The Pitfalls of Retrospectively Amending the Terms of Pension Schemes

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24 June, 2019

In the recent case of BIC U.K. Limited v. Burgess [2019] EWCA Civ 806 ("BIC"), the Court of Appeal offered further clarity on the ability to retrospectively amend pension scheme rules. The Court of Appeal overturned the previous High Court decision finding that increases to pensions in payment in this instance had not been validly introduced.

Under many pension schemes, the rules expressly allow for retrospective amendment. However, in the absence of an express power, it is necessary to demonstrate the existence of an implied power if retrospective amendments are to be permitted. Any argument for the existence of a power must be constructed from the terms of the trust deed and rules, taking any restrictions on amendments into account.

This case concerned the BIC UK Pension Scheme. The Scheme accrued a surplus which required reduction. It was decided by the trustees in 1991 that the surplus would be used to provide pension increases of the lesser of 5% or RPI. The increases had been introduced following a trustee meeting in 1991 and were then applied from April 1992. The changes were retrospectively authorised by a deed and rules passed in 1993 containing an effective date of 1990. In 2011, the validity of the increases relating to service prior to April 1997 was challenged by BIC UK as if the increases were validly granted, the scheme's liabilities would increase by £5.06 million.

Initially, the High Court ruled that the changes were retrospectively authorised by the deed and rules passed in 1993. The Court of Appeal overturned the decision of the High Court as the changes could not be retrospective as there was no proper basis for treating the trustees as having a common intention and actually exercised validating powers. In the absence of any express provision in the documentation, such a common intention could not be inferred. The Court of Appeal stressed the importance of focusing on the intentions of the parties at the time the amendments were put into place. In this particular instance, retrospective amendments introducing non-statutory annual increases to pensions in payment were invalid.

The ruling stresses the importance of evidencing a clear intention when making amendments to pension schemes. It is imperative that the facts, background and rationale for any amendment is clearly documented. All procedure and documentation should follow the scheme governance procedure, as any flaw in the process can potentially invalidate the proposed amendments. Trustees are advised to take robust legal advice if they are in any doubt as to the correct procedure to be followed.

For more information contact Rosalind Leahy in our Employment & HR department via email or phone on 01772 220185. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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