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URL: http://www.bailii.org/ew/cases/EWHC/Ch/2018/1749.html
Cite as: [2018] WLR(D) 468, [2018] EWHC 1749 (Ch), [2019] ICR 141, [2018] Pens LR 16

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Neutral Citation Number: [2018] EWHC 1749 (Ch)
Claim No: PE-2017-000007

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch D)
PENSIONS
IN THE MATTER OF THE G4S PENSION SCHEME

The Rolls Building, Royal Courts of Justice
Fetter Lane, London EC4A 1NL
12 June 2018

B e f o r e :

MR JUSTICE NUGEE
____________________

G4S PLC Claimant
- and -
(1) G4S TRUSTEEES LIMITED
(2) SOK WAH LEE Defendants

____________________

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____________________

Mr Richard Hitchcock QC and Mr Farhaz Khan (instructed by Herbert Smith Freehills LLP) for the Claimant
Mr Andrew Short QC (instructed by Gowling WLG (UK) LLP) for the First Defendant
Mr David E Grant (instructed by Pitmans LLP) for the Second Defendant
Hearing dates: 6 and 7 June 2018

____________________

HTML VERSION OF JUDGMENT (APPROVED)
____________________

Crown Copyright ©

    MR JUSTICE NUGEE:

    Introduction

  1. I have before me a Part 8 claim in relation to a pension scheme now called the G4S Pension Scheme ("the Scheme"). It raises a single question, and one that will be very familiar to pensions practitioners, namely whether a scheme that is closed to future accrual, but where the members' benefits continue to be linked to their final salary, is to be regarded as a "frozen" scheme for the purposes of regulations known as the Occupational Pension Schemes (Employer Debt) Regulations 2005 (SI 2005/678) (the "Employer Debt Regulations") or as an "open" scheme (this is not a statutory expression but is a common and useful way of describing a scheme that is not frozen). That in turn depends on whether such members are to be regarded as "active members" and that in turn depends on whether they are to be regarded as in "pensionable service" as defined in s. 124(1) of the Pensions Act 1995.
  2. The point is, as I say, well known to pensions practitioners and is one of some general importance. In a letter from the Claimant's solicitors, Herbert Smith Freehills, to the Chief Master, they said that around 40 per cent of defined benefit pension schemes in the UK have closed to future accrual and that a significant number of those, in their experience around 20% to 30%, contained a so-called "Courage restriction" preventing the scheme from being amended so as to terminate the final salary link. Any scheme which has closed to future accrual but retained a final salary link will be in the same position as the Scheme in not knowing whether the scheme is frozen or open.
  3. In the present case the Scheme is a sectionalised scheme and has three separate sections. By amendments made in 2011 all future accrual has stopped in two of those sections, but the members retain a final salary link. The question, therefore, is whether those sections are open or frozen. The question has a number of practical consequences: in particular, if a scheme (or section) is an open one, then if one of the employers participating in that scheme (or section) ceases to employ any active members, that will be an employment-cessation event for the purposes of the Employer Debt Regulations, which will trigger a potential liability on that employer to pay a so-called "section 75 debt" to the scheme, which can be of a very substantial amount; whereas if the scheme is frozen, an employer ceasing to employ the members will not be ceasing to employ active members so there will not be an employment-cessation event and no section 75 debt will be triggered. For this reason the Claimant, G4S plc, the Principal Employer of the Scheme, which appears by Mr Richard Hitchcock QC and Mr Farhaz Khan, contends that the relevant sections of the Scheme have no active members and are frozen. The Second Defendant, Miss Lee, has been joined to argue the contrary. She appears by Mr David Grant and contends that the relevant members remain in pensionable service and are active members and hence that the relevant sections of the Scheme are open. The First Defendant, G4S Trustees Ltd, the current trustee of the Scheme, which appears by Mr Andrew Short QC, is neutral on this question.
  4. I am asked to, and have already indicated that I will, make interest-based representation orders such that the Second Defendant be appointed to represent the interests of all members, and those claiming through them, in whose interests it would be for the relevant sections to be open schemes for the purposes of the Employer Debt Regulations; and that the Claimant be appointed to represent the interests of the other members and those claiming through them. In addition, Mr Hitchcock has confirmed that all other Participating Employers, although not formally represented by means of a representation order, will be bound by the decision.
  5. Before coming to the detail, I will give an example illustrating the point, which is one that was used in argument, as I personally have always found it easier to discuss questions such as this by reference to a concrete example. Suppose a typical defined benefits scheme under which a member is entitled at normal retirement date ("NRD"), say age 65, to a pension calculated as 1/60 of his final pensionable salary for each year he has been a member. The formula for his pension at NRD is thus n/60 x FPS, where n is the number of years of membership, and FPS is the member's final pensionable salary, and hence such a scheme is commonly referred to an n/60 scheme. Suppose a member joins aged 35. If he remains in service, and a member, until he attains age 65 and then retires and his final salary is then, say, £90,000, his pension at NRD will be 30/60 x £90,000, or £45,000 per year. If, however, he leaves service before NRD, he will be entitled, due to statutory requirements known as "preservation", to a pension calculated in the same way but deferred to NRD. If, therefore, he leaves at age 55 with 20 years' service as a member and his salary is then £60,000, his prospective pension when he leaves will be 20/60 x £60,000, or £20,000. That will be deferred to age 65 and due to other statutory requirements known as "revaluation" will be subject to certain mandatory increases in deferment. Suppose that, instead of leaving service at age 55, the scheme is closed to future accrual when the member is 55 but he remains in service. If there is no Courage restriction on the amendment power and the final salary link is not preserved, the result will be that the member, although remaining in service with his employer, will cease to qualify for any further benefits under the scheme. That means he will cease to be in pensionable service and will again become a deferred pensioner entitled to a deferred pension at age 65 of £20,000, subject to revaluation in deferment. But if the scheme has a Courage restriction on the power of amendment and the final salary link is preserved, it will mean that this member, although ceasing to accrue any more years of pensionable service, will continue to see his future pension grow if and when his salary grows. If, therefore, he leaves at age 65 when his salary is £90,000, his pension will then be 20/60 x £90,000, or £30,000. The central question is whether that right to have his pension increase in line with salary increases has the consequence that he is in pensionable service after the date on which the scheme is closed to future accrual, which I will call the "closure date".
  6. There is one more introductory point that can usefully be mentioned now. In Merchant Navy Ratings Pension Fund Trustees Ltd v Stena Line Ltd [2015] EWHC 448 (Ch) ("MNRPF"), Asplin J had to consider a similar point. The case raised a number of issues in relation to the MNRPF, but one of them was the effect of the fact that the scheme had closed to future accrual but certain members retained a right to a higher rate of revaluation if they remained in seagoing employment. Asplin J decided that that continued right to revaluation did not mean that the members were in pensionable service and active members, and hence that the scheme was a frozen scheme. Mr Hitchcock says that is both in material respects indistinguishable and right, and invites me to follow it. Mr Grant says that to some extent it turned on its own facts, but in any event that not all the arguments he relies on were deployed in front of Asplin J, and invited me not to follow it. I will come back to MNPRF as appropriate below.
  7. The facts

