Northumbrian Water Limited v Northumbrian Water Pension Trustees Limited & Anor

Long-term pension scheme rules are construed primarily from their text, while giving practical and purposive effect and allowing limited weight to historical background that may be inaccessible to members. A provision allowing a full RPI increase only where it can be paid without increasing ordinary annual employer contributions requires a forward-looking, hypothetical assessment at the increase date. The baseline is the contributions determined after the most recent actuarial valuation, and a possible increase at the next scheduled valuation is within scope. More than a merely realistic possibility that contributions will not increase is required: material uncertainty prevents the full increase. In a desegregated multi-employer scheme, the trustee must consider all known proper competing claims, but need not attribute assets to the relevant section.

Northumbrian Water Limited, the sponsoring employer of the Northumbrian Water Pension Scheme, brought a Part 8 claim against the scheme trustee and a representative beneficiary. The Scheme was in substantial deficit, and increased RPI gave rise to disputes about increases for pre-2008 service under Rules 4.9 and 4.10 of the 2017 Trust Deed.

The court made representation orders under Part 19.9 of the Civil Procedure Rules 1998. It was asked to determine the meaning of ordinary annual contributions, the timing and certainty required by Limb 1A, the resources and competing claims relevant to a multi-employer scheme, and the interaction between the different increase limbs. The central issue was how the Rules operated against the background of the Scheme’s former segregation and the funding regime in the Pensions Act 2004.

The court determined the interpretation issues and directed the parties to seek agreement on the consequential order.

1. Construction. Applying the approach in Barnardo's v Buckinghamshire [2018] UKSC 55, the court gave primary weight to the wording of the pension scheme instrument. The Rules were to be construed without undue technicality and with regard to practical consequences and, where appropriate, purposive effect. Historical material could assist, but its weight was limited. The court also endorsed the practical construction principle stated in In re Courage Group's Pension Schemes [1987] 1 WLR 495.
2. Ordinary contributions and Limb 1A. The parties agreed that ordinary annual contributions included contributions addressing a valuation-revealed deficit, regardless of their precise form or whether fixed after a valuation or outside the triennial cycle. Exceptional contributions and employer-requested benefit augmentations were excluded. Limb 1A requires a forward-looking hypothetical assessment of whether paying the full RPI increase would require ordinary employer contributions to increase. The baseline is the contributions determined following the most recent actuarial valuation. An increase required immediately or at the next scheduled valuation is within scope. No particular valuation methodology, or actual valuation, is required.
3. Certainty and relevant considerations. The phrase can be done requires greater certainty than a merely realistic possibility that the increase can be funded without additional contributions. Material uncertainty about that issue prevents payment of the full increase under Limb 1A. The Trustee and Scheme actuary may and should consider available information, reasonably foreseeable developments and the effect on the security of existing benefits. Those matters are relevant to all three limbs.
4. Sections and related benefits. WPS Section members are not solely entitled to the Scheme’s excess resources. The Trustee must assess all known proper claims for increases under other sections, considering their timing and any conditions such as employer consent. Following desegregation, assets need not be attributed to the WPS Section. Rule 4.10 operates parasitically on Rule 4.9, and the agreed catch-up treatment applies only to the relevant categories of deferred members.
5. Representation and disposal. The requirements of Part 19.9 were met because the claim concerned trust property and the represented classes had the same interest; joinder of all members was impracticable. Any unresolved matters concerning the order could be listed for further hearing.