Renishaw PLC v Ross Trustees Services Limited & Anor

Construction of pension scheme rules is a unitary exercise. The court must consider the language used in its factual and commercial context, including practical consequences and business common sense.

Corrective construction is available where it is clear that something has gone wrong with the language and equally clear what a reasonable person would have understood the parties to mean. In a money purchase underpin, a hypothetical pension pot is ordinarily compared with the annual pension that it could purchase, rather than treated as an annual pension equal to the cash value of the pot.

Renishaw plc, the principal employer of the Renishaw Pension Fund, sought declarations concerning the construction of rule 6A(2) of the definitive trust deed and rules dated 6 October 1992. The rule provided a final salary pension and stated that it should, if necessary, be increased so as not to be less than the member’s pension account.

The issue was whether the comparator was the annual pension purchasable with that account or the entire cash amount of the account treated as an annual payment. The trustee was neutral and a representative member was appointed to represent opposing interests.

1. Construction principles. The construction of rule 6A(2) was a unitary exercise. The court had to consider the words used, the relevant background and the practical consequences of the competing constructions. A construction producing an irrational and unworkable result could be rejected in favour of one consistent with business common sense: [2011] UKSC 50.
2. Corrective construction. Corrective construction forms part of ordinary construction rather than a separate jurisdiction. It requires both a clear mistake in the language and a clear understanding of the correction which a reasonable person would have taken the parties to intend. The principles applied in the pension context require textual analysis, but do not exclude practical consequences, purposive interpretation or correction of an obvious drafting mistake: [2018] UKSC 55; [2021] EWCA Civ 867.
3. Application to rule 6A(2). The Entire Account Construction would not create a genuine underpin. It would replace the final salary benefit with an irrationally generous annual payment equal to the member’s accumulated pension pot, fail to provide a conventional money purchase benefit, and conflict with the scheme’s purpose and fiscal background. The drafting therefore contained a clear mistake.
4. The necessary correction was to read rule 6A(2) as requiring the Final Salary Pension to be increased, if necessary, so that it was not less than the annual amount of pension which could be purchased with the Member’s Pension Account. That construction gave effect to a comparison between two annual pensions and was consistent with the Fund’s administrative practice since 1992.
5. The court made the declarations and representation orders in the revised draft order. The declarations were confined to the construction issue and did not extinguish other possible member claims concerning individual benefit calculations.