  8. All parties accepted that what I am concerned with is a question of statutory construction and that the particular facts in relation to the Scheme are not likely to make a difference. Nor is there any dispute in relation to them. In these circumstances I can set them out relatively briefly. The Scheme was established by deed dated 19 December 1994 by the then Principal Company, Securicor Group plc, with effect from 1 January 1995, and was then called the Securicor Group Pension Scheme. It provided for a number of different benefit structures, but for Category I Members the primary benefit was a pension on retirement at NRD (age 65) of n/60 of Final Pensionable Salary or, in certain circumstances, the details of which do not matter, n/80 of Final Pensionable Salary. It contained an amendment power in Rule 24 as follows:
  9. "The Principal Company may at any time by deed or resolution alter, amend, extend, modify or add to, all or any of the provisions of the Trust Deed or the Rules and any alteration, amendment, extension, modification or addition may have retrospective effect.
    Provided that it shall not:
    (1) in any way prejudice the rights of any Member accrued in respect of Pensionable Service up to the date of any such alteration, amendment, extension, modification or addition except with the prior consent of the Member so affected."

    There are then various other provisos which I need to refer to.

  10. That first proviso, which restricts amendments prejudicing the accrued rights of Members in respect of Pensionable Service up to the date of amendment, is what has been referred to as the Courage proviso (or restriction or fetter). It is common ground that the effect of a Courage restriction is, at any right up to the High Court level, to prevent an amendment breaking the final salary link. That is because in Re Courage Group's Pension Schemes [1987] 1 WLR 495 ("Courage") Millett J held that "benefits already secured by past contributions" in a proviso to an amendment power included the prospective entitlement to pension based on final salary (see at 513A), and in Briggs v Gleeds [2014] EWHC 1178 (Ch) Newey J held that "accrued benefits" had the same meaning (see at [111]-[128]). See also Sterling Insurance Trustees Ltd v Sterling Insurance Group Ltd [2015] EWHC 2665 (Ch) at [14]-[15], where it was common ground before me that (at any rate at the level of the High Court) a proviso to an amendment power in a pension scheme which prevents reduction in a member's accrued benefits (using that phrase just on its own) is one which does prevent the breaking of the final salary link.
  11. The Deed and Rules were replaced by a new Definitive Deed and Rules dated 28 November 2002 with effect from 6 April 1997. This was designed, among other things, to provide for amendments required by the Pensions Act 1995 and did not affect the basic benefit structure. The amendment power was restated as Clause 4 in materially identical terms, and subject to the same Courage restriction. There was an additional provision to deal with Category V Members, which I need not set out.
  12. Then in 2008 two other schemes were merged into the Scheme. That was effected by a Deed of Merger dated 19 November 2008. Its effect was to transfer the assets and liabilities of (i) a scheme known as the GSL Pension Scheme and (ii) a scheme known as The Group 4 Pension Scheme into the Scheme with effect from 1 January 2009. By that stage the Principal Employer of the Scheme was G4S plc and the Scheme was renamed the G4S Pension Scheme. The Scheme was also sectionalised, being divided into three different sections known as the Securicor Section, the GSL Section, and the Group 4 Section. It is common ground that the effect of that is that the three sections are treated as separate schemes for various statutory purposes including s. 75 of the Pensions Act 1995 and the Employer Debt Regulations (see reg 8 of the latter).
  13. On 21 October 2010 a new Definitive Deed and Rules was executed to set out the provisions of the Scheme following the merger in a single document. That is the current governing Definitive Deed.
  14. Finally, on 5 July 2011 a Deed of Amendment was executed, which closed the Scheme to future accrual for all active members in the Group 4 Section and Securicor Section and in certain Plans of the GSL Section. I am not concerned with the GSL Section where I infer that certain Plans and hence the Section as a whole remain open, but I am concerned with the Securicor and Group 4 Sections ("the Relevant Sections") where the sections were closed to future accrual. The closure was effected by inserting a new General Rule 27A, headed "Ceasing accrual". This provided as follows:
  15. "27A Ceasing accrual
    27A.1 The Securicor Section is closed to future accrual with effect from the Cessation Date. No person shall be admitted as a member of it and no further benefit shall accrue in it on or after that date. Each person who is immediately prior to the Cessation Date an Active Member shall, if he remains in Employment on the Cessation Date, become an Employed Deferred Member with effect from the start of the Cessation Date.
    27A.2 The effect of Securicor Section Rule 11A does not count as further accrual for the purpose of this Rule 27A."

    There were then similar provisions in relation to the other sections. The Cessation Date was 6 July 2011. Then a new definition of "Employed Deferred Member" was inserted as follows:

    ""Employed Deferred Member" means a Deferred Member other than an Exempt Employed Deferred Member whose Pensionable Service terminated as a result of ceasing accrual under General Rule 27A and who has continuously remained an Employee since the Cessation Date."

    There was also a new definition of "Exempt Employed Deferred Member". I received some explanation as to who they were, but I am satisfied (and no-one has suggested to the contrary) that they do not affect the position and I need not refer to them further.

  16. Then in each section a new rule was inserted providing for the final salary link. I can refer to that for the Securicor Section by way of example, where a new Rule 11A was inserted as follows:
  17. "11A Retention of salary link for Employed Deferred Members
    11A.1 The pension entitlement under Rule 12 of a person who has been an Employed Deferred Member shall not be less than the pension he would have received under that Rule on the assumptions set out in Rule 11A.2.
    11A.2 The assumptions are:
    (a) that subject to Rule 17.5 {late retirement} his Final Pensionable Salary is what it would have been on the date he ceased to be an Employed Deferred Member, and for the purpose only of calculating his Final Pensionable Salary for this assumption, his Pensionable Service shall be deemed not to have ended on the day on which it would have otherwise have ended, but to have ended on his Leaving Service Date;
    (b) that any increase that applies by reference to Rules 12.3 and 12.4 {revaluation} applied from his Leaving Service Date instead of the date on which he ceased to be in Active Membership;
    (c) that his period of Pensionable Service for the purpose of determining his pension (except only as provided in assumption (a) above) ended immediately prior to the Cessation Date.
    11A.3 A person ceases to be an Employed Deferred Member on the earliest of the following dates that apply to him (his "Leaving Service Date"):
    (a) the date he ceases to be an Employee;
    (b) the date his Employer stops participating in the scheme;
    (c) the date on which he elects (by notice in writing addressed to the Trustee) to be no longer treated as an Employed Deferred Member;
    (d) his seventy-fifth birthday.
    11A.4 An Employed Deferred Member is not entitled to any pension under Rule 12 until he has ceased to be an Employed Deferred Member in accordance with Rule 11A.3.
    11A.5 The Trustees shall ensure that the pension entitlement under Rule 12 of a person in respect of whom they have received from the Principal Employer written notice confirming that he is an Exempt Employed Deferred Member … [and that then deals with the position of Exempt Employed Deferred Members]."
  18. There is no dispute as to the practical effect of all that. To take the example I referred to earlier, if a member of the Securicor Section had 20 years' service at the Cessation Date of 6 July 2011 and then had a salary of £60,000, their prospective or putative n/60 pension would then stand at £20,000, but if they remained in service for a further 10 years and their salary was then £90,000, their pension would be £30,000. The rules are drafted on the assumption that such a member ceases to be an active member and becomes a deferred member. Under Rule 12 they are entitled to a deferred pension, which carries a right to revaluation in deferment in accordance with the statutory requirements, but rule 11A operates as an underpin such that if the final salary link is more valuable, the member gets that instead. It is also common ground that both the final salary link and statutory revaluation in deferment are intended to provide protection against inflation. Historically, earnings have tended to rise faster than prices so a final salary link has usually been more valuable than statutory revaluation, which is tied to rises in prices, but this is not necessarily so as a member may receive either no pay rises or pay rises that are cumulatively less than the effect of statutory revaluation. So the final salary link may in an individual case produce nothing, but it can be seen that it is still a potentially valuable right for the member to have.
  19. The statutory provisions

