FSS Pension Trustees Ltd v The Board of the Pension Protection Fund

For a pension scheme to be excluded from Pension Protection Fund protection under regulation 2(1)(d) of the Pension Protection Fund (Entry Rules) Regulations 2005, a public-authority guarantee must objectively provide practical certainty that the scheme’s assets will meet all its liabilities. The relevant purpose is not determined by the authority’s subjective intention. An appreciable risk of insufficient assets is enough to prevent the exclusion. An express power allowing the guarantor to terminate the guarantee on specified conditions may itself create that risk, even where termination appears unlikely in practice. A scheme therefore remains eligible for PPF protection, and liable for levies, unless the guarantee provides the requisite security.

The claimant trustee sought a declaration that the FSS Pension Scheme was not an eligible scheme under section 126 of the Pensions Act 2004. If that argument succeeded, the Scheme would neither receive Pension Protection Fund protection nor be liable for PPF levies. The Board contended that the Scheme was eligible and that the Government guarantee did not provide sufficient certainty of payment.

The central issues were whether regulation 2(1)(d) applied to guarantees, whether the statutory purpose was assessed subjectively or objectively, what degree of certainty was required, and whether termination provisions in the guarantee prevented the regulation from applying.

1. Construction of regulation 2(1)(d). The words requiring arrangements to be made for securing that the scheme’s assets were sufficient to meet its liabilities qualified guarantees as well as other arrangements. It would make no sense to exclude a scheme from PPF protection merely because a public authority had given a palpably inadequate guarantee.
2. Objective purpose. The statutory purpose was to be assessed objectively by reference to the effect of the guarantee or arrangements. Eligibility could not sensibly depend on the subjective belief or intention of the public authority. The court distinguished the context-sensitive meaning of purpose discussed in Hayes v Willoughby [2013] UKSC 17 and applied the objective approach adopted in Pi Consulting (Trustee Services) Ltd v Pensions Regulator [2013] EWHC 3181 (Ch).
3. Required certainty. Regulation 2(1)(d) required practical certainty that members would be paid in full. Absolute certainty was unnecessary, since purely theoretical possibilities such as legislative intervention or default could be disregarded. There must, however, be no appreciable risk that the Scheme would have insufficient assets to meet all its liabilities. The statutory context, explanatory material, and article 8 of the Insolvency Directive supported that conclusion. The court referred to R (D) v Secretary of State for Work and Pensions [2010] EWCA Civ 18, Hogan v Minister for Social and Family Affairs Case C-398/11, and Robins v Secretary of State for Work and Pensions Case C-278/05.
4. Application. The Home Secretary’s express power to terminate the guarantee for persistent breach of the investment memorandum meant that the requisite practical certainty was absent. The separate power to terminate following a judicial determination concerning the deed of amendment was likewise fatal. The likelihood of either power being exercised was immaterial because the powers were expressly provided for.
5. The Scheme was therefore an eligible scheme and levies were payable. The position could change if the Home Secretary gave an unqualified guarantee of the Scheme’s liabilities.