Subsidising money purchase section from final salary section surplus 2

United Kingdom

Reference: H00530

Barclays had set up a money purchase section of their scheme for new members from 1 July 1997. There were no clear cross subsidisation provisions in the rules, which allowed the final salary surplus (of over GMP 1 billion) to be used to fund employer contributions in the money purchase section. However, this was clearly the intention when the money purchase section had been set up.

The Ombudsman relied upon the decision in Kemble v Hicks to find that, in the absence of an express provision on cross subsidisation of the two sections, funding employer contributions to the money purchase section from a surplus in the final salary section was not acceptable. The Ombudsman's determination would require Barclays to retrospectively pay employer contributions into the money purchase section.

The Ombudsman, reiterating Hillsdown Holdings, said that in certain circumstances, a trustee may be guilty of maladministration even if acting on the advice of an appropriately experienced solicitor. However, in this case the trustee took legal advice on two occasions and here the Ombudsman found that it was reasonable for the trustee to rely on the independent legal advice it received.

Barclays successfully appealed to the High Court (see report of Barclays Bank v Holmes in the Court Rulings section of this site).