Foster Wheeler Ltd v Hanley & Ors (Rev 1)

Where pension equalisation produces benefits with mixed normal retirement dates and the scheme contains no express mechanism for payment, the court should give effect to the protected rights with the least substantive interference with the scheme that is compatible with European law.

The court must consider the practical and financial effect of a proposed modification, not merely the extent of textual change. It must not confer an unreduced accelerated benefit for service outside the Barber window. A scheme may therefore provide a single pension comprising full benefits referable to age 60 and actuarially reduced benefits referable to age 65. Split pensions are possible, but are not compulsory where a less intrusive scheme-based solution is available.

The Foster Wheeler occupational defined-benefit scheme originally provided different normal retirement dates: 60 for women and 65 for men. The effect of European pension-equality law was that members acquired protected rights during the Barber window. Following an amendment in 1993, the scheme adopted age 65 as the normal retirement date for future service.

Some members consequently held benefits accrued by reference to both ages. The scheme did not expressly state how a member retiring between 60 and 65 should receive those mixed-date benefits. Patten J held that the member should receive a single pension in full, save for benefits accrued after a later 2003 rule change: option 1.

The company appealed. The issue was whether the correct solution was an unreduced single pension, a single pension with an actuarial reduction for the age-65 element, or two separate pensions.

1. Appeal allowed unanimously. The court substituted option 2. A member retiring between 60 and 65 is entitled to the benefits accrued by reference to age 60 in full. The age-65 element may be brought into payment early, but is subject to actuarial reduction. The matter was remitted to the Chancery Division.

2. European law required the scheme to give effect to equal treatment, but did not prescribe the domestic machinery for doing so. The court approved the minimum-interference approach in Bestrustees v Stuart [2001] PLR 283. The preferred solution should adhere, so far as possible, to the scheme’s provisions and make no greater substantive alteration than is needed to make Barber rights effective.

3. The inquiry concerns substance as well as drafting form. Option 1 required disapplication of the company’s power to consent to early retirement on terms and gave members unreduced accelerated benefits for age-65 service outside the Barber window. That was an unjustified windfall, exceeded the equalising effect required by European law, and was unfair to the company and potentially to other members.

4. Trustee Solutions Ltd v Dubery [2008] ICR 101 showed that mixed-date benefits can be treated as separate tranches and that split pensions are feasible. It was not distinguishable merely because the Barber window there remained open. However, it did not require split pensions in every context. A split-pension arrangement was more complex and involved more extensive interference with this scheme than the available alternative.

5. Rule 17 supplied that alternative. Its requirement for the company’s agreement could be disapplied insofar as necessary to secure the age-60 entitlement. Its express facility for actuarial reduction of the accelerated age-65 deferred pension remained effective. The trustees and employer should formulate the necessary amendments, using their powers under the Pensions Act 1995 if required.

• Court of Appeal (Civil Division) Allowed the company’s appeal, substituted option 2, and remitted the case to the Chancery Division: [2009] EWCA Civ 651.
• High Court of Justice (Chancery Division) Patten J preferred option 1, under which the mixed-date benefits were paid as a single unreduced pension: [2008] EWHC 2926 (Ch).