Merchant Navy Ratings Pension Fund Trustees Ltd v Stena Line Ltd & Ors

A pension-scheme trustee may amend scheme rules to address a deficit where the amendment remains within the scope and purposes of the amendment power. The trustee’s primary purpose must be securing the promised benefits, but the interests of participating employers may also be considered, including covenant strength, affordability, administrative practicality and cross-subsidy. The “best interests of beneficiaries” principle is not a freestanding duty requiring the most risk-free or financially advantageous course. In a momentous-decision application, the court asks whether the trustee acted lawfully, considered relevant and no improper factors, and reached a decision which a reasonable body of properly directed trustees could reach. A present amendment giving future credit for past contributions is not necessarily retrospective or an impermissible rewriting of history.

The claimant trustee sought approval for amendments to the rules of a closed, industry-wide defined-benefit pension scheme in substantial deficit. The proposed New Regime would make all participating employers, including historic employers, liable for deficit contributions; apportion liabilities by an actuarial methodology; give credit for deficit contributions and section 75 payments made since 2001; and introduce implementation mechanisms including orphan loading, payment plans, joint and several liability and synthetic debts.

The defendants challenged the propriety and scope of the amendments. Further questions concerned whether the Scheme was “open” or “frozen” for the statutory employer-debt regime, whether cessation of employment could trigger a section 75 debt, and the consequences for withdrawal rights. The central issues were whether the amendments were within the trustee’s powers and whether the trustee’s decision-making process was lawful and rational.

1. Approval framework. The court applied the category 1 and category 2 analysis in Public Trustee v Cooper. It had to determine both whether the amendments were within the power and whether the trustee had exercised its discretion properly. The relevant test was whether the trustee considered relevant and no irrelevant, improper or irrational factors and reached a conclusion which a reasonable body of properly directed trustees could reach.
2. Proper purposes and employer interests. The main purpose of the Scheme was to provide the promised benefits. The “best interests” principle was not a separate paramount duty requiring the trustee always to maximise members’ financial interests. The trustee could properly consider employer covenant, the interests of employers as commercial competitors, affordability, administrative practicality and the cross-subsidy created by the 2001 Regime, provided that securing the benefits remained the primary purpose.
3. New Regime. Full augmentation, Method C, re-apportionment to 2001, orphan loading, implementation mechanisms and the ancillary provisions were within the amendment power. The trustee had obtained and reasonably relied upon professional advice. It was not required to investigate every alternative regime or eliminate every risk. The decision-making process was not irrational or procedurally defective.
4. Re-apportionment. Giving present and future credit for past contributions did not amend liabilities with effect from an earlier date. It was a prospective calculation of future liabilities and did not rewrite accrued benefits or divest the Scheme of past contributions. The decision to give credit from 2001 was within the trustee’s discretion.
5. Open or frozen status. After 31 May 2001 there was no statutory active membership or pensionable service because years of accrual had ceased. Enhanced revaluation of accrued benefits did not amount to present pensionable service. The Scheme was therefore frozen and no Rule 4 cessation was an employment cessation event before 6 April 2008.
6. Rules 5.5 and 30. Rule 5.5 was a section 75 apportionment rule and did not automatically reallocate a Current Employer’s Percentage for contribution purposes following an employment cessation event. The Current Employer’s Percentage and Withdrawing Employer’s Percentage were not reduced to zero except through the withdrawal provisions. Even on the contrary hypothesis, a premium could be required under Rule 30, although no receiving scheme was required where no liabilities were transferable.
7. Final order. The proposed New Regime was approved. Issues 1 to 12 were answered as set out in the judgment, principally in the affirmative. The Scheme was held to be frozen, and the relevant Rule 4 cessation arguments failed.