This morning the Court of Justice of the European Union (CJEU) handed down judgment in the Safeway case, an important decision for pension schemes about sex equalisation, amendment powers, and the interaction of EU and domestic law.
The case upholds the general principle that where an announcement to members precedes formal amendment of the trust deed, retirement ages can only be equalised from the date of the deed - even if, as a matter of domestic law, the amendment would have been valid from the date stated in the announcement. It does, however, raise the possibility that such amendments could be justified in ‘exceptional’ circumstances.
The facts of the case
The case was about the treatment of benefits accrued during a pension scheme’s “Barber window” (the period between 17 May 1990, the date of the European Court of Justice judgment in the Barber case, and the date on which the scheme equalised male and female retirement age). The scheme amendment power required the principal employer and trustees to alter the scheme by deed, but the amendment could take effect from “the date of any prior written announcement to Members”. The question for the courts was 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).
The English court decisions
In 2016 the High Court, in line with previous case law on retrospective amendments, decided that equalisation was only effective from the date of the deed in 1996. However, the Court of Appeal suggested that under the scheme rules, a female member’s right to a retirement age of 60 was ‘defeasible’ (and therefore capable of being annulled) during the period from December 1991 until May 1996. For the whole of that period there was an announcement in place increasing female retirement ages to 65, which was capable of being implemented at any time by the execution of an amending deed. The Court therefore referred to the CJEU the question of whether European case law really did establish a principle which outlawed retrospective levelling-down during the Barber window, even if English law allowed it.
Earlier this year, Advocate-General Tanchev delivered his preliminary, non-binding Opinion. The A-G said that the key issue was whether the 1991 letter “had full legally binding force”: as it did not, there was no valid equalisation until 1996.
The decision of the CJEU
The Court largely followed the Advocate-General’s approach. Like him, it rejected the Court of Appeal’s ‘defeasibility’ analysis and reaffirmed the importance of legal certainty. The CJEU emphasised that it was not possible for domestic law, the provisions of a scheme’s trust deed and rules, administrative practice or the content of member communications to override the settled European case law.
However, the Court was not absolute in its reasoning. It observed that “exceptionally” - if there was an overriding reason in the public interest, which respected legitimate expectations - retroactive measures to end discrimination could be adopted. In the CJEU’s view, a retrospective amendment which was “necessary to prevent the financial balance of [the scheme] from being seriously undermined” could be permitted under EU law. On the evidence before it, the Court did not consider that this objective justification test had been met. Nevertheless, this was ultimately a point for the referring court to determine.
The lessons for schemes
Even three decades on from Barber, many occupational pension schemes continue to be dogged by concerns around the valid equalisation of benefits for men and women. Frequently (as here, where an estimated £100m rode on the decision) they can have significant cost implications. That’s even before we throw into the mix the fact that virtually all schemes are still wrestling with the after-effects of equalisation as it relates to guaranteed minimum pensions (GMPs).
The CJEU judgment slams the door firmly shut on the Court of Appeal’s ‘indefeasible rights’ analysis. The result is that the only schemes that will be treated as validly having equalised at the time of an announcement to members will be those whose amendment power expressly allows this, without requiring the additional formality of a deed.
However, in theory - although it seems to us an extremely high bar to meet in practice - the decision opens up the potential for schemes to seek to objectively justify retrospective amendment under EU law. It will be intriguing to see whether this point is raised in future proceedings. The case law which the CJEU cited as outlining the principle of financial balance being undermined were not pensions cases and instead were about the social security systems of member states. So there must be some doubt whether a UK pension scheme will ever be able to satisfy the courts on this point, regardless of the amount of money at stake.
The judgment can be found here.