Entrust Pension Ltd v Prospect Hospice Ltd

A pension trustee may adopt a general policy for exercising a discretionary power, provided it retains an open mind when each occasion for exercise arises and does not fetter its future discretion. A discretion to award enhanced deferred benefits is validly exercised only if the benefit is granted at the member’s departure and the necessary pension capital is fixed or notionally earmarked then. The exercise may be implied from the intended transaction, even if the trustee misunderstood the power, unless a positive intention not to exercise it is shown. The presumption of regularity does not shift the burden of proof and usually adds little to ordinary fact-finding by inference.

This was the second judgment in proceedings concerning the administration and proposed winding-up of the Federated Flexiplan No. 1 occupational pension scheme. In an earlier judgment, Entrust Pension Ltd v Prospect Hospice Ltd [2012] EWHC 1666 (Ch), the court held that the trustee’s duties under the 1976 Rules arose when a member left service, rather than on retirement.

The present trial concerned the consequential factual question whether the Previous Trustee had validly exercised its discretions to award target-based deferred pensions to members leaving service between 1976 and 2005, and when any change to that practice occurred.

1. The court found, on the balance of probabilities, that the Previous Trustee adopted and implemented a policy, from the introduction of the 1976 Rules until broadly early 2003, of granting deferred pensions based on target benefits when members left service.

2. A valid exercise did not require a surviving formal minute. It could be made by an authorised officer or agent of the corporate trustee. A general policy was permissible, but the trustee had to retain an open mind when each case arose and could not bind itself irrevocably to exercise the discretion in a particular way.

3. The critical requirements were an immediate and irrevocable grant of the deferred pension at the date of leaving service, rather than a statement of future intention, and the ascertainment of pension capital at that date, either as a fixed amount or by notional earmarking of the amount required to fund the promised pension. The court applied the principle of implied exercise of a power explained in Davis v Richards & Wallington Ltd [1990] 1 WLR 1511.

4. Errors concerning the precise allocation of surplus or the treatment of increases during deferment were matters of machinery and did not invalidate the exercise, provided the immediate award was made and the Previous Trustee reasonably believed that the Scheme could continue to fund target benefits.

5. The policy changed from 31 March 2003. Thereafter the Scheme operated on an underpin basis, comparing target benefits with benefits funded by pension capital at retirement. The new benefit specifications and leaving-service statements were incompatible with an irrevocable award of target benefits on leaving service.

6. The presumption of regularity, discussed through Harris v Knight (1890) 15 PD 170, did not shift the burden of proof and was of only marginal assistance. The court’s conclusions principally rested on inferences from the documentary evidence.

This was a first-instance consequential judgment following the court’s earlier construction judgment, [2012] EWHC 1666 (Ch). Permission to appeal had been granted on certain earlier issues, but no appeal was lodged within the stipulated period.