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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Barclays Bank Plc v Holmes & Ors [2000] EWHC Ch 457 (21 November 2000) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2000/457.html Cite as: [2000] EWHC 457 (Ch), [2000] EWHC Ch 457, [2000] Pens LR 339, [2001] OPLR 37, [2000] PLR 339 |
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CHANCERY DIVISION
ON AN APPEAL FROM A DETERMINATION OF
THE PENSIONS OMBUDSMAN
B e f o r e :
____________________
BARCLAYS BANK PLC |
Claimant |
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-and- |
||
(1) JOHN M. HOLMES (2) BARCLAYS PENSION FUNDS TRUSTEES LIMITED (3) THE PENSIONS OMBUDSMAN |
Defendants |
|
And |
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BARCLAYS BANK PLC |
Claimant |
|
-and- |
||
(1) BARCLAYS PENSION FUNDS TRUSTEES LIMITED (2) JOHN M. HOLMES |
Defendants |
____________________
Mr. Christopher Nugee QC (instructed by Messrs. Travers Smith Braithwaite) appeared on behalf of the second defendant to the Appeal and the first defendant to the Part 8 Application.
Mr James Clifford (instructed by Messrs. Pattinson & Brewer) appeared on behalf of the first defendant to the Appeal and the 2nd defendant to the Part 8 Application.
____________________
Crown Copyright ©
MR. JUSTICE NEUBERGER:
THE PROCEEDINGS
(1) An appeal by the Bank against the determination of the Pensions Ombudsman ("the Ombudsman") dated 17th March 2000; and
(2) A Part 8 claim made by the Bank, which seeks a declaration that certain amendments made to the Rules of the Fund ("the Rules") on 27th June 2000 are valid and effective.
THE BACKGROUND FACTS
"Each month the Bank will make a contribution equal to 5.5% of your pensionable payable into the Scheme."
a. It introduced the RIS with effect from 1st July 1997;
b. It closed the final salary section (which was renamed "the 1964 Pension Scheme") to new entrants after 30th June 1997, unless the Bank otherwise directed;
c. It permitted existing employees, who by definition were in the 1964 Pension Scheme (hereinafter "the 1964 Scheme"), to transfer to the RIS if they so wished;
d. It renamed the Fund the Barclays Bank UK Retirement Fund;
e. It made other amendments to the Scheme to ensure that it complied with the provisions of the Pensions Act 1995 ("the 1995 Act") which was then due to come into force.
THE ISSUES
(1) Does the 37th Deed constitute a single trust fund subject to two separate schemes, namely the RIS and the 1964 Scheme, or does it constitute two separate trust funds, one for the 1964 Scheme and the other for the RIS?
(2) If there is a single trust fund, then, on the true construction of the Rules governing the RIS in the 37th Deed, is the Bank obliged to pay contributions in respect of RIS members (over and above any minimum contributions required by Statute) when the Fund is in surplus?
(3) If the Rules contained in the 37th Deed do authorise the Bank to make such use of the surplus, was the Deed made in breach of Clause 12(ii)?
(4) A new point raised on behalf of Mr Holmes, namely, was the introduction of the RIS section outside the powers of the Bank and/or the Trustee?
(5) Is the 41st Deed effectively invalidated by the provisions of Section 67 of the 1995 Act?
THE PROVISIONS OF THE RELEVANT DEEDS
The 35th Deed
"12. AMENDMENT OF RULES
The Bank may from time to time (with the consent of the Trustees where the Bank is not acting as sole trustee) alter or amend any of the provisions of the Trust Deed and Rules or insert new provisions therein PROVIDED that no alteration shall be made which will:
(i) cause the main purpose of the Fund to cease to be that of provision of pensions on retirement at a specified age for employees and former employees of the Bank; or
(ii) result in the return of any portion of the Fund to the employers."
The 37th Deed and the 1964 Deed as amended
"The Bank wishes to alter or amend the provisions of the Trust Deed and the Rules in order to:
a. introduce changes required by the [1995] Act and other changes;
b. introduce a new benefits structure with effect from 1st July 1997; and
c. change the name of the Fund to the Barclays Bank UK Retirement Fund
and the Trustee is willing to consent to such alterations and amendments."
