Equalisation – a new twist in the tale

In Safeway v Newton, the Court of Appeal has handed down an important judgment relating to how schemes equalised normal retirement age following the Barber decision of the European Court of Justice (ECJ) in 1990. This judgment potentially throws into doubt the previously accepted position (at least under UK law) that an announcement followed, some time later, by a formal amendment of the trust deed would only be effective to equalise retirement ages from the date of the deed unless the scheme rules expressly permitted amendment by announcement.

Background

This is the latest case on the treatment of benefits accrued during a pension scheme’s “Barber window” (the period between 17 May 1990, the date of the ECJ judgment in the Barber case, and the date on which the scheme equalised male and female retirement age at age 65).

The scheme amendment power allowed the principal employer and trustees to amend the scheme by deed, but the amendment could take effect from “the date of any prior written announcement to Members”.

The case considered whether the scheme had equalised retirement age with effect from 1 December 1991 (the date of a letter to members confirming the purported equalisation) or only from May 1996 (when a deed formally amending the rules, stated to take effect from December 1991, was executed). In early 2016 the High Court followed the approach in previous cases and held that equalisation was only effective from the date of the deed because, under the scheme’s power of amendment, the letter was not sufficient to amend the trust deed. The employer appealed to the Court of Appeal.

Construing the amendment power

First, the Court confirmed that the scheme’s power of amendment could only be exercised by deed, and not by written announcement. The language of the power was “not merely plain, it is unmistakable”. There was nothing unreasonable about interpreting the power this way, and no place for the employer’s arguments that pensions industry practice or custom could require it to be read otherwise. The Court quoted approvingly from a previous case: “protection of the beneficiaries requires the court to be very careful before it permits a departure from the plain wording and plain requirements of the trust deed”.

Retrospectively “levelling down”

Next, the Court had to decide whether, as a matter of EU equal treatment law (in particular the ECJ case of Smith v Avdel), the deed of amendment, once executed, could give effect to equalisation retrospectively to 1991 or whether benefits had to be levelled up during the period from 1990 until the deed was executed in 1996.

The Court said that under domestic law, female members’ right to a retirement age of 60 was ‘defeasible’ (i.e. capable of being changed) during the period from December 1991 until May 1996. This was because for the whole of that period, there was an announcement in place, increasing their retirement age to 65, which was capable of being implemented at any time by the execution of an amending deed.

The critical question, said the Court, was whether European case law really did establish a principle which outlawed retrospective levelling-down during the Barber window, in circumstances where the employer and/or trustees had power to make a retrospective change under domestic law. In an outcome that will surprise many, the Court disagreed with the High Court’s view (in this case and in earlier case law) that the relevant European authorities were enough to decide this point. The Court therefore referred the question to the Court of Justice of the European Union (CJEU).

The Court did note that the amendment power at issue in Smith v Avdel contained provisos to protect accrued rights which would have made retrospective amendment invalid under domestic law. This is a useful reminder that not all schemes, as a matter of UK law, could retrospectively amend normal retirement age. It is also not yet clear whether the question put to the CJEU will only cover schemes, like the one in Safeway, where the power of amendment expressly referred to backdating to the date of an announcement, or whether it would cover any scheme which allowed retrospective amendments.

Equalisation by legislation?

An additional issue raised in the proceedings was whether the introduction of section 62 of the Pensions Act 1995, intended to implement the ECJ’s equal treatment rulings in UK law, had the effect of closing the scheme’s Barber window. The Court said that this intriguing question was something to be answered by the domestic courts once an answer is obtained from the CJEU.

Summary

The question of whether schemes have validly equalised retirement ages can have significant cost and liability implications. It has been a common basis for professional negligence claims, and may cause problems when seeking to determine benefits for buy-out, PPF entry or scheme valuation purposes. But, some 27 years on from the Barber judgment, it seems that we still don’t know its full implications. The uncertainty introduced by the Court’s decision is compounded by a lack of clarity as to how long a reference might take to get to the CJEU, and even as to the legal status of CJEU judgments as Brexit draws closer.

Pending the CJEU ruling, we do not think that schemes which have followed the reasoning in previous cases need to change the way they administer benefits. However, this should remain on the watch-list and trustees and employers may wish to take further advice now as to how they could be affected by the CJEU’s ultimate conclusions.