Wedgwood Pension Plan Trustee Ltd v Salt

A pension scheme amendment power protecting the rights of members ordinarily protects rights accrued through past service, including the final-salary link, but does not ordinarily protect benefits that may accrue through future service. An amendment which makes it easier for an employer to cease participating in the scheme may prejudice members’ rights and fall outside the amendment power. The court may nevertheless uphold the amendment and its exercise subject to an implied limitation preserving the scope of the original power, where the valid and invalid aspects are conceptually separable and the relevant parties would have acted in the same way subject to that limitation. The limitation must be applied to the circumstances existing when the power was exercised.

The trustee sought directions concerning notices served in June 2006 by participating employers under rule 62(a) of the 2001 Rules of the Wedgwood Group Pension Plan. The notices stopped contributions for active members, treated them as deferred members and purported to end future accrual and the final-salary link.

The central issue was whether rule 62 had been validly introduced under the amendment power in rule 48 of the 1995 Rules, which prohibited alterations prejudicing or adversely affecting the rights of any member. The parties also raised issues concerning severability, new members and possible benefit adjustments. Those additional issues depended on the construction and validity of rule 62.

1. The claim concerned the construction and effect of the pension scheme rules. The rules were to be interpreted as a written instrument, having regard to their natural and ordinary meaning, documentary and commercial context, purpose, relevant background and commercial common sense. Pension schemes also required practical construction, with particular regard to their tax and regulatory context and the need to avoid unduly fettering amendment powers.

2. The words “the rights of any member” in rule 48 protected rights accrued through past service. Those rights included the right to have the accrued pension calculated by reference to final salary. They did not naturally include benefits which might be obtained through future service.

3. Rule 45 of the 1995 Rules permitted a participating company to retire from the Plan where, for any cause, it found it impracticable or inexpedient to continue participating. “Impracticable” imposed a high threshold, while “inexpedient” required appreciable practical difficulty and was more than a purely subjective preference.

4. Rule 62(a) was materially less restrictive than rule 45 because it allowed an employer to stop contributions without showing that continued participation was impracticable or inexpedient. Its introduction therefore engaged the rule 48 fetter.

5. Following the approach in Bestrustees plc v Stuart, Betafence Ltd v Veys, IMG Pension Plan, HR Trustees Ltd v German and IBM United Kingdom Holdings Ltd v Dalgleish, the rule 62 power could operate subject to an implied limitation requiring the participating company first to find it impracticable or inexpedient to continue participating. It was also necessary to ask whether the Principal Company would have introduced the power subject to that limitation.

6. The Principal Company would have introduced rule 62 subject to the limitation because it provided useful flexibility compared with the all-or-nothing operation of rule 45. In 2006 the participating companies’ financial difficulties were sufficient to establish that continued participation was inexpedient. The notices therefore operated validly to stop future accrual and to break the final-salary link for existing members.

7. Issues 3, 4 and 5 did not arise. The parties were invited to submit a form of order reflecting the judgment.