"The assets of the Fund (including all contributions paid to the Trustees) are vested in the Trustees."
(1) The purchase of annuities equal to their pension rights for all former employees of the Bank who have already retired, with a rateable abatement if there is insufficient money;
(2) To secure benefits for and in respect of each RIS member who is not yet in receipt of a pension arising out of "the Member's Basic Interest", which expression is defined in the Rules, as mentioned below;
(3) The purchase of "annuities of the appropriate amount" for members of the 1964 Scheme who are not yet in receipt of a pension;
(4) The purchase of increased annuities or increased deferred annuities for pensioners and employees under the 1964 Scheme, as the Trustee should determine;
(5) Subject to Section 76 of the 1995 Act, any remaining undistributed surplus is to be paid to the Bank.
The 37th Deed: the new Rules
"Effective Date" which is defined as 1st July 1997;
"Existing Member" is defined as an employee who is a member of the Fund on 30th June 1997;
"Member" means a member of the 1964 Scheme or a member of the RIS "who remains entitled to benefits under the Fund";
"Member's Account" is defined as meaning "the RIS Member's Account representing his or her interest under the Fund". All contributions "credited or paid in respect of or by a RIS Member" are to "be credited to his or her Member's Account" which is also to be "credited (or debited) with the income and capital gains (or losses) arising from the investments representing the Member's Account.";
"Member's Basic Interest" means an RIS Member's interest attributable to his or her Member's Account, other than any interest arising as a result of his or her voluntary contributions;
"RIS Rules" and "RIS Member" mean the rules relating to the RIS Scheme set out in Section C and a member to whom the RIS Rules apply;
"1964 Pension Scheme Rules" and "1964 Pension Scheme Member" means the Rules relating to the 1964 Scheme as set out in Section B and a member to whom those Rules apply respectively.
"… Section A … contains rules of general application (except where expressly stated to the contrary) to both the 1964 Pension Scheme Members and the RIS Members. Section B … comprises the 1964 Pension Scheme Rules applicable to 1964 Pension Scheme Members whilst Section C … comprises the RIS Rules applicable to RIS Members. Section D … contains rules setting out the options available to Existing Members."
"The 1964 Pension Scheme Rules and the RIS Rules specify the provisions for Member's contributions", which are matched contributions or voluntary contributions.
"A7 EMPLOYER'S CONTRIBUTIONS
A7.1 [The Bank] shall pay such contributions to the Fund as the Bank after consulting the Trustees and the Actuary decides are necessary to pay the benefits under the Fund …
A7.2 [The Bank] may by giving reasonable notice in writing to the Trustees terminate its liability for contributions to the Fund. In that event the provisions of Clause 17 [Winding up or Dissolution] … shall apply."
"The 1964 Pension Scheme Rules and the RIS Rules specify the benefits payable … to 1964 Pension Scheme Members and to RIS Members respectively."
"A person to whom a pension has been or shall be granted shall be entitled to payment only out of the Fund and shall have no claim upon the capital property or other assets of the Employer in respect of such pension."
"Provided that the Member pays Member's Matched Contributions; Employer's Extra Contributions shall also be credited to his or her Member's Account."
This arises from Rule C4, which permits a RIS Member Employee to "elect and commence to pay Member's Matched Contributions" by arrangement with the Bank.
"C3.1 Each RIS Member who is [an employee] … shall have Employer's Core Contributions credited monthly during [employment] to his or her Member's Account at the rate of 5.5% of the Member's… Salary for that month …
C3.2 While a RIS Member is paying Member's Matched Contributions… the Employer's Extra Contributions to be credited in respect of him or her shall be [as] set out… [in a table]"
"A Member who has [so] opted .. shall, if …still in [employment with the Bank]…, be credited with an opening balance to his or her… Member's Basic Interest under the RIS Rules, the amount of which… shall be calculated by the Trustees (on a basis recommended by the Actuary) and agreed by the Bank as the value of the Member's deferred benefits assuming that the member had left the Fund on [30th June 1997]."
"Until the termination of [employment with the Bank] the Trustees will credit the Member's Account with monthly amounts (if any) calculated in the manner notified to the Member by the Trustees prior to [1st July 1997]."
The 41st Deed
"A3.1 The Fund is one fund. To the extent that, prior to the date [hereof], there has been more than one fund, all such funds shall be merged to form one fund with effect from no later than [27th June 2000].
