PENSIONS LITIGATION: An Introduction
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Pensions Litigation Overview
Pensions litigation continues to be a diverse and important field. In common with many other fields of litigation, pensions litigation often thrives in a challenging economic environment. And for many, the economic environment has been tough in recent years, giving rise to employers and trustees seeking to manage their schemes’ liabilities throughout the turmoil and uncertainty.
In particular, we have seen this where the courts have continued to rule on the ability of schemes to switch from RPI to CPI as the applicable index for increasing their benefits. There has also been a steady stream of cases dealing with the rectification of pension scheme documentation, where huge sums are often at stake all because of the slip of a pen or a moment of inattention.
No overview of pensions litigation can be complete without mention of the Pensions Regulator (TPR), the Pensions Ombudsman (Ombudsman) or the Pension Protection Fund (PPF). In their different ways, they have also been active in the pensions litigation arena. And with the full financial impact of the COVID-19 pandemic still to materialise, we may see even more of them in the year ahead.
Unsurprisingly, the issue of which measure of inflation may be used to calculate pension increases continues to be high on the agenda of a number of employers and trustees, and we have seen a flurry of cases both before the courts and the Ombudsman.
The latest decisions reinforce the message that everything rests on the specific wording of the rules in question, underlining the lottery of the outcome for individual pension schemes. That said, at least where there has been sufficient doubt for the parties to ask for a binding ruling, the trend from the courts (as seen in Ove Arup, Carr v Thales, Atos and Britvic) has been against there being a power to switch the index from RPI.
Ultimately, the lottery may be resolved with the proposed alignment of RPI and CPIH (as CPI, but including 'H' for owner occupiers' housing costs), currently under consultation. But with that change not expected to be made until some time between 2025 and 2030, further litigation concerning this issue can still be expected.
Court-ordered rectification of drafting errors in pension scheme documentation has continued apace, and the legal principles to be applied have also evolved.
Following the Court of Appeal’s decision in FSHC, where the applicable principles for rectification were refined in a non-pensions context, a trio of High Court judgments applied these principles in a pensions context (Blatchford, Colart and Univar).
The above cases clarify that the test for intention is subjective but "convincing proof" is needed to displace the words used in the document, although it is not necessary to provide evidence of "an outward expression of accord" between the parties to the relevant document. A high bar to satisfy, so the strength of the evidence will be crucial. Nonetheless, it is now quite clear what the courts expect before they will be prepared to grant rectification.
Despite it being a high bar, Lloyds and SPS Technologies showed that it remains possible to obtain summary judgment in more straightforward rectification cases. We were also reminded in ITV and Honda that the parties may agree, albeit subject to obtaining court approval, a compromise outcome even in the context of rectification proceedings.
Behind many rectification cases will sit a claim for professional liability. Given the increased scrutiny that all participants in the pensions industry continue to face, there have been other circumstances too in which such claims have arisen.
Despite their frequency, it is remarkable that another year has passed without a High Court judgment in relation to such a claim – all the cases were either withdrawn or settled, or remain in progress. That may be a good sign that the parties, and their legal representatives, are sensibly engaging in alternative dispute resolution. But it does also mean that many legal issues relating to claims for professional liability in the pensions context remain unresolved and uncertain as a result.
The trustee of the Airways Pension Scheme concluded their long-running dispute with the sponsoring employer, British Airways (BA). Following BA’s successful appeal to the Court of Appeal in 2018, a settlement was reached, subject to the High Court formally agreeing that the settlement had been a reasonable exercise of the trustee’s discretion.
The court ruling was sought, not because there was any real doubt as to the nature of the trustee’s powers, but because of the particularly "momentous" nature of the decision to agree the settlement.
Such court applications have been rare in the pensions arena, although not unheard of (see, for example, MNRPF and Pollock v Reed). They have been more common in the context of private trusts, although we may well see further cases in relation to pensions in the future.
Pension Protection Fund
The PPF is more relevant than ever in the pensions landscape, providing lifeboat compensation for nearly 250,000 members, and managing over £30 billion in assets. In fulfilling its role, it has been involved with (and often at the centre of) litigation covering a variety of matters.
In the case of Bauer, the Court of Justice of the European Union tested the legal minimum compensation that the PPF (and other such compensation schemes) must provide. The High Court in Hughes recently ruled upon other aspects of PPF compensation, including the methodology of the PPF’s compensation cap and whether its application amounted to unlawful age discrimination.
The Corporate Insolvency and Governance Act 2020 has also bestowed certain rights on the PPF relating to pension schemes affected by a 'moratorium' or 'restructuring plan' under this new legislation. There has already been debate about the application of this Act to pension schemes, so we may well soon see the PPF in the courts in that regard.
The Ombudsman assists members by resolving any complaints they might have in relation to their schemes. Recently, the difficult economic environment has prompted an unusually large number of transfer requests from members. The Ombudsman has played a particularly important role in ensuring that members’ rights to a timely transfer are enforced, whilst also helping to combat pensions scams by issuing rulings on the appropriate level of due diligence carried out by and on behalf of trustees when faced with transfer requests.
Although a number of the Ombudsman’s determinations were challenged in the High Court, only 5% of all completed investigations in 2019/2020 actually required a formal determination, with the remaining 95% being resolved satisfactorily through informal means.
As always in pensions litigation, we can be sure that the year ahead will be a busy one, with more of the same, but also at least a few surprises thrown into the mix.
The Ombudsman is preparing for a potential increase in the number of complaints through his door as a result of the pandemic. In particular, in relation to the furlough scheme, transfers and scams, payment of auto-enrolment contributions, ill-health and redundancy pension benefit claims, and delays in providing information and processing requests.
As for TPR, although busy in many respects, it has been relatively quiet in terms of litigation over the last 12 months or so. But with new anti-avoidance powers and the ability to impose significantly increased penalties on the horizon under the upcoming Pension Schemes Act, not to mention a much tougher economic environment, this might well change soon.