Houldsworth & Anor v Bridge Trustees Ltd & Ors

In a hybrid occupational pension scheme, whether a benefit is a money purchase benefit depends on the statutory definition and the scheme construed as a whole. A mismatch, deficit, notional investment return or actuarial factor does not automatically prevent a benefit from being calculated by reference to member or employer contributions. Employer matching contributions triggered by voluntary member contributions are benefits derived from those voluntary contributions and receive priority under section 73. MoneyMatch and VIP benefits remained money purchase benefits despite guaranteed returns, internal annuitisation, guaranteed minimum pensions and a minimum-value guarantee. Only the pre-6 April 1997 MoneyMatch interests available to meet guaranteed minimum pensions were underpin benefits. Protected rights, although mentioned in section 73, were excluded by regulation 13 unless they were underpin benefits.

The Imperial Home Décor Pension Scheme was a hybrid occupational pension scheme containing final-salary, VIP and MoneyMatch benefits. It entered winding up in October 2003 with assets substantially below the cost of securing all members’ benefits. Bridge Trustees Limited sought directions under CPR Part 64 on the statutory order of priority.

The Deputy High Court Judge, in [2008] EWHC 964 (Ch), decided questions concerning voluntary contributions, money purchase benefits, guaranteed minimum pensions, the 1983 Guarantee, underpin benefits and protected rights. Deferred members appealed, the pensioner appealed on some issues, and the Secretary of State intervened. The central questions concerned the meaning and application of section 73 of the Pensions Act 1995 and regulation 13 of the Occupational Pension Schemes (Winding up) Regulations 1996.

The Court, with Lord Justice Mummery giving the judgment to which all members contributed, allowed the appeals in part.

1. Voluntary contributions. Benefits derived from employer matching contributions were derived from the payment by members of voluntary contributions within section 73(3)(a) of the Pensions Act 1995. The matching payments were triggered by the members’ contributions and formed part of the mutually agreed package. The Trustee’s resolution was approved.
2. Money purchase benefits. The statutory question was whether, having regard to the combination of features of the scheme, the rate or amount of the benefit could sensibly and reasonably be said to be calculated by reference to payments made by or in respect of members. The scheme had to be construed as a whole. The Court rejected hard-and-fast requirements that money purchase benefits must always be the direct or actual product of contributions, must never involve a deficit, or must never involve actuarial factors or notional returns.
3. MoneyMatch and VIP benefits. The notional return credited to the Guaranteed Interest Fund did not break the contribution-benefit link. Nor did internal annuitisation, where actuarial tables were used only at the final stage to convert a member’s interest in the pot into pension benefits. The Court distinguished the different scheme considered in Aon Trust Corpn v KPMG [2006] 1 WLR 97.
4. GMP and the 1983 Guarantee. Guaranteed minimum pensions were notionally satisfied from the MoneyMatch pot and identified a minimum below which the pension could not fall. They did not prevent MoneyMatch benefits from being money purchase benefits. Similarly, the 1983 Guarantee set a minimum value for VIP benefits but did not turn them into final-salary benefits.
5. Underpin benefits. The Member’s Interest was treated as divided between pre-6 April 1997 MoneyMatch interests, which were underpin benefits and fell within section 73, and post-5 April 1997 MoneyMatch benefits, which were not available to meet GMPs and remained outside section 73.
6. Protected rights. Protected rights were money purchase benefits and were not underpin benefits. Regulation 13 excluded them from section 73 as modified, despite their express mention in section 73(3)(c)(i). The Court rejected reliance on the Marleasing principle to alter the statutory definition. The IORP Directive post-dated the winding up, and Article 8 of the Insolvency Directive could not produce that result.

Issues II to V were dismissed, Issue VI was allowed to the extent stated, and a declaration on Issue VII was to be drawn in terms settled by counsel.

• Court of Appeal (Civil Division): In [2010] EWCA Civ 179, the Court allowed the voluntary-contributions appeal, dismissed the appeals concerning the GIF, internal annuitisation, GMP and the 1983 Guarantee, allowed the underpin-benefits appeal in part, and directed a declaration concerning protected rights.
• High Court of Justice, Chancery Division: Miss Sarah Asplin QC, sitting as a Deputy High Court Judge, gave judgment in [2008] EWHC 964 (Ch) and made an order dated 1 May 2008. Parts of that order were appealed.