Bridge Trustees Ltd v Yates & Ors

Benefits calculated by reference to a member’s accumulated pension pot remain money purchase benefits even though actuarial factors are used to convert the pot into a pension. The character of the benefit is determined when the benefit is calculated, not by whether the pension is secured internally or through an external annuity.

Where a pension is already in payment, the assets formerly referable to the pot may no longer be ascertainable. Regulation 13 of the Occupational Pension Schemes (Winding Up) Regulations 1996 therefore does not exclude that pension from the statutory winding-up priorities in section 73 of the Pensions Act 1995. A money purchase benefit subject to a guaranteed minimum pension or equivalent salary-related guarantee may be an underpin benefit. Employer matching payments are not benefits derived from members’ voluntary contributions.

Bridge Trustees Ltd, the sole independent trustee of the Imperial Home Décor Pension Scheme, sought declarations concerning the treatment of MoneyMatch and VIP benefits on the Scheme’s winding up.

The Scheme contained final salary, MoneyMatch and VIP elements. The principal issues were whether benefits derived from members’ and VIP interests were money purchase benefits; whether pensions already in payment fell within section 73(3)(b) of the Pensions Act 1995; whether benefits subject to guaranteed minimum pensions or the 1983 Guarantee were underpin benefits; and whether employer matching credits were derived from members’ voluntary contributions.

1. The court answered questions 2.1 and 2.3 affirmatively. The Member’s Interest and VIP Interest operated as identifiable and quantifiable pension pots. Contributions, credits and investment returns accumulated in those pots and were then applied to provide benefits selected by the member.

2. The use of actuarial conversion factors did not prevent the resulting benefits from being money purchase benefits. The factors merely converted an accumulated pot into a pension. This differed from Aon Trust Corporation v KPMG (a firm) & Ors [2006] 1 WLR 97, where actuarial factors formed an integral part of the calculation of the benefit itself. Internal annuitisation and the purchase of an external annuity had to be treated alike.

3. The investment-return mechanism and the balance-of-cost provisions did not destroy the direct relationship between the contributions and the benefits. Nor did the references to guaranteed minimum pensions or the 1983 Guarantee make the interests salary-related as a whole.

4. Pensions derived from a Member’s Interest or VIP Interest that were already in payment when the Scheme went into winding up fell within section 73(3)(b). Once applied to provide a pension, the assets by reference to which the benefit had been calculated were no longer ascertainable. Regulation 13 could therefore no longer carve those assets and liabilities out of section 73.

5. For members with pre-6 April 1997 service, the guaranteed minimum pension was treated as a separate benefit for the purposes of section 73 and regulation 13. The remaining money purchase benefits were payable only after the guaranteed minimum pension had been satisfied. They were therefore underpin benefits. The same reasoning applied to VIP benefits subject to the 1983 Guarantee. Questions 2.1B and 2.3B were answered affirmatively to that extent.

6. The court accepted that member-paid MoneyMatch Plus Contributions and VIP Contributions were voluntary contributions. It rejected the Trustee’s opinion that employer-paid MoneyMatch Plus Credits and Employer’s VIP Match were derived from members’ payments. The statutory wording required the source of the benefit to be payment by the member. The Trustee had therefore misdirected itself in paragraphs 3 and 5 of its resolution of 10 May 2006. Approval was limited to paragraphs 2 and 4 and the remainder concerning member-paid contributions.