  20. The starting point is s. 75 of the Pensions Act 1995. As enacted, this applied if either an occupational pension scheme went into winding-up or its sponsoring employer went into insolvency and there was a deficiency in the assets (that is, that the value of the liabilities exceeded the value of the assets), the effect being that the difference was treated as a debt due from the employer to the trustees of a scheme. That came into force in 1997, although it replaced similar provisions first enacted some years earlier. s. 75 has been heavily amended since and is now rather more elaborate, but the same general principles apply. s. 75 itself is drafted on the basis that a scheme has a single employer, but regulations have always provided for s. 75 to be modified in relation to multi-employer schemes. That was initially provided for in regulations called the Occupational Pension Schemes (Deficiency on Winding Up etc) Regulations 1996 (SI 1996/3128), which introduced the idea of a third triggering event in multi-employer schemes, namely when one of the employers ceased to be a person employing persons in the description or category of employment to which the scheme relates at a time when at least one other person continues to employ such persons (see reg 4(3)).
  21. These regulations were replaced by the Employer Debt Regulations, which have themselves been amended since. The Employer Debt Regulations introduced the phrase "employment-cessation event" ("ECE"). The definition of an ECE has changed from time to time, most recently with effect from 6 April 2010. It is now found in reg 6ZA and reads as follows:
  22. "(1) In these regulations, "employment-cessation event" means, subject to paragraphs (2) to (7), an event which–
    (a) occurs in relation to a multi-employer scheme,
    (b) is not a relevant event, and
    (c) subject to regulations 6A and 6F, occurs on the date on which–
    (i) an employer has ceased to employ at least one person who is an active member of the scheme, and
    (ii) at least one other employer who is not a defined contribution employer continues to employ at least one active member of the scheme."

    The Employer Debt Regulations also define a frozen scheme in reg 2(1) as "a scheme which has ceased to have active members".

  23. Both these definitions refer to active members. This is not a term separately defined in the Employer Debt Regulations but by reg 2(5) has the same meaning as in Part I of the Pensions Act 1995. Definitions for Part I of the 1995 Act are found in s. 124, which defines "active member" as follows:
  24. ""active member", in relation to an occupational pension scheme, means a person who is in pensionable service under the scheme".

    That in turn refers to pensionable service, which is also defined in s. 124(1), as follows:

    ""pensionable service", in relation to a member of an occupational pension scheme, means service in any description or category of employment to which the scheme relates which qualifies the member (on the assumption that it continues for the appropriate period) for pension or other benefits under the scheme".
  25. The practical consequence is that if the Employed Deferred Members in the Relevant Sections of the Scheme are in pensionable service, they are "active members" and if an employer ceases to employ all the Employed Deferred Members, there will be an ECE, which can trigger a section 75 debt. If, however, they are not in pensionable service, these sections will have no "active members" and there will not be an ECE on an employer ceasing to employ them, as the employer will not be ceasing to employ active members. Thus, the critical question is whether the existence of the final salary link, as provided for in Rule 11A of each of the Relevant Sections, means that the Employed Deferred Members are or are not in "pensionable service" as statutorily defined.
  26. Principles of statutory construction

  27. I was referred by both counsel to the principles applicable to statutory construction. I did not understand there to be any difference of substance between them. They were summarised by Mr Hitchcock in his written submissions as follows: (1) the general objective of statutory construction is to ascertain the intention of the legislature; (2) the natural meaning of the words used is an important guide but literal meaning should not be applied in a vacuum; (3) statutes should be construed as a whole, so that save in exceptional circumstances similar words or the same words in an instrument should bear the same meaning; and (4) technical words are given their technical meaning (see Bennion on Statutory Interpretation at §22.6):
  28. "If a word or phrase has a technical meaning in relation to a particular expertise, and is used in a context dealing with that expertise, it is to be given its technical meaning unless the contrary intention appears."

    Mr Grant's summary of the principles was much the same, although slightly more extensive. It is not necessary for me to refer to it in any detail.

    Discussion

  29. I will read the definition of pensionable service in s. 124(1) of the Pensions Act 1995 again for the sake of convenience. It is as follows:
  30. ""pensionable service", in relation to a member of an occupational pension scheme, means service in any description or category of employment to which the scheme relates which qualifies the member (on the assumption that it continues for the appropriate period) for pension or other benefits under the scheme."
  31. It can be seen that whether a person is in pensionable service depends on two things: (1) whether they are in service in a description or category of employment to which the relevant scheme relates; and (2) whether that service qualifies them for pension or other benefits under the scheme. These are clearly separate conditions. If, for example, a scheme is ongoing, an employee who is eligible to join the scheme and accrue benefits but chooses not to, will be in service in the description of employment to which the scheme relates, but that service will not qualify him or her for benefits. I will refer to these two parts of the definition as "the first limb" and "the second limb".
  32. Mr Hitchcock had an argument on the first limb that if a scheme has closed to future accrual it ceases to relate to any service in the present tense. I will come back to that argument below. But his main argument was concentrated on the second limb, namely that a member who has ceased to accrue benefits but remains in employment with a final salary link is not in service which qualifies him or her for pension or other benefits. A number of arguments were addressed to me on that point, consisting of linguistic arguments based on the text, arguments based on other legislative provisions, and arguments based on practical considerations. I will start with the linguistic arguments.
  33. Linguistic arguments

