Railways Pension Trustee Company Limited v Atos IT Services UK Limited & Anor.

Rule 21 of a pension scheme’s rules need not provide an exhaustive mechanism for eliminating a funding shortfall. Where the rule requires the shortfall to be made good so far as practicable, the actuary may exercise judgment and discretion over whether, and by how much, contributions should increase or future-service benefits should reduce. Relevant considerations include affordability, value for money and collectability.

Where a protection order imposes a sufficiency-of-funding obligation on an employer, that obligation may operate in addition to the scheme rules. It may require the employer to eliminate the shortfall affecting both accrued and accruing rights. Where protected and unprotected members are not segregated, the protection may extend to all members. Provisions preventing interference with participation protect continuing participation, not merely initial entry.

The claimant, sole trustee of the Railways Pension Scheme, sought directions concerning the interpretation of the Atos Section Rules and the Railway Pensions (Protection and Designation of Schemes) Order. The Atos Section had a funding shortfall and a declining number of active members.

The principal issues concerned whether Rule 21 required a mechanical increase in member and employer contributions, whether the actuary had a discretion to take account of practical consequences, and whether Article 7 imposed an additional employer funding obligation. The court also considered whether Article 5 restricted measures likely to cause protected employees to opt out of the scheme.

1. Construction of Rule 21. Rule 21 was not an exhaustive regime for eliminating every shortfall. Its history, including the later introduction of provisions now appearing as Rule 21(1)(iii) and the second limb of Rule 21(1)(iv), supported that conclusion.
2. The words “so far as practicable” required a practical assessment of the steps likely to reduce the shortfall. The actuary therefore had a discretion under Rule 21(1)(ii) to determine whether contributions should be increased and, if so, by how much. The discretion included consideration of affordability, value for money, collectability and the risk of member opt-out. A purely mathematical calculation would produce an uncommercial result.
3. The first limb of Rule 21(1)(iv) gave the trustee a discretion whether to agree to a reduction in future-service benefits. The second limb gave the actuary a corresponding discretion whether, and by how much, to reduce those benefits. The discretion was not limited to reducing benefits to the full amount of the remaining shortfall.
4. Article 7. Article 7(1) imposed on Atos a freestanding sufficiency-of-funding or balance-of-cost obligation, additional to the obligations under the Rules. It applied to accrued and accruing rights and required the employer to make good the shortfall to the extent required in the actuary’s opinion after taking account of scheme resources and employee contributions.
5. Because the Atos Section was not segregated between protected and unprotected members, the Article 7 obligation extended to all members. Rule 21(1)(iii) was a provision of last resort and did not postpone or diminish the protection conferred by Article 7.
6. Article 5. The prohibition on preventing protected employees from participating in the scheme covered continuing participation. Atos could not agree to lift the 130% cap, or agree with the trustee to reduce future-service benefits, where the likely consequence was that active members would opt out.
7. The questions were answered accordingly: the actuary had the stated discretion; Article 7 applied after determination of normal active-member contributions under Rule 21(1)(ii); Atos had to make good the remaining shortfall; and the Article 7 obligation applied to protected and unprotected members.