PS Independent Trustees Ltd & Anor v China Shipping (UK) Agency Co Ltd & Anor

In a non-segregated multi-employer pension scheme, deemed segregation under regulation 71 of the Pension Protection Fund (Multi-Employer Schemes) (Modification) Regulations 2005 requires the scheme rules to provide an option exercisable in relation to the employer whose insolvency triggered the provision. An option concerning solvent participating employers is insufficient.

Regulation 71 creates a segregated part of a non-segregated scheme. It does not convert the scheme into a segregated scheme for the purposes of regulation 8 of the Occupational Pension Schemes (Employer Debt) Regulations 2005. Where the scheme is being wound up and cannot operate as a segregated scheme, regulation 8 does not apply. The employer-debt liability is therefore calculated under regulation 6.

The claimants were trustees of a defined benefit occupational pension scheme with three participating employers: Johnson Stevens Agencies Ltd (JSA) and the two defendants. JSA became insolvent and ceased business on 18 May 2011. Under the scheme rules, the scheme as a whole was then wound up.

The defendants contended that Part 7 of the Pension Protection Fund (Multi-Employer Schemes) (Modification) Regulations 2005 segregated the scheme into employer-specific parts, so that JSA alone was liable for the deficit attributable to its part. The claimants sought judgment on the construction of the statutory provisions and scheme rules. The central issues were whether regulation 71 applied and, if so, whether it created a segregated scheme within regulation 8 of the Occupational Pension Schemes (Employer Debt) Regulations 2005.

1. Claim succeeded. The application for summary judgment was treated as a final determination of the legal issues. The defendants were liable for their respective shares of the deficit under regulation 6 of the Occupational Pension Schemes (Employer Debt) Regulations 2005.
2. Regulation 71 contains two relevant preconditions: the insolvency of an employer and the existence of an option under the scheme rules to segregate part of the scheme. The option must be exercisable in relation to the insolvent employer. It cannot be deemed to operate merely because the rules contain an option concerning other, solvent employers. This interpretation was supported by the statutory context, including the corresponding provisions in regulation 45 and the provisions requiring the insolvent employer’s insolvency practitioner to notify the Pension Protection Fund.
3. The scheme rules provided for the whole scheme to be wound up on JSA’s insolvency. They did not provide an option to segregate assets and liabilities relating to JSA. Regulation 71 therefore did not apply in the circumstances.
4. Alternatively, even if regulation 71 applied, its effect would be to create segregated parts of a non-segregated scheme. It would not create a segregated scheme within regulation 8. The scheme was being wound up, with no further contributions payable, and neither the scheme rules nor regulation 71 provided for its operation as a segregated scheme.
5. Regulation 8 was consequently inapplicable. Regulation 6 governed the calculation of the defendants’ employer debts, and judgment was entered for the claimants in the sums claimed.