  34. Both counsel submitted that their construction was the natural and ordinary meaning of the words. Mr Hitchcock said that the concept of pensionable service was one that was well understood by pensions practitioners. In the context of a final salary scheme such as this it meant service under which pension continues to accrue. That was what was actually meant by service which qualified the member for pension.
  35. Mr Grant said that a member with a final salary link was ex hypothesi still in service after the closure date and that continued service was fundamental to the entitlement, calculation and determination of the member's benefit. It was only because he was in continued service that he received pay rises and when he received pay rises that affected the amount of pension he got. It was common ground that, as the n/60 x FPS formula showed, a member's entitlement to pension was a function of two things, namely years of accrual and final salary, and Mr Grant said it was artificial to rank one higher than the other as a more significant component.
  36. Despite Mr Grant's eloquent submissions I prefer Mr Hitchcock's submissions on this point. I agree with him that the concept of pensionable service is a well recognised concept among pensions practitioners and indeed, I suspect, more widely. The core concept is not difficult to understand. Pensionable service is service as an employee which is pensionable in the sense that it entitles the employee to a pension. Until recently, an employer was under no obligation to offer his employees any form of pension provision, and pensionable employment, in contrast to non-pensionable employment, refers to employment in respect of which the employee does become entitled to a pension. It has long been a commonplace that pension is deferred pay and that employees in pensionable employment earn their pension rights by providing service. The normal core meaning of pensionable service is, therefore, service which earns the employee pension.
  37. I am conscious that in s. 124(1) of the Pensions Act 1995 the expression "pensionable service" is itself a defined expression, and that ultimately what I have to construe are the words of the definition, not the words "pensionable service" as such. But where a statute (or indeed a contract) uses a defined expression, the ordinary meaning of the word or words defined is part of the material which can be used to construe the definition. The defined expression is seldom an arbitrary label; it is usually chosen as a distillation of the meaning of a concept more precisely stated in the definition (see Birmingham City Council v Walker [2007] UKHL 22 at [11] per Lord Hoffmann and compare Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 at [17], again per Lord Hoffmann).
  38. In the present case the definition of pensionable service, namely service which qualifies the member for pension or other benefits, is indeed not dissimilar to what I have suggested is the core concept of pensionable service as ordinarily understood. In the case of a final salary pension of the n/60 type, I agree with Mr Hitchcock that the normal understanding of what it is to be in pensionable service is to be in service under which pension continues to accrue: that is, service which counts towards the n in the n/60 part of the formula, what Mr Hitchcock called "year-on-year accrual".
  39. That is not to say that pensionable service in s. 124(1) can in all circumstances be equated with year-on-year accrual. Some of Mr Hitchcock's submissions in opening were to the effect that pensionable service in s. 124(1) meant service under which additional years accrued, but in reply he accepted that that was not quite right and that the two concepts are not identical and cannot simply be elided. I agree. There are a number of examples where a person may be in pensionable service within the statutory definition without having year-on-year accrual. One example, which Mr Hitchcock accepted when I put it to him, is that of a life assurance only member, that is a member of a scheme whose only benefit is a benefit on death in service. Such a person is not in service that qualifies him for a pension, but I do not see why he is not a person in service that qualifies him for an "other benefit", and if the death benefit he receives is a lump sum calculated by reference to his salary, it does not in any sense accrue from year to year.
  40. A second example is a defined contribution member in a hybrid scheme, that is one providing both defined benefit and defined contribution benefits: see the argument of Andrew Simmonds QC in MNRPF as recorded by Asplin J at [388]-[389]. Such a member would, it seems to me, be in pensionable service under the scheme, but would not normally be regarded as having year-on-year accrual. Those examples, and there may no doubt be others, show that a member may be in pensionable service under a scheme within the meaning of s. 124(1) without having year-on-year accrual. But that does not, to my mind, undermine the validity of Mr Hitchcock's submission that in a final salary scheme of this type (that is of the n/60 or n/80 or similar type) the natural and ordinary meaning of a member being in pensionable service is that he continues to accrue pension.
  41. I accept this submission. The way I expressed it recently in Beaton v The Board of the Pensions Protection Fund [2017] EWHC 2623 (Ch) at [30] was as follows:
  42. "…in the standard occupational pension scheme of the type with which the PPF is largely concerned, that is occupational pension schemes where the quantum of pension is dependent on the length of the member's pensionable service, I would regard the ordinary meaning of a benefit being attributable to pensionable service as meaning that it is a benefit which is earned by the member as a result of giving service to an employer while a member of a pension scheme under which he accrues or earns a future pension."

    And at [33]:

    "One sees there the statutory definition of "pensionable service", which refers to service in employment which qualifies the member for benefits under the scheme, and, as I say, it is a familiar notion that providing service to an employer while an active member of an occupational pension scheme qualifies the member for benefits under the scheme by building up a pension over time…"

    I was admittedly not there concerned with the present question, but with a rather different question as to what service a benefit was attributable to, but it can be seen that the way I referred to it there was entirely in line with Mr Hitchcock's submission. I see no reason to change my views in the present context.

  43. Given that that is, as I accept, the ordinary meaning of what it is to be in pensionable service in a scheme of this type, the next question, it seems to me, is how the definition of pensionable service is to be applied to members such as the Employed Deferred Members whose accrual has ceased but who continue to enjoy final salary linkage. Here too I agree with Mr Hitchcock. His submission, in essence, was that such members are not in pensionable service because their service after the closure date did not qualify them for any further pension; it simply revealed the amount of pension or (as I suggested to him, a suggestion which he adopted) quantified the pension that they had already earned by their service before the closure date. That seems to me to be right and to be consistent both with the way that final salary schemes work and with the guidance to be derived from the authorities.
  44. The essence of a final salary scheme such as an n/60 scheme is that for each year of service the member accrues, or earns, a pension entitlement equal to 1/60 of his final salary. The key point is that so long as he remains in the scheme, the entitlement each year is not 1/60 of his then salary, as it might be for example in a building block or career average scheme, it is 1/60 of his future final salary. In an ongoing scheme, therefore, a member who has 20 years of service will have built up a pension of 20/60 of his salary, but it will not be 20/60 of his then salary but 20/60 of whatever his salary will finally be. If he leaves service after 20 years and his salary is then £60,000, that will be his final salary and his pension will therefore crystallise at 20/60 of £60,000, or £20,000, but if he continues in service for another 10 years until his final salary is £90,000, it will be seen that the pension he earned in his first 20 years was not £20,000 but 20/60 of £90,000, or £30,000. In that way the pension attributable to each year of his pensionable service cannot be known, cannot be quantified, until the final salary is identified. But the identification of his final salary does not change or add to the benefits already earned. It identifies what they are.
  45. This analysis of how a final salary scheme works has been consistently adopted in the authorities. One can start with Courage itself where, in a very well-known passage at 513A, Millett J said this:
  46. ""Accrued pensions" is defined in the rules to mean pensions based on salary at the relevant date. There was some dispute whether "benefits already secured by past contributions" means the same thing, or includes the prospective entitlement to pensions based on final salary. In the absence of express definition, I see no reason to exclude any benefit to which a member is prospectively entitled if he continues in the same employment and which has been acquired by past contributions, and no reason to assume that he has retired from such employment on the date of the employer's secession when he has not."

