The High Court recently ruled in Punter Southall v Hazlett, in re Axminster Carpets [2021] EWHC 1652 (Ch). The case has been a long time coming and by the time it reached the Court the parties had agreed a compromise of numerous underpayment issues that are fairly common in defined benefit pension schemes. There were however some points that needed to be decided because they affected the quantum of the arrears.

Mr Justice Morgan reconsidered and expanded on some of his own rulings in the landmark Lloyds case. Current trustees have no limitation defence if they underpay. However, forfeiture clauses are allowed, limiting recovery to six years’ arrears.

Most DB schemes allow forfeiture. Some require it, with discretion to disapply. Until Lloyds the general view was that forfeiture didn’t work, or if it did it wasn’t very trustee-like.

The Judge gave a pretty heavy steer that any discretion should be used in favour of beneficiaries if they were not at fault and the trustees were. In an apparent swipe at the trustees, who had ignored legal advice that they were underpaying, he said it might be different for their own benefits.
DB pensions are complicated and there are systemic risk areas for underpayment, both known and unknown. Trustees who are members are now on notice that their own benefits may be at risk if they don’t act. Better then not to take legal advice? Our view is, better to amend away the forfeiture rules they never used, don’t want to use, and can’t fairly use against anyone other than themselves.

Read Anna’s article in The Legal Diary.