"A7.1 [The Bank] shall pay such contributions to the Fund as the Bank after consulting the Trustees and the Actuary decides are necessary to fund the payment of benefits under the Fund, whether arising under the 1964 Pension Scheme or the [RIS] or otherwise… and contributions may vary between Employers at the discretion of the Bank.
For the avoidance of doubt, the Bank may, if it considers that the Fund has a surplus and after consultation as aforesaid, decide to reduce or suspend as appropriate the Employer's Contributions in respect of the 1964 Pension Scheme and/or the [RIS]."
I have set out the substantial additions to Rule A7.1 effected by the 41st Deed in italics.
THE FIRST QUESTION: ONE TRUST FUND OR TWO?
General considerations
"The Secretary of State may by regulations provide…for Part III of [the Pension Schemes Act 1993] to have effect as if the scheme were two separate schemes providing, respectively, the pensions referred to in paragraphs (a) and (b)."
To my mind this supports the notion that the legislature envisages a single Fund supporting the two types of Scheme.
"(a) which is not a money purchase scheme, but
(b) where some of the benefits that may be provided are relevant money purchase benefits."
It is clear from Section 181(1) of the Pension Schemes Act 1993 that, in order to be a "money purchase scheme", "all the benefits… provided" under the scheme must be "money purchase benefits". The words I have so far cited from Article 13 of the 1996 Regulations could be said to beg the question whether, in the case of a hybrid scheme, there would nonetheless have to be two separate trust funds. However, it appears to me that the terms of the Article make it clear that the draftsman was proceeding on the basis that, in the case of a hybrid scheme, there would be a single trust fund.
The Recital and the 1964 Deed as amended
Sections A and B
Section C: support for one trust fund
Section C: support for two trust funds
"…in relation to a defined benefit scheme like the present. In their Lordships view such a scheme can properly be regarded as comprising a series of separate settlements. Every time an employee joins the scheme, a new settlement is created. The settlement comprises the contributions made in respect of the employee whether by him or by the company."
"A scheme set up under trust which is both self-administered and provides benefits on a money purchase basis must protect the trust from being extinguished by the action of one or more members. This should be done by expressing the individual member's right to benefit as being against the funds of the trust as a whole even though they may be calculated by reference to specific trust assets."
"You should be aware that paying into the [RIS] does not give you title to any particular assets of that scheme which are held and administered by the Trustees of the Pension Fund on your behalf."
"[A]s was common ground, pension scheme documents have to be construed in the light of the requirements of the Inland Revenue Commissioners from time to time for their approval of a scheme…."
Section D
Conclusion
"Hughes did not act impermissibly by using surplus assets from the contributory structure to add the non-contributory structure to the plan. The act of amending a pre-existing plan cannot as a matter of law create two de facto plans if the obligations (both pre-amendment and post-amendment) continue to draw from the same single un-segregated pool of fund of assets."
THE SECOND QUESTION: USE OF SURPLUS TO FIND RIS CONTRIBUTIONS
The terms of the 37th Deed
Kemble -v- Hicks [1999] PLR 287
"[T]he establishment of the money purchase scheme involved the setting up of what was, within the overall scheme, a scheme quite separate from the final salary scheme and to which different considerations applied. Those who joined the money purchase scheme severed their connection with the final salary scheme, transferred to a new scheme and enjoyed the benefit of a payment of the sum representing the actuarial value of their benefits in the final salary scheme accrued until [the date of their transfer from the final salary scheme to the money purchase scheme]. Those who elected not to transfer retained their interest in the assets which remained subject to the final salary scheme. It seems to me to follow that, to the extent that the surplus in the latter scheme was thereafter used to fund the employer's contributions to the money purchase scheme, the money purchase scheme members were thereby improperly or unfairly subsidised by the final salary scheme members because the surplus remained held on the trusts of the final salary scheme."
"In accordance with the terms of the announcement issued to members and potential members of the [particular pension] plan"
and that, until a formal amending deed was executed, the terms of the pension plan deed in question were to be:
"Modified as necessary to implement the amendment set out in general terms in the announcement scheduled hereto" (see paragraphs 20 and 21).
No subsequent formal amending deed was ever executed.
