This morning, the Court of Appeal handed down its
verdict in the case of Cripps v Trustee Solutions and
Dubery. The decision is of vital importance to underfunded
schemes currently in wind-up and their treatment of benefits
accrued during the "Barber window" (i.e. the period between the
date of the European Court's judgment in Barber (17 May 1990), and the date the scheme equalised
male and female normal retirement ages).
A quick reminder - the background
The original High Court judgment in this case was
handed down in June 2006. The key question was whether a male
member (who was aged over 60 but under 65 at the date winding-up
began and who had accrued benefits in the scheme’s Barber
window), was to be regarded as "entitled" to the payment of
benefits under the scheme even though he had not yet retired. The
issue was crucial because if the answer to this question was "yes",
this would have the effect of allowing him to leapfrog deferred
members in the statutory priority order on winding-up then
applicable under the Pensions Act 1995.
The judge at first instance placed his emphasis on
the pre-A Day Inland Revenue requirements, reflected in most scheme
rules, that the whole of a pension had to be taken at once. In his
view, this meant that the member had an “entitlement”
to the immediate payment of his whole pension (not just the
proportion relating to Barber window service). One potential impact
of this for schemes more generally was that even for male members
with only a short period of Barber window service, many
years’ worth of non-Barber window benefits would also be
prioritised on wind-up, to the detriment of younger deferreds.
The Court of Appeal’s decision
However, the Court of Appeal unanimously overturned
the judge's decision. It held that the wording in the Pensions Act
referring to an "entitlement" to pension or other benefits arising
on wind-up should be construed as meaning benefits either in
payment, or which a member had the right to demand under European
law (i.e. benefits related to service during the Barber window). It
did not extend to benefits accrued outside that window where the
member had not reached normal retirement age under the scheme
rules.
In other words, the case decided that the way to
deal with pension benefits for these purposes is by "tranching":
splitting benefit entitlements by reference to the different normal
retirement ages applicable to different periods of service. The
judgment also prevents the prioritising of non-Barber window
service, a result that the judges referred to as "potentially
distorting" and "extraordinary".
Action required
Many wind-ups have been delayed while schemes
awaited the outcome of this case. It may now be necessary to take
further legal advice to ensure that the effects of the Court of
Appeal's decision are adequately communicated, and that the
required changes to existing winding-up processes are properly
implemented.