    I am not here concerned with whether Millett J was right in his decision on the effect of the proviso to the amendment power. That turns on whether he was right to say that there was no reason to assume a member had left service when he had not, or whether the rights that a member is to be regarded as having had secured to him, or as having accrued, at any point in time should be confined to the rights he would have if he had left service at that time. No argument was addressed to me on that point, both counsel recognising, as I have already referred to, that it is to be regarded as effectively settled at High Court level and that it is a matter for the Court of Appeal. I am certainly not going to express a view one way or the other in the absence of any argument. But what the passage from his judgment, to my mind, undoubtedly does illustrate is that, if the member does remain a member in pensionable service beyond the date of amendment, it can be seen that the prospective entitlement to a pension based on his future final salary was something that he already had at the date of amendment.

  47. So too to similar effect in Briggs v Gleeds Newey J said at [128]:
  48. "(iv) I cannot see a compelling reason for taking "accrued" to have a narrower meaning than "secured" in the present context, and Millett J considered that benefits that had been "secured" included "the prospective entitlement to pensions based on final salary"."
  49. Similarly, in HR Trustees v German [2007] EWHC 2785 (Ch) Arnold J was concerned with a proviso to an amendment power in a final salary scheme which prevented any amendment which had the effect of reducing the value of benefits secured by contributions already made. He said at [138] that he considered that:
  50. ""benefits" should be construed as including future and contingent benefits under the Plan"

    and at [140] that:

    "It is true that this means that the value of a member's benefits could not be determined at the date of the amendment, but in my view that is the inevitable consequence of protecting the value of a benefit, such as a final salary benefit, which is inherently prospective in nature."

    and at [141]:

    "I conclude that the effect of the Fetter is to render ineffective amendments which reduce the value of benefits, and in particular the future final salary benefits, which have accrued to members by virtue of their Service down to the date of the amendment."

    That, therefore, adopts the same analysis that the benefits that had been secured at the date of amendment were benefits whose value depended on future events, in particular the quantum of a member's future final salary.

  51. Finally in MNRPF, where the scheme had closed to future accrual on 30 May 2001 but members in seagoing employment enjoyed rights to enhanced revaluation, Asplin J said at [401]:
  52. "The benefits accrued as at 31 May 2001 when they ceased to accrue years of service under the Scheme and the right to revaluation at a particular level is inherent in the accrued benefit as at that date. … The right to the enhanced revaluation had already been earned by reference to service before 31 May 2001 and had accrued at that date."
  53. It can be seen that the analysis adopted in these authorities entirely supports Mr Hitchcock's submission that in a final salary scheme of the n/60 type what a member earns or accrues by each year's pensionable service is not 1/60 of his then salary but 1/60 of his final salary; and that if he remains in service after the scheme has been closed to future accrual, and enjoys a continued link to final salary, the extra pension he receives if his salary is increased is not earned by or attributable to his post-closure date service but is inherent in the rights he earned by his pre-closure date accrual, or in other words that his post-closure date service does not qualify him for further pension rights. It simply quantifies the rights he already has.
  54. As for Mr Grant's submission that it is artificial to rank the n/60 component of the n/60 x FPS formula higher than the FPS component, the answer, it seems to me, is that this logically follows from the above analysis. If the pension that a member earns by a year of service is not 1/60 of his then salary but 1/60 of his final salary, it necessarily follows that if he stops accruing any further years, he stops earning any more pension. This is so even if his pension continues to be linked to his final salary and hence his putative pension grows in cash terms as his salary increases. That is precisely because the pension he has already earned is linked to future final salary. This does mean that the two parts of the n/60 x FPS formula are different in effect. The n/60 component tells you how many years of service qualify the member for pension. The FPS component by contrast tells you what those years of service entitle the member to.
  55. Mr Grant had one further linguistic argument, which is that if the draftsman had intended to confine pensionable service to year-on-year accrual, it would have been much simpler to say so. Arguments of this type are often deployed but seldom persuasive, as the very fact that there is a question of construction to be resolved usually shows that the drafting could have been clearer. But in any event in this case, for reasons I have already given, pensionable service cannot in my judgment simply be equated, even on Mr Hitchcock's submission, with year-on-year accrual and I do not think this argument takes the matter any further.
  56. That concludes the textual or linguistic arguments, so far as the second limb of the definition of pensionable service is concerned, namely service which qualifies the member for pension or other benefits. For reasons I have given, on this aspect of the case, I prefer Mr Hitchcock's submissions to those of Mr Grant.
  57. Section 51 Pensions Act 1995

  58. I will take next an argument based by Mr Hitchcock on s. 51 of the Pensions Act 1995. I was referred to a number of other statutory provisions in other Acts, but I take s. 51 first because it is in the Pensions Act 1995 itself and uses the same defined term "pensionable service", which is defined in s. 124(1). s. 124(1) provides that "in this Part" the defined terms have the meanings given and "this Part" is a reference to Part I of the Pensions Act 1995, which contains ss. 1-125 and so includes s. 51. s. 51, as enacted, provided as follows:
  59. "(1) Subject to subsection (6) this section applies to a pension under an occupational pension scheme if—
    (a) the scheme—
    (i) is an approved scheme, within the meaning of Chapter I of Part XIV of the Taxes Act 1988 (retirement benefit schemes approved by the Commissioners of Inland Revenue) or is a scheme for which such approval has been applied for under that Chapter and not refused, and
    (ii) is not a public service pension scheme, and
    (b) apart from this section, the annual rate of the pension would not be increased each year by at least the appropriate percentage of that rate.
    (2) Subject to section 52, where a pension to which this section applies, or any part of it, is attributable to pensionable service on or after the appointed day or, in the case of money purchase benefits, to payments in respect of employment carried on on or after the appointed day—
    (a) the annual rate of the pension, or
    (b) if only part of the pension is attributable to pensionable service or, as the case may be, to payments in respect of employment carried on on or after the appointed day, so much of the annual rate as is attributable to that part,
    must be increased annually by at least the appropriate percentage."

    I need not read the remainder of the section. The appointed day was 6 April 1997 and the appropriate percentage was then the lesser of 5% per year and the annual rise in RPI, known as 5% limited price indexation ("5% LPI"). The practical effect was to require pensions in payment to be increased each year by at least 5% LPI insofar as the pension was attributable to service on or after 6 April 1997. The section has been amended since and the mandatory rate of increase has altered, but the same general structure continues to apply.