"The Company will pay contributions into the new money purchase plan at the rate of 8% of each member's basic annual salary …" (emphasis added).
In these circumstances, it seems to me that the basis of the decision was that the amending deed (temporary though it may have been intended to be) expressly incorporated the terms of the announcement (and indeed annexed it) and those terms imposed an unequivocal obligation on the employer actually to pay into the fund, at least in relation to contributions relating to members of the money purchase scheme.
"This will not alter following the changes in the nature of the new members' benefits; all members' benefits will be funded in part by current contributions and part from surplus."
Wider considerations
"[N]ot only is there the possibility that the surplus will be wiped out altogether before the continuing members receive any benefit out of the fund, eve if it is not wiped out in this manner, there is no certainty that it will be used for their benefit. Of course, it may be, through the generosity of the company; but it may remain the precise and exact surplus all the remainder of the lives of each and every existing member of the fund continuing in membership after the date of separation without their having the slightest benefit therefrom. ….. [T]he surplus in the continuing fund is not one which can in any way be regarded as applicable to the continuing members alone."
"[A]ny general exclusion of employers from surplus would tend to make employers very reluctant to contribute to their pension schemes more than the bare minimum that they could get away with. That would be unfortunate, and it would be even more unfortunate if employers were driven to abandon final salary, balance of cost schemes and were instead to turn to money-purchase schemes which may in the long term prove less advantageous to the beneficiaries."
THE THIRD ISSUE: CLAUSE 12(ii) OF THE 35TH DEED
"The release of the liability to pay an instalment would in my judgment constitute a transfer or payment out of the fund equivalent to a payment to the employer. … The Corporation's liability to pay future standard contributions and its liability to meet the costs of administration indirectly by deduction from the Corporations' contributions are all future liabilities. The actuarial value of the liabilities can be set off against surplus without involving any payment or transfer to the Corporation because the set off is made before any present liability has arisen. The application of surplus is made to ensure that no enforceable liability or obligation arises thereafter."
"[It] did not result in the payment of any part of the fund to the employers. What it did was to facilitate a reduction in the employers' rate of contribution - which is quite a different matter."
The fact that those two cases were concerned with a purely final salary scheme does not, in my view, enable Mr Holmes to distinguish them on the ground that one is here concerned with a case where the employer is invoking surplus to avoid making payments to the money purchase section of a scheme.
THE FOURTH ISSUE: ALLEGED INVALIDITY OF RIS
"They must not infringe the provisos to the rule-amending power, particularly the express prohibition to be found in all three schemes against altering the main purpose of the schemes, namely the provision of pensions on retirement at a specified age for members. This is a restriction which cannot be deleted by amendment, since it would be implicit anyway. It is trite law that a power can be exercised only for the purpose for which it is conferred, and not for any extraneous or ulterior purpose. The rule-amending power is given for the purpose of promoting the purposes of the scheme, not altering them."
"a "defined benefits" scheme: the benefits are fixed by the rules. The scheme is not set up as a unit trust, under which the members would be entitled to a proportionate share in the fund."
Chadwick LJ then went on to set out other fundamental features, one of which was that the task of the trustees "is to maintain a balance between assets and liabilities valued on [an] actuarial basis". He went on to explain that, with movements in the market, it was inevitable that there would be surpluses and deficits from time to time and that "prudent trustees will aim to ensure that the likelihood of surplus outweighs the risk of deficit". The passage relied on by Mr Clifford concludes with these words:
"[I]t is no part of the trustees' function, in a fund of this nature, to set levels of contributions which will generate surpluses beyond those probably required as a reserve against contingencies."
THE FIFTH ISSUE: SECTION 67 OF THE 1995 ACT
"67(1) This section applies to any power conferred on any person by an occupational pension scheme (other than a public service pension scheme) to modify the scheme.
(2) The power cannot be exercised on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised unless the requirements under sub-section (3) are satisfied."
"(a) [T]he accrued rights of a member of an occupational pension scheme at any time are the rights which have accrued to or in respect of him at that time to future benefits under the scheme, and
(b) at any time when the pensionable scheme of a member of an occupational pension scheme is continuing, his accrued rights are to be determined as if he had opted, immediately before that time, to terminate that service."
CONCLUSION