Sterling Insurance Trustees Ltd v Sterling Insurance Group Ltd

A pension-scheme amendment power protecting benefits accrued for members may protect the final-salary link. The phrase “benefits accrued due” ordinarily refers to payments which have become payable, but words must be construed in the context of the whole provision. Where that ordinary meaning would make the protection almost redundant, inconsistent with the reference to actuarial valuation and aggregate value, and commercially irrational, the court may correct a clear drafting mistake. The court may treat an erroneous word as having no operative effect where it is clear both that a mistake occurred and what correction is required. On that construction, an amendment which fixes final pensionable salary at an earlier date impermissibly reduces the value of benefits accrued by existing members.

The claimant trustees sought a declaration under Part 8 concerning the construction of the amendment power in the definitive deed governing the Sterling Insurance Pension Scheme.

The scheme was a final-salary scheme. A deed dated 31 December 2004 closed the scheme to future accrual and fixed members’ final pensionable salary as at 31 December 2004. The trustees challenged that aspect of the amendment, contending that it broke the final-salary link and was prevented by the proviso protecting benefits accrued due in respect of members.

The central issue was whether “benefits accrued due” protected only pension payments already payable, or also the future and contingent benefits accrued through past service, including the final-salary link.

1. Construction of the proviso. The natural and ordinary meaning of “accrued due” is a payment which has become payable. That meaning would ordinarily give the proviso only a very limited effect, protecting sums that had fallen due but remained unpaid.
2. Context and commercial coherence. The court had to read the whole proviso together. Its references to the value of benefits, actuarial advice, substantial reduction and aggregate value pointed to a package of future and contingent pension benefits, not merely crystallised payments. The limited construction would also make the proviso substantially redundant in light of section 67 of the Pensions Act 1995.
3. Correction of drafting mistake. Applying Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, the court concluded that the inclusion of “due” was a clear mistake. The court was satisfied both that something had gone wrong with the language and that the appropriate correction was clear. The word could therefore be treated as having no operative effect.
4. Effect on accrued benefits. Consistently with Re Courage Group's Pension Schemes [1987] 1 AER 528 and Briggs v Gleeds [2014] EWHC 1178 (Ch), benefits accrued through past pensionable service included the final-salary link. The 2004 amendment therefore substantially reduced protected accrued benefits and was ineffective to that extent.
5. Disposition. The answer to the question in the claim form was No. Clause 4 of the 31 December 2004 deed did not validly amend the governing provisions so as to calculate benefits by reference to pensionable salary at 31 December 2004.