Pension Schemes - Construction, purpose and interpretation of provisions relating ordinary members

22/04/2010

The Hobourn Group Pension Trust Company Limited and Independent Trustees ("the Trustees") had, under the Hobourn Group Pension Scheme ("the Scheme"), provided for differing ages for retirement for male and female members of the Scheme and sought to amend a Deed of Variation (attached to the rules of the Scheme) regarding the right to payment from the pension scheme. The original rules provided for a different normal retiring age ("NRA") for men and women, with the NRA for men being 65 years and 60 years for women.

On 14 April 1992, the Trustees announced that as at 1 July 1992, a common NRA of 65 years would be introduced for both men and women, with a detailed explanation to be made in the pension newsletter. It was agreed that the deed could not have a retrospective effect prior to 1 July 1992. Following the announcement, no further action was taken for 18 months after the Deed of variation was amended.

The Deed changed the rules of the Scheme and amended the definition of the NRA so that the NRA would be (a) in relation to a female member before 1 July 1992, her 60th birthday; and (b) in relation to any other Member his or her 65th birthday.

This allowed the Trustees to grant a pension or an increase in a pension amount in relation to discretionary benefits under rule 3(F), which could then be determined by the principal company and the Trustee of the Scheme. Accordingly, the rule permitted the Trustees to notify the employee or any person to whom this benefit would become payable.

A claim arose when a member and Trustees disputed the construction of the amendments to the Deed of Variation: the Trustees believed the amendment should be construed as follows:

(a) in relation to the pensionable service of a female member before 1 July 1992, her 60th birthday; and
(b) in relation to any other member or service his or her 65th birthday

This would have the effect that the NRA for all members would be 65. The Trustees also argued that the rules of the Scheme were changed by the publication of the newsletter and that the discretionary benefit rule authorised the Trustees to notify the member in general terms of any alteration in his entitlements arising under the Rules.

The member argued that the definition should be interpreted to read:

(a) in relation to a female Member who was a Member before 1 July 1992 her 60th birthday; and
(b) in relation to any other member his or her 65th birthday

This would have the effect of altering the NRA for everyone except women who were members on 1 July 1992.

The Claimants were successful in relation to the interpretation and construction of the definition. It was held by Mr Justice Norris that:

(1) The wording in the definition was not to be read in isolation

The provision amending the NRA should create two categories to pensionable services, rather than two categories of members without undoing the purpose of the provision.

When approaching the construction of the rule, the Judge considered that the ordinary and natural meaning of the words in the definition should not be read in isolation, but rather as part of the document as a whole for the purpose of implementing coherent and consistent amendments.

As the interpretation of the rules in accordance with their original ordinary meaning would make the Deed less comprehensible when reading it as a whole, it was viewed that in the context of the existing rules there was an inconsistency in the language in the provision amending the definition.

(2) The wording in the definition should be constructed in plain language

It was also found that consideration identified in BESTrustees v. Stuart [2001] O.P.L.R. 341 were relevant. These considerations related to a member's entitlements to protection from the trustees and even the court, due to in most cases, a member's lack of access to expert legal advice. The Court in this instance though that this consideration should impose a requirement on the Court to be careful before departing from the plain wording and plain requirements of the trust deed.

It was also thought that a change in the NRA was a change in the rules which would thus affect entitlement accruing under the Scheme, including those where benefits are payable under the Rules and the level of benefits payable.

As rule 3(F) was connected to discretionary benefits payable to a member or other person determined by the principle company, it was the Judge's view that Rule 3(F) had no application to the NRA, and that announcement in the letter was ineffective to change the NRA for any particular individual.

The Judge found that with effect from the date that the deed of variation was entered into, the NRA meant (a) in relation to the pensionable service of a female member before July 1, 1992, her 60th birthday, and (b) in relation to any other member or service his or her 65th birthday.

(Independent Trustee Services Limited, Hobourn Group Pension Trust Company Limited (The Trustees of the Hobourn Group Pension Scheme) v. Brian Knell (A Member of the Hobourn Group Pension Scheme) [2010] EWHC 650 (Ch))

Contact: fredaz@city-law.net

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