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Over 25 years ago, a landmark case [1] often referred to as the Barber case laid down the principle that defined benefit pension schemes must adopt the same normal retirement age (NRA) for both male and female members.

Last week’s judgment in a new case [2] is the latest instalment in a line of disputes arising from the Barber decision. This case, brought by the employer (now part of the Wm Morrison Group) of the Safeway Pension Scheme (the Scheme), reviews some essential principles of equalisation, as well as considering novel arguments in relation to overriding legislation requiring equal treatment in pension schemes.

How do you equalise NRAs that were previously unequal?

In cases from the 1990s [3] the ECJ clearly stated the only proper method of equalisation of NRAs as required by Barber, for the duration of the period between:

  • 17 May 1990 (the date of the Barber judgment); and
  • the date when a scheme amended its rules in a way that complies with both:
    • the requirements of the scheme’s own procedures for amending its governing provisions (as a matter of domestic law); and
    • the requirements of the EU’s governing Treaty[4] (as a matter of EU law)

(that period being the Barber window), is to ‘level up NRA between the sexes during the Barber window. This requires schemes to confer on the disadvantaged sex the same advantages enjoyed by the favoured sex.

For any future accrual of benefits after the effective date of that amendment to close the window, it would be permissible to adopt any NRA (including one levelling NRAs down) provided that it applied equally to both sexes.

What Barber meant for last week’s judgment

The Scheme was similar to many UK pension schemes until Barber, in that it set NRAs higher for male members than for female members – at ages 65 and 60 respectively – and so equalisation would require granting male members a reduced (hence more generous) NRA of 60 for the duration of the Barber window.

In this instance Safeway wished to close the Barber window as soon as possible after May 1990 to limit its additional funding costs. This required it to amend the Scheme’s rules. After the effective date of that amendment, pension accrual for both male and female members would be based on an NRA 65.

The issues in dispute

The issue arose as to the effect of a written announcement which purported to introduce a common NRA of 65 from 1 December 1991. The Scheme’s rules required that any amendment be made by  deed, but stated that such a change would take effect from “the date of that deed, or any prior written announcement”.

It was not until 2 May 1996 when the relevant deed was executed. The Scheme was administered and funded on the basis of the 1991 announcement, and it was considered that, in line with the Scheme’s amendment power, the deed simply confirmed the changes that had been introduced by the 1991 Announcement.

When the amendments to NRAs were later reviewed, the true date on which the changes took effect took on particular financial significance.

If the changes had been legally made in December 1991, the Barber window would only have stayed open between May 1990 and December 1991 (just 19 months). However, if the amendment did not take effect until May 1996 when the deed was executed, then the Barber window would have remained open for nearly six years.

The respective arguments

Safeway, as the Scheme’s sponsor faced with the significant increased costs of funding nearly five additional years of male members’ pensions accrued with an NRA of 60 over and above what it had provided for in previous valuations, argued that the 1991 announcement was effective to equalise all pensions with an NRA at 65.

In case this did not succeed, Safeway’s lawyers put forward an alternative argument that equalisation had already taken effect automatically by operation of the overriding legal requirement of the equal treatment rule [5] in Section 62, without the need for any active step to amend the rules.

The 1996 deed was, they argued, simply a second step, providing for a common NRA of 65, following the first step (which had already taken place by operation of Section 62, and had established an equalised NRA of 60 for the period of the Barber window).

Mr Newton, as representative of the Scheme’s beneficiaries, argued that the change did not take effect until the date of the deed in 1996, meaning that members would be entitled to almost five more years of benefits calculated on the basis of an NRA of 60.

The judgment

The main argument

It was held that, as a matter of domestic law, the Scheme’s amendment power required changes to be effected by deed, and so the 1991 announcement was not effective to equalise NRAs as at 1 December 1991. It was not therefore until execution of the deed of May 1996 that NRA equalisation actually occurred.

Further, as a matter of EU Law, the specific requirements as mentioned above set out clearly that it was not possible to equalise NRAs with retrospective effect prior to the May 1996 deed.

The judge could not distinguish the facts of this case from an additional case of 2006[6], which he had also determined, and therefore ruled that in the period between 1 December 1991 and 2 May 1996, the Scheme was in breach of the equal treatment requirements of EU law.

The alternative argument

The judge did not accept this argument. First, the true effect (of Section 62) was not to automatically put the Scheme in compliance with the requirements of EU law [4].

Secondly in any case, the two-stage process envisaged by Safeway’s lawyers would have been part and parcel of a process intended to give effect to Article 157 which would, if they were effective, have resulted in the levelling-down of the NRAs of female members during the Barber window. The 90s cases established that this would be in breach of Article 157.

Conclusion

This case is significant not just because it revisits and confirms the question of how to effect equalisation properly, but also because it shows that, while the courts’ general attitudes towards complying with formalities for making amendments may be softening, the specific issue of amendments made to comply in relation to equalisation will still be scrutinised closely.

Also, any question as to whether Section 62 is sufficient to effect equalisation has also been answered in the negative.

Leave has been given for Safeway to appeal the case.  However, given that the High Court’s decision does accord with the prevailing view of many pensions advisers, success at appeal appears an unlikely prospect.

This post was contributed by James Gulliford. For more information, email blogs@gateleyplc.com.

[1]Barber: Barber v Guardian Royal Exchange (ECJ case C-262/91)

[2] Safeway v Newton: Safeway Ltd v Newton and another [2016] EWCH 377 (Ch)

[3] Coloroll:  Coloroll Pension Trustees v Russell  ECJ Case C-200/91) and Smith v Advel:  Smith v Avdel Systems Limited ECJ Case C-408/92

[4] Article 157 of the Treaty on the Functioning of the European Union (formerly Article 119 and Article 141)

[5] Section 62 of the Pensions Act 1995

[6] Harland & Wolf: Harland & Woolf Pension Trustees v Aon Consulting Financial Services Ltd [2006] EWHC 1778 (Ch)

 


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.