Pitmans Trustees Ltd. & Ors v The Telecommunications Group Plc

The court held that the BETEC Plan, as amended, comprised a single occupational pension scheme for the purposes of s.75 Pensions Act 1995 and that the trustees were therefore, in principle, entitled to claim any deficiency from the sole remaining employer. The court rejected the defendant’s submission that the final salary and money purchase elements should be treated as separate schemes because there were no separate trust funds and the scheme documentation (including Rule 21A and Rule 26) treated the assets as one fund. The court further held that s.75(1B) did not apply.

However, the trustees’ purported adoption on 29 May 2003 of a gilts-matching policy was invalid because they failed to consult the employer as required by s.35(5)(b) Pensions Act 1995: the employer was not provided with a draft statement of investment principles and was given inadequate time to respond. As a consequence, the actuary’s certificate dated 4 June 2003 (valuing the deficit at £4,409,003 on the basis of a gilts-matching policy) was invalid, the asserted debt under s.75 had not been established, and the trustees’ summary claim was dismissed.

Background and parties: The BETEC Retirement Benefits Plan (the Plan) provided final salary benefits to former Clayhithe employees and, after a transfer effected by deed and transfer agreement in April 1999, money purchase benefits to former Roxspur employees. The trustees of the Plan (the claimants) sought payment of a deficiency certified by the scheme actuary under s.75 Pensions Act 1995. The defendant employer (then Roxspur, later The Telecommunications Group Plc) resisted the claim.

Nature of the application: The trustees applied for summary judgment for £4,409,003 under s.75 (or alternatively for determination of specified issues). The employer applied for summary dismissal and for determinations in its favour on two issues.

Issues framed:

• Whether the Plan was a single occupational pension scheme for the purposes of s.75 or should be treated as separate schemes for its final salary and money purchase elements (and whether s.75(1B) as applied by the Deficiency Regulations required sectionalisation).
• Whether the trustees had complied with s.35(5)(b) Pensions Act 1995 by consulting the employer before revising the statement of investment principles, and whether the statement adopted on 29 May 2003 included a gilts-matching policy for the purposes of the Minimum Funding Regulations (Reg.7(9)(a)).
• The consequences of any failure to consult, in particular the effect on the actuary’s certificate and the existence of an enforceable debt under s.75.

Court’s reasoning and conclusions:

• The court analysed the scheme documentation (including the Deed of Amendment, the Transfer Agreement, Rules 20D, 21A and 26 and Rule 18D) and concluded that the assets transferred from the Roxspur Scheme and the Plan’s other assets were held by the Plan trustees as one fund. There were no separate trusts or proprietary earmarking that would support treating the two elements as distinct schemes for s.75 purposes.
• The court rejected the defendant’s contention that s.75(1B) applied to sectionalise the Plan, holding that the statutory conditions (different sections applying to different employers; allocation of contributions and assets to a specified section) were not satisfied. Rule 2A did not divide the scheme by employer and therefore did not trigger s.75(1B).
• On the consultation point the court applied established authority on consultation and held that the trustees did not consult Roxspur within the meaning of s.35(5)(b): the trustees did not provide the employer with the draft revised statement of investment principles and allowed an inadequate period (two working days after a bank holiday) for a response; the fax was not received in time. Consultation is a pre-condition and absent proper consultation the trustees’ purported exercise of the power to revise the statement was of no effect.
• Because the statement was invalidly adopted, the actuary’s valuation and certificate premised on a gilts-matching policy were invalid. Accordingly the trustees had not established the s.75 debt as certified and summary dismissal of their claim followed. The court observed that this did not preclude a later valid valuation/certificate during the permitted period.

Relief sought and disposition: Summary judgment for the trustees was sought but refused; the trustees’ action was summarily dismissed because the s.75 debt had not been validly established.

First instance: The claim is dismissed. The Vice-Chancellor found that (1) the Plan constituted a single occupational pension scheme for the purposes of s.75 Pensions Act 1995 and s.75(1B) did not apply; (2) the trustees’ purported revision and adoption of the statement of investment principles on 29 May 2003 was invalid because they failed to consult the employer as required by s.35(5)(b); (3) the actuary’s certificate dated 4 June 2003 premised on a gilts-matching policy was therefore invalid; and (4) the trustees had not established the debt under s.75, so their claim was summarily dismissed.