  60. Where a member has both pre- and post-6 April 1997 service, s. 51 clearly requires the pension to be split between the two periods of service. It is common ground that if the accrual rate has not changed, this is to be done by apportioning the pension on a straightforward time basis. Thus, to take the example of the member of an n/60 scheme who has 20 years' service before 6 April 1997 and 10 years' service after 6 April 1997 and whose salary after 30 years is £90,000, his pension of £45,000 (30/60 x £90,000) is apportioned ⅔ (that is, £30,000) to his pre-6 April 1997 service and ⅓ (£15,000) to his post-6 April 1997 service. What you do not do is identify how much his pension would have been had he left on 5 April 1997 and apportion only that part to his pre-6 April 1997 service and the rest to his post-6 April 1997 service. So if his salary after 20 years was £60,000, his pension had he then left would have been only £20,000 (20/60 x £60,000) but you do not apportion £20,000 to pre-6 April 1997 service and £25,000 to post-6 April 1997 service. You apportion £30,000 to the 20 years' service before 6 April 1997 and £15,000 to the 10 years after.
  61. Mr Grant, having flirted with the idea on the first day of the hearing (last Wednesday) that you might apportion all the growth in pension due to salary growth post-6 April 1997 to that period, accepted on the morning of the second day that that was wrong and that the pension would be simply split ⅔ to ⅓. He accepted that that was both what was intended and what was universally done in practice. Indeed he also accepted that it would not necessarily be possible to do it the other way because it would require historic salary data as at 6 April 1997 and such data might well not be available. I agree that he was right to make this concession and that in the example given £30,000 of the pension would be attributable to pensionable service before 6 April 1997 and £15,000 to pensionable service on or after that day.
  62. The significance of all that is this. If one assumes a scheme that closes to future accrual on 5 April 1997 but retains a future salary link, how would s. 51 work? Take the example of the member with 20 years' service pre-6 April 1997 and whose salary is then £60,000 but who remains in service for a further 10 years, leaving service on 5 April 2007 when his final salary is £90,000. His pension would be £30,000 (20/60 x £90,000). Had he left service on 5 April 1997, his pension would only have been £20,000 (20/60 x £60,000), but just as in the previous example, you do not apportion £20,000 of his pension to pre-6 April 1997 service and the balance to his post-6 April 1997 service. The whole of the £30,000 pension is apportioned to his pre-6 April 1997 service. Mr Grant accepted that that was so. In the language of s. 51 the entirety of the £30,000 pension is "attributable to pensionable service" before 6 April 1997 and none of it is "attributable to pensionable service" on or after that day.
  63. It seems to me that this is a very strong pointer to Mr Hitchcock's submissions being correct. Mr Grant has to say that although in the example posited none of the pension is attributable to pensionable service after 6 April 1997, nevertheless that service is pensionable service that qualifies that member for pension or other benefits. If one asks what pension or other benefits that post-6 April 1997 service qualifies the member for, Mr Grant's answer is the increase in pension due to the increase in salary. That is the increase from £20,000 to £30,000. But I have great difficulty in seeing how that £10,000 increase can at one and the same time be attributable to the pre-6 April 1997 pensionable service for the purposes of s. 51, as Mr Grant accepts, and yet be a part of the pension which the member's service post-6 April 1997 qualifies him for. That is to draw a distinction between a pension or benefit being attributable to a period of service and a period of service qualifying a member for that pension or benefit. That seems to me a most awkward and unconvincing distinction to draw. In truth, I do not think it can be done. Once it is accepted, as it is, rightly, accepted, that the whole of the £30,000 pension in the example is attributable to pre-6 April 1997 service, then it follows that none of the service on or after 6 April 1997 qualifies the member for any part of it, and hence that service after the closure of the scheme to future accrual is not pensionable service within the meaning of s. 124(1) even if the link to final salary is preserved.
  64. In MNRPF Asplin J gave a number of reasons for her conclusion that the members in seagoing employment who enjoyed the right to the enhanced rate of revaluation were not in pensionable service (see paragraphs [400]-[404]). At [403] she said this:
  65. "Secondly, this conclusion is consistent with the way in which 'pensionable service' is treated in section 51 Pensions Act 1995 which is in the same Part of that Act as the definitions with which I am concerned and is referred to in section 124 of that Act. Mr Simmonds concedes that section 51 only works if the reference to 'pensionable service' contained in it is a reference to accrual of years. Otherwise, in a case such as this, the section would be providing for revaluation upon revaluation."

    That brief reference to revaluation upon revaluation is undoubtedly a bit cryptic, but looking at her summary of the arguments of Mr Brian Green QC at [377], I suspect what she had in mind was this. In my example of the scheme closing to future accrual at 5 April 1997 but the member remaining in service with a final salary link for another 10 years, it would make no sense to regard the uplift in his pension due to salary increases (itself a form of revaluation) as attributable to pensionable service after 6 April 1997 as it would mean that that element of the pension would attract the rate of increase (5% LPI) appropriate to post-6 April 1997 accrual, despite the fact that it was itself a revaluation of pension all attributable to pre-6 April 1997 accrual which under the statute was not required to be increased.

  66. As can be seen, however, Mr Simmonds conceded in that case, just as Mr Grant has conceded in this case, that this cannot be right. Asplin J found that that supported her conclusion. I agree, and it does seem to me that this point does really demonstrate that Mr Hitchcock is right. In my judgment, a final salary scheme of the n/60 type which closes to future accrual but retains the final salary link is one where the continued service of the members after the closure date does not qualify them for pension or other benefits, and hence the members cease to be in pensionable service at the closure date and cease to be active members, with the result that the scheme is a frozen scheme within the meaning of the Employer Debt Regulations.
  67. None of the other arguments which I refer to below are to my mind strong enough to dislodge this conclusion. I will, however, deal with them in deference to Mr Grant's thoughtful and comprehensive arguments.
  68. Service to which the scheme relates

  69. The first point concerns the first limb of the definition of pensionable service, which is that the service is in a description or category of employment to which the scheme relates. In MNRPF Asplin J's first ground for her conclusion at [401] was as follows:
  70. "First, it seems to me that as Mr Green submits, the service to which the Scheme relates is all in the past. After 31 May 2001, the accrual of benefits takes place in the Merchant Navy Ratings Pension Plan. It is service to which the Scheme "related" in the past tense."

    Mr Hitchcock supports this reasoning. Mr Grant submitted that there is in truth no separate point here. If the continued final salary link is service which qualifies the member for pension within the meaning of the second limb, then it is also service to which the scheme relates within the meaning of the first limb.

