Trustee briefing – what trustees can learn from the Barnardo’s ruling
The Government’s switch in the statutory indices for the revaluation and indexation of occupational pension schemes in 2010 has been the source of much litigation.
All of the cases on the Retail Price Index (“RPI”) v Consumer Price Index (“CPI”) have concerned whether a pension scheme can switch from RPI to CPI as the basis to calculate pension revaluation and indexation, as well as with whom the power to decide to make that switch rests.
For schemes in deficit, a move to CPI offers a material funding boost, which is why this has been such fertile ground for litigation.
The message of every case on RPI v CPI has been that the exact wording of the rules matter, and the Barnardo’s Case is no exception.
This long legal battle was all about the meaning of the words “‘Retail Prices Index’ (i) means the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval.”
Did RPI need to be discontinued and replaced with another index before the trustees could adopt an alternative index or was it open for the trustees to decide to replace it at any time?
The former interpretation won the day – RPI must cease before the trustees can adopt CPI in its place.
This is the end of the road for the Barnardo’s scheme. Until RPI is discontinued, the scheme must continue to use it. But what of other schemes?
The exact drafting of the rules of the scheme really does matter. What index applies and whether the power to switch index exists depends entirely on the exact words used and their order.
It is clear that in trying to interpret ambiguity in those words, the courts will not use hindsight of post-rule events to make commercial sense of the drafting. Nor will the courts favour the interests of either the employer or the members in reaching a view on the meaning of the provisions.
The courts will merely interpret the words on the page in front of them.
For trustees who are still uncertain of their position, it is important to look carefully at each set of rules which apply to the membership of a scheme and the exact wording of the relevant provisions.
It is very rare for the last set of rules to apply to everyone and, as the detail of the Barnardo’s judgment ably demonstrates, when rules are re-drafted, changes in wording can completely alter the nature of a benefit provided.
This creates a members’ benefit lottery which is not much discussed but is commonly found when scheme rules are properly considered.
Too few scheme trustees have a really good view of their actual benefits as derived from their rules and the RPI v CPI cases are just the tip of the iceberg.
Partner Jane Kola
Read Jane’s article for Pensions Insight
The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.