Coats UK Pension Scheme Trustees Ltd v Styles & Ors

Former tax-approval limits in pension-scheme rules may operate as caps rather than as the member’s substantive entitlement. Where those limits are relaxed or removed, the underlying entitlement may revive, subject to valid statutory or contractual modification.

A scheme amendment which diminishes accrued rights cannot be made under an ordinary alteration power subject to an accrued-rights restriction. It may nevertheless be valid if made under a statutory modification power, provided the statutory conditions are met. The execution of a deed under seal may evidence the necessary resolution where the statutory power requires one.

The trustee appealed against three decisions of the Deputy Pensions Ombudsman concerning the annual increases payable on pensions under the former Staveley Industries Retirement Benefits Scheme. The Ombudsman held that the respondents were entitled to 5% annual increases from 4 February 2008.

The dispute concerned the interaction between the former Inland Revenue limits, the scheme’s 1996 and 2004 rules, the Finance Act 2004 transitional regime, and deeds executed in 2006 and 2008. The trustee argued that the post-transitional entitlement remained capped at the higher of 3% or RPI and that the 2008 Deed validly preserved that position.

1. Construction of the 1996 Rules. The court agreed with the Ombudsman that Rule 11 created an underlying entitlement to a 5% annual increase. Paragraph 3 of the Appendix operated as a cap while the Inland Revenue limits applied. The Notes to the Appendix released that cap when the Inland Revenue permitted a higher payment. In context, “may pay” did not confer a discretion to pay less than the higher permitted amount, up to the 5% entitlement. The respondents therefore became entitled to 5% increases after the transitional period, subject to valid later modification: paras [62]-[75].
2. Construction of the 2004 Rules. Rule 17.6 was materially different. It provided that greater amounts could be paid only if the employer and trustee agreed and Revenue Approval would not be prejudiced. It therefore conferred a discretion, rather than an obligation, to agree to increases above the higher of 3% or RPI. The respondents’ rights under the Transfer Agreement nevertheless preserved their entitlement under the 1996 Rules: paras [76]-[82].
3. Validity of the 2008 Deed. The relevant alteration could not be made under Rule 27 because it diminished the respondents’ accrued rights. Section 67 of the Pensions Act 1995 did not invalidate the deed, because the Modification Regulations prescribed a manner of modification exempt from that restriction. The deed could be made under section 68 of the Act and achieved the same effect as the relevant modifications in the Existing Schemes Regulations. The statutory power was the only means by which the intended result could be achieved, and the deed under seal evidenced the trustee’s resolution. The deed was therefore treated as validly made under section 68 despite referring expressly only to Rule 27: paras [90]-[110].
4. Disposition. Under Rule 17.6 as modified by the 2008 Deed, the respondents were not entitled to 5% annual increases from 4 February 2008. The appeal was allowed. Costs applications were reserved for written submissions: paras [112]-[117].

• High Court (Chancery Division): appeal allowed from decisions of the Deputy Pensions Ombudsman dated 25 May and 5 June 2018. The Ombudsman’s conclusion that the respondents were entitled to 5% annual increases from 4 February 2008 was reversed.