International Power Plc v. Healy and Others, Formerly National Power Plc v. Feldon and Othersand National Grid Company Plc v. Mayes and Others

A power and duty to deal with a certified pension scheme surplus permits an employer, subject to the scheme and actuarial certification of reasonableness, to appropriate surplus towards accrued but unpaid contribution liabilities. Releasing such a liability does not amount to making scheme money payable to the employer.

The protection in section 37 of the Pensions Act 1995 applies to funds actually paid into the scheme. It does not prevent the release of employer debts which are due but not yet payable. An arrangement inconsistent with the scheme requires amendment, but using surplus to meet existing contribution liabilities does not. Actuarially advised instalment and nil determinations may validly implement such an arrangement.

National Power and National Grid participated in separate groups of the Electricity Supply Pension Scheme. Actuarial valuations disclosed substantial surpluses in 1992 and, for National Power, in 1995. The employers used part of the surpluses to improve members' benefits and part to reduce or discharge liabilities for deficiency and supplementary contributions associated with early retirement and redundancy.

The Pensions Ombudsman upheld complaints by National Grid members. Robert Walker J held that the arrangements were valid. The Court of Appeal allowed the members' appeal, holding that clause 14(5) did not itself permit the employers to discharge their debts and that an amendment was required. The employers then executed retrospective deeds of amendment.

The central questions were whether releasing accrued but unpaid contribution liabilities constituted payment of scheme money to an employer, whether section 37 of the Pensions Act 1995 invalidated the retrospective amendments, whether clause 14(5) required an amendment, and whether instalment or nil contribution determinations were permissible.

1. The appeals were allowed unanimously. Lord Hoffmann delivered the leading speech. Lord Scott of Foscote agreed and supplied additional reasoning concerning the interaction between clauses 14 and 41. Lords Slynn of Hadley and Steyn agreed with both speeches, while Lord Clyde expressly agreed with Lord Hoffmann and with the material conclusions of both. The 1992 and 1995 arrangements were declared valid.

2. Per Lord Hoffmann, clause 41(2)(b) had to be construed against its fiscal background. Its prohibition against making scheme money payable to an employer prevented access to assets which had entered the tax-privileged fund. The release of an employer's accrued but unpaid debt had the same economic effect as payment but was not itself payment of scheme money. British Coal Corporation v British Coal Staff Superannuation Scheme Trustees Ltd [1994] ICR 537 was contrary to that construction and, per Lord Scott, had been wrongly decided on the point.

3. Per Lord Hoffmann and Lord Clyde, section 37 of the Pensions Act 1995 adopted the corresponding fiscal concept of payment from scheme funds. It protected money actually paid into the scheme. It did not encompass the release of debts which were due but not yet payable. The retrospective amendments therefore did not confer a power caught by section 37.

4. Per Lord Hoffmann, clause 14(5) imposed a duty to arrange for disposal of a certified surplus and conferred the power needed to perform that duty. The power remained subject to the scheme construed as a whole. Per Lord Scott, an arrangement inconsistent with an existing provision required amendment under clause 41. Changes to contribution obligations or scheme benefits therefore required amendment, but appropriating surplus towards accrued liabilities under clauses 13(1)(e) and (f) did not. Such an appropriation preserved the allocation of the cost to the relevant employer and required no amendment.

5. Per Lord Hoffmann, Lord Clyde and Lord Scott, clause 13(1)(e) permitted an employer, acting on actuarial advice, to determine that deficiency contributions would be paid by instalments. Rule 44(4), which expressly permitted instalments for supplementary payments, did not compel a contrary construction. A nil determination was also valid where accompanied by an equivalent appropriation of available surplus. It was a matter of bookkeeping rather than substance.

6. Per Lord Hoffmann, an employer could arrange on actuarial advice for contributions to be met from a reliably forecast surplus before formal certification. The prudence of doing so was a matter for the actuary. National Power and National Grid had therefore validly implemented all the disputed arrangements.

1. House of Lords: The employers' appeals were allowed unanimously. The House declared all the disputed arrangements made by National Power and National Grid valid.

2. Court of Appeal: Nourse, Schiemann and Brooke LJJ allowed the members' appeal. They held that clause 14(5) did not itself permit discharge of the employers' debts and that amendment was required, although a retrospective amendment was available.

3. High Court: Robert Walker J held that the employers could act in their own interests while respecting members' reasonable expectations. He construed clause 14(5) as conferring a broad power and held the arrangements valid without amendment.

4. Pensions Ombudsman: The Ombudsman upheld the National Grid members' complaints, holding that the employer had breached its implied good-faith obligation and that releasing an accrued debt amounted to payment to the employer.