Alexander Forbes Trustee Services Ltd v Clarke & Ors

For the purposes of the statutory priority scheme on the winding up of an occupational pension scheme, entitlement to payment of a pension may arise before payment has begun. The test is whether the member can bring about payment of an immediate pension by taking steps wholly within the member’s own power. This may include removing a condition preventing payment, or completing the conditions for an early pension. The test applies whether one step or several steps are required, and whether the member has left service or remains in service. An actuarially reduced pension can fall within the higher priority for pensions where entitlement to payment has arisen, even if the same economic benefit might otherwise be treated as an accrued deferred pension.

The claimant trustee sought directions on the distribution of the assets of the Demaglass Pension Scheme, which was wound up in deficit on 23 May 2000. The issue concerned the construction of section 73(3)(b) of the Pensions Act 1995, as then in force.

The second defendant represented members over 50 who had left service and held deferred pensions but had not requested early payment. The third defendant represented members over 50 who remained in service but could retire early. The central question was whether their entitlement to payment had arisen despite the fact that they had not yet exercised the relevant options.

1. The court held that members represented by the second and third defendants fell within section 73(3)(b) of the Pensions Act 1995. Their entitlement to payment had arisen on the winding-up date, although they had not actually requested payment.

2. Applying Cripps v Trustee Solutions Ltd [2007] EWCA Civ 771, the relevant test was whether the member could bring about payment of an immediate pension by taking steps lying wholly within the member’s own power. A right to call for payment was sufficient; actual payment was unnecessary.

3. Members who had left service could require an early pension under rule 4.2.4 without the employer’s consent. The request was treated as a requirement which the trustee had no discretion to refuse. The entitlement therefore fell within section 73(3)(b).

4. The same conclusion applied to members still in service. Under the scheme rules, they could terminate service by their own act, including by ceasing to attend work, and could then require an early pension. It was immaterial that two steps were required, or that a period of notice might otherwise have been necessary. The necessary steps remained within the member’s unfettered control.

5. The court rejected the proposed distinction between removing a supervening condition and completing the conditions for entitlement. Such a distinction would introduce unnecessary complexity and was inconsistent with the principle in Cripps.

6. There could be overlap between paragraphs of section 73(3). An actuarially reduced pension could therefore receive priority under paragraph (b), even though an economically equivalent deferred pension might otherwise fall within paragraph (f). The justification was that the member could unilaterally bring the pension into payment.

First-instance decision. No prior decision in the same proceedings is stated.