  71. I accept Mr Grant's submission. Indeed, I would go further and say that it is arguable that the mere fact that the final salary link is dependent on continued service with one of the employers means that that continued service is itself service to which the scheme relates whatever the answer to the second limb. It is not necessary to decide that point and I do not intend to do so. It is sufficient to say that my conclusion on the second limb of the definition, namely that such continued service is not service that qualifies the member for pension or other benefits, makes the precise ambit of the first limb irrelevant. The wording of the first limb is very similar to definitions used frequently elsewhere in the pensions legislation and I am reluctant to say anything about it which might have unforeseen knock-on consequences for other statutory provisions.
  72. Preservation

  73. Mr Grant's next point concerned the preservation requirements. These were introduced by the Social Security Act 1973 (see s.  63 and sch 16, Part I) to provide protection for early leavers. They were later consolidated as Chapter I of Part IV (that is, ss. 69-82) of the Pension Schemes Act 1993. Before the 1973 Act an employer could set up a scheme which provided pensions for employees who worked for the employer until retirement but was not obliged to offer any pension to an employee who left service before retirement. The general principle of the preservation requirements is to require schemes to which they apply to provide deferred pensions, called "short-service benefit", to members who leave early, calculated in the same way as the pension they would have received had they remained in service to normal pension age, called "long service benefit".
  74. In their current form, in the Pension Schemes Act 1993, the relevant provisions are as follows. s. 70(1) contains definitions of relevant employment, namely:
  75. ""relevant employment", in relation to a scheme, means any employment to which the scheme applies"

    and of long service benefit, namely:

    ""long service benefit", in relation to a scheme, means the benefits which will be payable under the scheme, in accordance with legal obligation, to or in respect of a member of the scheme on the assumption—
    (a) that he remains in relevant employment, and
    (b) that he continues to render service which qualifies him for benefits,
    until he attains normal pension age; and in this definition "benefits" means—
    (i) retirement benefit for the member himself at normal pension age, or
    (ii) benefit for the member's wife or husband, widow or widower, or surviving civil partner or dependants, or others, on his attaining that age or his later death, or
    (iii) both such descriptions of benefit."
  76. s. 70(2) contains a definition of "pensionable service" as follows:
  77. "In this Act, unless the context otherwise requires, "pensionable service", in relation to a scheme and a member of it, means, subject to subsection (3), service in relevant employment which qualifies the member (on the assumption that it continues for the appropriate period) for long service benefit under the scheme."
  78. Section 71 sets out the basic principle as to short-service benefit as follows:
  79. "(1) A scheme must make such provision that where a member's pensionable service is terminated before normal pension age and—
    (a) he has at least 2 years' qualifying service,
    or
    (b) a transfer payment in respect of his rights under a personal pension scheme has been made to the scheme,
    he is entitled to benefit consisting of or comprising benefit of any description which would have been payable under the scheme as long service benefit, whether for himself or others, and calculated in accordance with this Chapter.
    (2) The benefit to which a member is entitled under subsection (1) is referred to in this Act as "short service benefit"."

    It then contains various other provisions in relation to short service benefit.

  80. s. 74 provides for computation of short service benefit as follows:
  81. "(1) Subject to the provisions of this section, a scheme must provide for short service benefit to be computed on the same basis as long service benefit."

    That means, for example that in an n/60 scheme the short service benefit must also be computed on an n/60 basis.

    "(6) So far as any short service benefit is not required to be computed in accordance with subsection (1), it must be computed on the basis of uniform accrual, so that at the time when pensionable service is terminated, it bears the same proportion to long service benefit as the period of that service bears to the period from the beginning of that service to the time when the member would attain normal pension age or such lower age as may be prescribed."

    That reflects the fact that, as the Act recognises (see s. 74(3) and (4)), pensions do not always accrue uniformly.

  82. It is common ground that the definition of pensionable service in s. 124(1) of the Pensions Act 1995, although not identical, is similar to the definition originally in the Social Security Act 1973 and now in the Pension Schemes Act 1993, and is ultimately derived from it. Mr Grant's point is this. It is possible to have a scheme where a pension accrues at a faster rate than n/60, for example, n/45. But in general, simplifying somewhat, it was a requirement of Inland Revenue approval that pensions should not exceed ⅔ of final salary. So an n/45 scheme might contain a provision that a member should accrue a maximum of 30 years. Suppose a member who joined such a scheme at age 25 with a normal pension age ("NPA") of 65. At age 55 such a member would have accrued the maximum of 30 years. That means his only continued benefit from remaining in the scheme from age 55 to his NPA of 65 would be that resulting from increases in salary as he could not accrue any more years. This is not a fanciful example. In a publication called the Joint Office Memorandum 78, issued jointly by the Superannuation Funds Office of the Revenue and the Occupational Pensions Board (the then regulator) at paragraph 132 this precise example was given:
  83. "132 Where a long-service pension is expressed as 1/60th of final pensionable earnings for each year of pensionable service and a member leaves after 10 years, he/she will be entitled to a SSB of 10/60ths of final pensionable earnings at the time of leaving. The same principle applies where the rate of accrual is greater than 1/60th (for example 1/45th) or where the maximum pension (apart from additional benefit deriving from salary increases) would be earned before NPA. Thus in a scheme providing 1/45th of final pensionable earnings for each year of pensionable service, with a maximum of 30 years to count for benefit, a member leaving after 10 years would be entitled to 10/45ths of pensionable earnings at the time of leaving."
  84. Mr Grant says that one would expect a member in such a position to enjoy the benefit of the preservation requirements, and it is implicit in the Joint Office Memorandum that the Occupational Pensions Board assumed he would. But if pensionable service means year-on-year accrual, such a member is not in pensionable service after age 55 as he is not accruing any more years. If he is not in pensionable service, he does not have any long service benefit as his long service benefit is defined as the benefits which will be payable on the assumption that he continues to render service which qualifies him for benefits until he attains normal pension age. If he does not have long service benefit, he is not entitled to short service benefit as this is derived from his long service benefit (see s. 71(1)). That shows that such a member must in fact be in pensionable service and continuing to qualify for benefits despite not accruing any further years. Mr Hitchcock was inclined to accept that this was so but said that was just an anomaly.
  85. I have set out the position at some length as Mr Grant placed considerable reliance on this point and said that it did not appear to have been argued before Asplin J in MNRPF, but I am not persuaded that it should cause me to change my conclusion. The short answer to it is that if there is a lacuna in the preservation requirements, that is unfortunate, but does not undermine the analysis which I have adopted above.
  86. But there is a longer answer as well, which is that I am doubtful if there really is a lacuna in the preservation requirements. If one envisages what the n/45 scheme in the example given might provide, one would expect it to have a provision saying that a member of the scheme who retires from service as a member at NPA would be entitled to a pension calculated as n/45 x FPS but subject to a proviso that n should not exceed 30. A rule drafted in such a way (and of course rules can be drafted in many different ways but this would be a typical way of doing it) does seem to me to require the member to remain in service and to remain a member of a scheme until NPA even if he has completed 30 years' service before that date. That is because he has to retire from service and be a member to receive the normal retirement pension under the rule. In that way, it seems to me his continued service after 30 years does qualify him for "benefits" as referred to in the definition of long service benefit in s. 70(1) of the Pension Schemes Act 1993, namely "retirement benefit for the member himself at normal pension age", and hence that the pension at NPA is indeed long service benefit. This is not because the continued service after 30 years qualifies him for continued salary linkage – indeed continued salary linkage is not itself "benefits" as defined in the definition of long-service benefit – but because he does not get a normal retirement pension at all unless he stays in service as a member to NPA. And for this purpose, it does not matter that in calculating the pension n is capped at 30 so that he is not accruing any more years. He still needs to be in the scheme to qualify for a normal retirement pension. By contrast, in the present case, none of the members whose accrual stopped will qualify for long-service benefit as, in my view, they will not remain in pensionable service to NPA.
  87. In the end, therefore, despite the initial attractiveness of the point, I am unpersuaded that it assists with the rather different question in the present case, which is whether a member whose accrual has ceased is still in pensionable service because of the continued salary linkage.
  88. Revaluation

