Independent Trustee Services Ltd & Anor v Knell

Construction of pension scheme rules requires the words used to be read in their documentary and factual context, including the practical consequences of competing interpretations. A court may correct language where it is clear that something has gone wrong and equally clear what a reasonable person would have understood, but it must not create a bargain which the parties did not make.

Where amendments to a pension scheme are mutually inconsistent, the interpretation which gives coherent and practical effect to the scheme as a whole may be preferred. An alteration to accrued and accruing benefits must be made in accordance with the scheme’s formal amendment power. A general pension-news announcement cannot amend the rules where the deed requires alteration by deed.

The trustees sought declarations concerning the meaning and effective date of amendments made to the Hobourn Group Pension Scheme. The amendments followed the decision in Barber v Guardian Royal Exchange [1991] 1 QB 344, which exposed the unlawfulness of different normal retiring dates for men and women.

The central issue was whether the 1993 Deed preserved a normal retiring date of 60 for female members who belonged to the relevant cohort, or instead preserved 60 only for their pre-1 July 1992 pensionable service while adopting 65 otherwise. A further issue was whether earlier announcements in Pension News had altered the Scheme rules.

1. Construction principles. The intention of the parties was to be ascertained from the words used, read in the context of the whole document and the background which would have affected their objective meaning. Previous negotiations and subjective declarations of intent were excluded. In a pension scheme, a practical and purposive interpretation may be appropriate, but the court could not construct an arrangement which the parties had not made.
2. Meaning of the 1993 Deed. The natural meaning of the amended normal-retiring-date definition suggested two categories of member. Read with the amendments concerning early retirement, actuarial reduction and deferred pensions, however, that interpretation produced incoherence. Something had gone wrong with the language. The provision was therefore construed as referring to two categories of pensionable service: service of a female member before 1 July 1992 retained a normal retiring date of 60, while any other member or service had a normal retiring date of 65.
3. This construction gave practical content to the related amendments and protected the relevant pre-1 July 1992 benefits without leaving provisions ineffective or nonsensical.
4. Effect of Pension News. Rule 30 required alterations to the Rules to be made by deed by the principal company with the trustees’ consent. The normal-retiring-date amendment affected entitlement and benefit levels under the normal, early and late retirement pensions, death benefits and deferred pensions. Rule 3(F), concerning discretionary benefits, did not authorise alteration of those substantive entitlements. The Pension News announcements were therefore wholly ineffective to change the normal retiring date.
5. The court declared the meaning of the normal-retiring-date definition with effect from 25 November 1993, made the requested representation order, and directed that the parties’ costs be paid from the Scheme funds on the indemnity basis if not agreed.