Easterly Ltd v Headway Plc

A pension scheme trustee may use scheme powers to effect a partial buy-out and then fix an applicable time for calculating the employer’s debt under Pensions Act 1995, s 75(3), provided the scheme remains in the process of winding up. An annuity purchased under the scheme rules discharges the trustee’s liability to provide the corresponding annual benefit on a benefit-for-benefit basis. The minimum funding provisions limit the capital that may be applied, but do not alter the extent to which the trustee’s liability is discharged. Guaranteed minimum pension liabilities are discharged only to the extent that they are properly secured. The arrangement must produce worthwhile value for members after implementation costs.

The claimant was the sole trustee of a defined benefit pension scheme whose principal employer was solvent but liable, in principle, for a debt under Pensions Act 1995, s 75. The scheme was in deficit and being wound up. The trustee sought declarations concerning a proposed three-stage partial buy-out: purchasing annuities with existing assets, fixing an applicable time, and recovering the resulting statutory debt.

The central issues were whether the annuity purchases would discharge the trustee’s liability by reference to the benefits secured or by reference to the underlying minimum funding requirement, and whether the trustee could still fix an applicable time after the partial buy-out.

1. Partial buy-out permitted. Rule 12(j) authorised the trustee to purchase qualified policies in lieu of all or part of the benefits otherwise payable. The rule contained both a cap on the amount of scheme capital that could be applied and provisions governing the benefits to be secured. Once the permitted annuity was purchased, the trustee’s liability to provide the corresponding annual benefit was discharged to that extent.
2. The minimum funding provisions limited the trustee’s power to apply scheme capital for one member’s benefit at the expense of others. They did not convert the member’s discharged benefit into the capital sum required to support it under the minimum funding calculations. The remaining liability for the purposes of s 75 was therefore the trustee’s liability to provide the benefits still outstanding.
3. Guaranteed minimum pension obligations qualified the result. Under s 19 of the Pension Schemes Act 1993, an obligation was discharged only to the extent that the purchased annuity properly secured the guaranteed minimum pension. Any unsatisfied balance remained a liability to be included in the s 75 calculation.
4. The scheme remained in the process of winding up after the partial buy-out. Assets remained unapplied and the trustee retained the benefit of the statutory debt claim. The court agreed with the approach in National Bus Superannuation Scheme (1999) 48 PBLR, para 36.
5. The trustee’s power to fix an applicable time therefore remained exercisable. The challenge based on improper purpose failed. The legislation did not require schemes to be funded only up to the minimum funding requirement, and the trustee’s purpose in seeking the statutory debt was not improper where the Act and scheme rules permitted the route.
6. Declarations were permissible in principle, but subject to a rider. The trustee could not proceed unless, after taking account of the cap, guaranteed minimum pension liabilities and implementation costs, the three stages would materially increase the employer’s s 75 debt and provide worthwhile value for members.