with retrospective effect, of a potentially validating power.

This article is taken from HR Law – June 2019

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