NEWSLETTER    |     March 21, 2024

High Court ruling on validity and process of transfer from final salary arrangement to money purchase arrangement

The High Court ruled on various challenges to the validity and effect of a process undertaken in 1992 to transfer certain members of a pension scheme from final salary arrangements to money purchase arrangements within the same scheme.

In Newell Trustees v Newell Rubbermaid, two sections were created in an existing scheme.  One section provided final salary benefits for members who were aged over 44 years old and one section provided money purchase benefits for members who were aged under 40 years old.  Members who were over 40 years old but under 44 years old were able to choose which section to join.

The Judgment considered arguments that: (i) the interim amending deeds used to effect the transfer did not annex necessary booklets, (ii) terms of those deeds were too vague, (iii) members did not give informed consent, (iv) a Courage proviso prevented the transfer, (v) extrinsic contracts were formed, and (vi) the transfer involved unlawful age discrimination.

The Judge upheld the validity of the conversion of certain scheme members’ final salary benefits to money purchase benefits following their transfer to a newly-created money purchase section of the scheme, on the basis that there was a final salary underpin.

The Judge also held that it was not unlawful age discrimination to transfer employees aged under 40 out of a final salary pension scheme into a money purchase scheme in 1992.  The Court said that the reason that such members received different benefits was not just because of their age because any new members who joined the scheme after 1992, regardless of their age, would join the money purchase section of the scheme.

The Court confirmed that, when construing an interim deed establishing a trust, the parties’ intention behind the deed is relevant, not just an analysis of the language in the deed.

The Judgment contains a wealth of analysis of key pension topics that are relevant to due diligence on a scheme’s benefit structure. These include the effect of interim deeds, the validity of extrinsic contracts agreeing benefits different from those in the rules, and ‘Courage’ amendment powers requiring final salary underpins. Indications are that Courage will be appealed sooner or later and may be overturned.

This Judgment is an example of a ‘better of’ approach to validity of rule amendments, complicating a scheme’s benefit structure.

Key takeaway

The Judgment contains a wealth of analysis of key pension topics that are relevant to due diligence on a scheme’s benefit structure.

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