A recent Pensions Ombudsman (“TPO”) determination concerning retrospective equalisation has caused a flurry of interest in the industry.
The case of CAS-38639-F6P7 which involved Mrs E and the Avis UK Pension Plan (the “Plan”) and the respondents who were Avis Budget Group (the employer), XPS Administration (the administrator) and Avis Pension Trustee Limited (the “Trustee”). The case concerned Mrs E’s complaint that her Plan benefits had been actuarially reduced for early payment on the basis that she believed that, after the Barber judgement, the Trustee had incorrectly increased the normal retirement date (“NRD”) for her pre-Barber benefits.
Background – what is Barber?
Firstly, what is the “Barber” referred to in the complaint? Well Barber refers to the now infamous (well in the pensions world at least!) European case called Barber v Guardian Royal Exchange Assurance Group (“Barber”) which is now almost 35 years old! The case was settled by the European Court of Justice (the “ECJ”, now the Court of Justice of the European Communities (CJEU)) on the equally famous pensions landmark date of 17 May 1990 and in which it held that pensions paid under the terms of a private occupational pension scheme were deferred remuneration, so that the right to equal pay under Article 119 of the Treaty of Rome applied to that part of a person’s remuneration which consisted of pension benefits, as it did to any other part of their pay. Therefore, it precluded the application of different retirement ages for males and females for pension entitlements. Generally, pre-Barber a female retirement age under a pension scheme was 60 and for a male member it was 65.
However, the ECJ imposed a time restriction on the effect of the judgment, so that Article 119 could not be relied upon to claim entitlement to a pension calculated on an equalised basis for service prior to the decision (17 May 1990), with the exception of pre-existing claims and legal actions.
So, for any period of pensionable service prior to 17 May 1990, equalisation of pension ages was not required. Barber window is the name given within the pensions industry to the period between 17 May 1990 and the date that a pension scheme’s rules were equalised – this required that pension rights were 'levelled up', that is, the disadvantaged members were entitled to the more favourable treatment, which generally meant that male members were entitled to a lower retirement age.
How did the Plan which was the centre of Mrs E’s complaint equalise NRDs?
In November 1990, the then trustees wrote to the Plan members and explained about the Barber judgement and that amendments would be made to the Plan with effect from 1 January 1991 to, amongst other things, amend the NRD to 65 with the effecting of equalising it for men and women (it was 60 females/65 males prior to that).
On 23 November 1992, the Plan rules were amended to equalise the NRD for men and woman at age 65. Therefore, the Barber window was closed from that date (so the Barber window was 17 May 1990-23 November 1992). However, the important point in terms of the basis of Mrs E’s complaint (more on that below), was that the way in which equalisation was effected meant that all female members’ benefits then had an NRD of 65 for all periods of service, other than in respect of the benefits accrued during the Barber window period.
What was Mrs E’s complaint?
As mentioned above, Mrs E’s main head of complaint was about the “levelling up” (as opposed to the generally accepted concept of levelling down in order to effect equalisation) of her NRD from 60 to 65 for service prior to the Barber window period.
She firstly argued via the Plan’s IDRP process that the Plan Rules were not amended to equalise the NRD for men and women until 23 November 1992. She therefore believed that her pensionable service, from 18 August 1986 to 22 November 1992, should have had an NRD of age 60. Thereafter, her NRD would have been age 65 for the remainder of her pensionable service.
However, on referral of her complaint to TPO, she made further submissions to the effect that, based on previous case law, she did not agree that amending the Rules on 23 November 1992 allowed the Trustee to retrospectively increase her NRD to age 65 for pre-17 May 1990 service. She argued that Section 67 of the Pensions Act 1995 (“Section 67”) required the Trustee to obtain the member’s consent before implementing any amendments that might affect their subsisting rights under the Plan, which the Trustee did not.
TPO’s findings
TPO held that the manner in which the Plan achieved equalisation was in line with the requirements of the Barber judgment. Regarding Mrs E’s contention that her subsisting rights were affected by the retrospective changes the Trustee made to the benefits she had accrued prior to 17 May 1990, TPO held that:-
- The Plan’s amendment power allowed retrospective amendments.
- As the changes were made prior to Section 67 coming into effect, neither the consent of Mrs E nor the other Plan members was required to the amendment of subsisting rights.
- Section 67 was not brought into force until 6 April 1997 and it is not retrospective. Therefore it can only be applied to benefit amendments from 6 April 1997 onwards and so was not relevant to Mrs E’s case.
Comment
At first glance, this TPO determination seems quite controversial and contradictory to previous case law, including the Safeway Limited v (1) Andrew Newton and (2) Safeway Pension Trustees Limited [2020] EWCA Civ 869 (the “Safeway” case) which Mrs E referenced in this determination. In the Safeway case, the Court of Appeal held, following a confirmation from the now CJEU, that EU law prevented a pension scheme from equalising members’ normal pension ages with retrospective effect (unless there was objective justification). However, the Safeway case went on to decide that once section 62 (equal treatment) of the Pensions Act 1995 had come into force on 1 January 1996, the determination of whether retrospective equalisation was effective or not became a question of domestic law rather than EU law.
However, on closer examination of this determination, it is not as controversial as it may first appear – it turns on the particular circumstances of how equalisation was effected and the relevant time periods, and the inter-action of those with Section 67. As such, it can be distinguished from the Safeway case as it did not concern the retrospective closing of the Barber window period, but rather the retrospective amendments to benefits accrued before 17 May 1990. Therefore it was not breaching European law requirements which apply in respect of benefits accrued during the period from 17 May 1990.
How we can help you
Despite the passage of time since Barber, equalisation of retirement ages continues to be an issue for many defined benefit pension Schemes. Schemes that thought they had equalised their normal retirement dates often reach the point of buy-out with an insurer and realise that equalisation has not been validly effected in accordance with the pension scheme’s amendment power. This can then hold up the buy-out process and more importantly signal additional significant liabilities depending on the outcome. We can assist you with reviewing your scheme and confirming whether equalisation has been validly effected. This will be particularly important if you are getting scheme and data ready for a future buy-in/buy-out. If we can assist with equalisation reviews, please do get in touch with our Pensions Partner, Richard Pettit, or your usual contact in the Burges Salmon Pensions team.
As the changes were made prior to Section 67 coming into effect, neither the consent of Mrs E nor the other Plan members was required to the amendment of subsisting rights.