De La Rue Plc v De La Rue Pension Trustee Ltd

In construing pension scheme rules, significant weight is given to the language chosen by the drafter. The court should avoid a strained meaning, while adopting a purposive construction where necessary to give the scheme reasonable and practical effect.

A rule providing for statutory revaluation of deferred benefits, subject to comparison with increases provided elsewhere in the scheme, does not ordinarily create a general underpin requiring deferred benefits to receive the greater of statutory revaluation and pension-in-payment increases. The comparison is between increases having the same inherent characteristics. A provision may operate as an avoidance-of-doubt restatement of mandatory statutory requirements.

The claimant employers sought declarations concerning the proper construction of Rule 17 of the De La Rue Pension Scheme’s 2003 governing rules. The issue was whether deferred final salary benefits were subject only to statutory revaluation under Chapter II of Part IV of the Pension Schemes Act 1993, or to the greater of statutory revaluation and the cost-of-living increases specified by Rule 21.

The trustee adopted a neutral position. The second defendant represented pensioner members supporting the wider construction. The central question was whether Rule 17 created a general underpin for all deferred benefits or operated only where Rule 21 itself provided an increase in deferred benefits.

1. Declaration granted. Rule 17 was construed in accordance with the claimants’ Narrower Construction.
2. The rules of a pension scheme are instruments requiring significant weight to be given to textual analysis. The court must concentrate on the language chosen by the drafter and avoid a strained meaning. This does not require literalism: a purposive construction may be appropriate to give reasonable and practical effect to the scheme. The same approach applies where the rules contain obscure or poorly expressed language.
3. Rule 17 was primarily concerned with a one-off revaluation of deferred benefits before they came into payment, whereas Rule 21 was primarily concerned with annual increases to pensions in payment. Those were conceptually different categories of increase.
4. The second paragraph of Rule 17 nevertheless contemplated a comparative exercise. The words “that” and “provided” most naturally referred to an increase in deferred benefits provided by Rule 21, rather than to the application of Rule 21’s annual pension-in-payment rate to deferred benefits. The wording therefore did not create the general underpin advanced by the second defendant.
5. The first-stage increase under Rule 21.1.2, applicable to a surviving spouse’s pension under Rule 13.5, could properly be regarded as an increase in a deferred benefit. It was a single initial increase applied before the survivor’s pension came into payment. Rule 17 therefore operated if statutory revaluation produced a greater increase than that Rule 21.1.2 increase.
6. The construction was consistent with the statutory scheme. The mandatory revaluation provisions of the Pension Schemes Act 1993 prevailed in the event of conflict, while the Scheme could provide more favourable benefits. Rule 17 was capable of operating as a descriptive restatement of those statutory consequences and as an avoidance-of-doubt provision.
7. The earlier 1997 scheme rules and the parties’ subsequent conduct provided limited assistance. The language of the 2003 rule was materially different, and the evidence did not establish a sufficiently consistent practice capable of resolving the construction issue.

The parties were invited to agree the precise form of the declaration.