Court of Appeal Upholds Actuarial Professional Judgment in Railways Pension Scheme Deficit Case

Citation: [2024] EWCA Civ 98
Judgment on

Introduction

In the case of Railways Pension Trustee Company Limited v ATOS IT Services UK Limited & Anor [2024] EWCA Civ 98, the Court of Appeal adjudicated upon the proper interpretation of provisions within a pension scheme and their interplay with statutory protections afforded to certain employees post-privatization of the British railway system. The case centered on the Railways Pension Scheme (RPS), specifically the Atos Section, and how a deficit within this section should be managed. Crucially, the court contemplated the exercise of professional judgment by an actuary in the context of the pension scheme and how duties were created and regulated under the Railways Pension Scheme Order and the Railway Pensions (Protection and Designation of Schemes) Order.

Key Facts

This appeal involves the RPS, which hosts numerous sections including the disputed Atos Section. Upon privatization, British Rail split its pension arrangements into these sections with protections for existing and future pension rights. Within the Atos Section, a funding deficit arose which prompted the question of how such a shortfall should be remedied.

Rule 21 of the Atos Section Rules, and its relationship to the employer’s contribution obligations under Article 7 of the Pension Protection and Designation of Schemes Order, was central to the dispute. The appellants contested the interpretation of Rule 21 as providing an exhaustive mechanism for eliminating a deficit, arguing that actions under this rule should fulfill the scheme’s liability in full, without discretion. Conversely, the respondents maintained Rule 21’s flexibility in addressing the shortfall and contended for a supplementary obligation under Article 7 to make up any remaining deficit, defending the actuary’s “substantial discretion”.

Key to the legal arguments was the interpretation of the Rule 21 of the Atos Section Rules and its comprehensiveness in addressing pension shortfalls. The court drew on established principles from Barnardo’s v Buckinghamshire & Ors and Britvic plc v Britvic Pensions Ltd & Anr, emphasizing textual analysis and giving weight to the language used within the pension scheme provisions. The application of professional judgment, rather than a purely mechanistic calculation by the actuary, was also highly scrutinized. The implications of Article 7’s freestanding obligations, beyond the scope of Rule 21, necessitated deliberate construction in light of the statute’s provisions.

Outcomes

The Court of Appeal upheld the Chancellor’s judgment that Rule 21 does not constitute an exhaustive scheme for eliminating a shortfall. The court confirmed the role of the actuary in applying professional judgment, refuting the appellants’ view that the actuary should merely perform a calculation without regard for whether the calculated contributions are likely to be paid. The court also interpreted Article 7 to impose a separate balance of cost obligation upon the employer after the application of Rule 21(1)(ii), and not after Rule 21(1)(iv), thereby filling any funding gaps not resolved by the scheme’s rules.

Conclusion

The Court of Appeal’s decision affirms the necessity for actuarial professional judgment within pension scheme valuation and contribution calculation procedures, along with the recognition of statutory duties that may overlay and extend beyond such schemes’ internal provisions. In dissecting these complexities, the court’s analysis provides a robust guidance on pension scheme rules’ interpretation, the role of actuaries, and the reconciliation of scheme rules with statutory protections. The decision stresses the importance of a pragmatic approach that gives meaningful effect to pension schemes while acknowledging wider statutory frameworks designed to protect certain categories of employees.

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