  89. Mr Grant's next point was that it was a consequence of Mr Hitchcock's argument that the Employed Deferred Members became deferred members and hence entitled to statutory revaluation in deferment (see Chapter II of Part IV (ss. 83-86) of the Pension Schemes Act 1993). That means that they are entitled at the same time to statutory revaluation and a final salary link, which in effect means they are entitled to the better of the two. Why, he asks rhetorically, should they enjoy such protection? The short answer to this is that if an employer chooses to bring accrual to an end, the members become deferred members and are entitled to statutory revaluation, as Mr Hitchcock accepts. The final salary underpin is not required by anything in the legislation. It is required by the effect of the Courage restriction as interpreted in the authorities. That does mean the member gets the better of the two, but there is nothing here which indicates that the legislation should be given a different meaning.
  90. Transfer values

  91. Mr Grant also had a point on transfer values. A member of a scheme who leaves pensionable service early has a statutory right to a cash equivalent transfer value. Mr Grant deployed this point really as a counter to something said by Asplin J in MNRPF at [404] where she said:
  92. "Thirdly, as Mr Green points out, it is also consistent with the way in which revaluation, preservation and cash equivalents work. I agree that if pensionable service does not relate to accrued years of service, it would be difficult if not impossible to calculate short service benefit with any certainty. The same is true in relation to the cash equivalent regime."

    That is not a point on which I have myself placed any reliance. It seems to me that Mr Grant is right that the transfer value legislation does not really assist. If Mr Grant were right, then a member who wanted to take a transfer value could opt out of pensionable service, at which point his final salary would be known and there would be no difficulty in calculating the transfer value.

    Schemes for past service alone

  93. Mr Grant's next point is this. If Mr Hitchcock were right that a scheme closed to future accrual were one that did not relate, in the present tense, to any employment, then a scheme which was set up purely to receive past service benefits would not have a "description or category of employment to which the scheme relates" and so would not have a statutory employer and might not even be an occupational pension scheme for the purposes of s. 1 of the Pension Schemes Act 1993. Mr Hitchcock accepted that that might be so. I did not receive extended argument on the point. I have already said that I do not need or intend to decide anything about the first limb of the definition of pensionable service and that I am reluctant to express any views on a point that is not directly before me and that might have unforeseeable consequences for other schemes. It does not affect the views that I have expressed on the second limb.
  94. Section 67 of the Pensions Act 1995

  95. Mr Grant's next point is this. s. 67 of the Pensions Act 1995 prohibits any detrimental modification to a subsisting right, and a subsisting right is defined as "any right which at that time has accrued to or in respect of a member to future benefits under the scheme rules" (see section 67A(6)(a)(i)). That is subject to a rider at section 67A(7) that:
  96. "At any time when the pensionable service of a member of an occupational pension scheme is continuing, his subsisting rights are to be determined as if he had opted, immediately before that time, to terminate that service."

    That is what Mr Grant referred to as the "leaving service fiction". Mr Grant said that if the Court of Appeal were to take a different view of the Courage proviso in the future, the paradoxical effect of Mr Hitchcock's submissions would be that the final salary link could not be taken away. This is because the leaving service fiction in s. 67A(7) only applies if pensionable service is continuing and, on Mr Hitchcock's argument, pensionable service is not continuing. That means the benefit of the final salary link is part of the Employed Deferred Members' rights to future benefits and hence cannot be taken away. Mr Hitchcock accepted that that would be so.

  97. So do I. I agree the result seems paradoxical, but that is no doubt explicable by the fact that the draftsman of s. 67 did not envisage the position which has arisen. In general, one of the effects of s. 67 is to protect the rights of deferred members. It is not surprising if the draftsman may not have envisaged that a scheme might provide rights to deferred members that it subsequently wished to take away. I do not regard this as a reason for adopting a different view of the meaning of pensionable service.
  98. The employer debt regime

  99. Mr Grant's final point is that Mr Hitchcock's submission has consequences for the employer debt regime generally. If the scheme is frozen, an employer can trigger a debt by giving the trustees an employment cessation notice, which crystallises its liabilities (see reg 9(4) of the Employer Debt Regulations). Mr Grant says that all the employers could do this together, and if they did so at a time when the scheme was continuing, it would cause two problems. It would be quite unclear how one would identify the quantum of the debt when the liabilities could still increase and, even if the liabilities could be valued, it would be impossible for the trustees to either insure them or to match them with investments. I agree that this might put the trustees in a difficult position, but it seems to me that the practical answer is that in such a case the scheme would be very likely, by one means or another, to be put into winding-up. That would put an end to the final salary linkage, and the problems identified by Mr Grant would disappear.
  100. Conclusion

  101. I have now considered all the arguments put forward by Mr Grant. None of them persuades me to alter the conclusion I came to earlier, that the Employed Deferred Members are not in "pensionable service" because they are not in service which qualifies them for benefits.
  102. It follows that I am also not persuaded to differ from the similar conclusion reached by Asplin J in MNRPF. Mr Grant suggested that her decision was heavily influenced by the fact that, in order to qualify for the enhanced rate of revaluation, a member only needed to be in seagoing employment as defined, which did not require the employment to be with any of the employers participating in the scheme, and could indeed include some people who were not employed at all. I do not read her judgment as having placed great weight on that point (see at [402] where she referred to it as an indicator). As I read her judgment, the decisive criterion was that referred to in [401], that the right to revaluation at a particular level is inherent in the accrued benefit as at that date with the result that there were no members in pensionable service (see at [407]). Although I have not adopted precisely the same analysis as her in all respects, on this central point I agree, for the reasons I have given.
  103. I should add that Mr Short for the trustee made a number of helpful submissions from the perspective of the trustee, in particular as to various practical consequences that might follow if Mr Grant were right. I mean no disrespect to him if I say that I do not find it necessary to set them out or discuss them in detail.
  104. I am grateful to all counsel for their comprehensive and well-argued submissions, but in the end I have no real doubt as to the question I am asked. This is set out in the claim form as follows:
  105. "With effect from the Cessation Date, did the Relevant Sections become frozen schemes for the purposes of the Employer Debt Regulations?"

    My answer is "Yes", and I will make an appropriate declaration accordingly.

    Epiq Europe Ltd hereby certify that the above is an accurate and complete record of the proceedings or part thereof.

    This transcript has been approved by the Judge


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