Ove Arup & Partners International Ltd vTrustees of the Arup UK Pension Scheme

In construing pension scheme rules, the court gives substantial weight to the chosen words and the long-term nature of the instrument, while avoiding undue technicality and giving reasonable and practical effect to the scheme.

Where a rule provides for an index to be “replaced” by the body producing it, replacement ordinarily requires discontinuance of the existing index and introduction or designation of another similar index. Continued publication alongside a preferred alternative is not functional replacement.

A power to adjust calculations after a change in composition is broad enough to address changes in methodology, data, weighting or coverage, and may operate once or repeatedly. It must, however, be directed to counteracting, mitigating or allowing for the effects of the relevant change. It cannot be used as a disguised power to substitute a generally preferred index.

The claimant, the principal employer in a pension scheme, sought declarations concerning the meaning and effect of the definition of “the Index” in the scheme rules. The Index was the Retail Prices Index, subject to a rule providing for adjustments if its composition changed or it was replaced by another similar index.

The claimant argued that the Retail Prices Index had been functionally replaced by the Consumer Prices Index or Consumer Prices Index including Housing because those indices had become the main or preferred measures of inflation, although the Retail Prices Index continued to be published. It also argued that changes in the composition of the Retail Prices Index authorised the trustees to adjust calculations so as to reproduce movements in the alternative indices.

The central issues were whether either trigger event had occurred, how broadly “composition” should be understood, the period to which a composition change could relate, and the permissible scope of the trustees’ adjustment power.

1. Construction. The rules were to be construed by concentrating on their language, having regard to the distinctive characteristics of pension scheme instruments and giving less weight to inaccessible background circumstances. This approach remained subject to avoiding undue technicality and giving the rules reasonable and practical effect. The court adopted the guidance stated in Barnardo's v Buckinghamshire [2018] UKSC 55, including the approach in Safeway Ltd v Newton [2018] Pens LR 2, and applied the practical-effect principle stated in In re Courage Group’s Pension Schemes [1987] 1 WLR 495.
2. Replacement. The replacement limb referred to action by the body responsible for producing the Index, presently the Office for National Statistics. In its context, “replacement” required the discontinuance of the Retail Prices Index and the introduction or declaration of another similar index in its place. The continued publication of the Retail Prices Index, despite the Consumer Prices Index or Consumer Prices Index including Housing becoming preferred or more widely used, did not amount to functional replacement.
3. Composition. “Composition” was construed broadly. It included changes not only to the basket of prices but also to weighting, data collection, geographical or demographic coverage, and statistical methodology, where the change produced a substantial effect on the index figure or its likely movement. Under the 2013 rules, the relevant period began on 12 April 2013, when those rules were adopted. The 2010 clothing and footwear data change was therefore outside scope. The 2013 freeze in technical development was not itself a change in composition. The 2017 housing-cost data change was within scope and gave the trustees power in principle to make adjustments.
4. Adjustments. The trustees’ discretion was to be exercised fairly and reasonably for the purpose of counteracting, mitigating or allowing for the effect of the relevant composition change on calculations using the Index. The power could address short-term or long-term effects and could operate through a one-off or recurring adjustment. It did not authorise an unrestricted alteration of the index calculations.
5. Limits on substitution. The 2017 housing-cost change could not be used as a peg for switching from the Retail Prices Index to the Consumer Prices Index or Consumer Prices Index including Housing. Such a switch would address perceived general flaws in the Retail Prices Index rather than the effects of the particular composition change. Judgment was given on the questions posed in the claim form, with the parties invited to agree the resulting order.

First-instance Part 8 claim. No appellate history is stated in the judgment.