Case Law: Pitmans Trustees Ltd v The Telecommunications Group Plc - Key Issue of Employer Liability for Pension Scheme Deficit

Introduction

Pitmans Trustees Ltd. & Ors v The Telecommunications Group Plc is a pivotal case centered around the interpretation and application of legislation concerning occupational pension schemes, with specific reference to schemes comprising both final salary and money purchase benefits. The case delves into the complexities of pension scheme assets, deficiencies, and employer liabilities, and examines the trustees’ duties in relation to investment policies during the winding up of a pension scheme.

Key Facts

The core issue in the case arose after a merger between the BETEC Retirement Benefits Plan (final salary scheme) and the Roxspur Money Purchase Scheme (money purchase scheme) into a single pension plan (the Plan). Upon winding up, the Plan was found to have a deficit, and the case primarily concerned whether Roxspur, as the sole remaining employer, was responsible for the whole deficit, including that arising from the final salary benefits section.

Complicating factors included the trustees’ late decision to adopt a gilts-matching investment policy, the consultation process (or lack thereof) with Roxspur regarding this change, and the implications that such an investment policy would have on the valuation of the pension scheme’s liabilities.

Legal Principals

Single Scheme vs. Separate Schemes

A significant legal question was whether the Plan should be considered a single scheme for the purposes of Section 75 of the Pensions Act 1995. Roxspur argued that the Plan should be treated as two separate schemes (money purchase and final salary sections) for the purposes of s.75, exempting it from liabilities arising from the final salary section. The court, however, held that the Plan was indeed a single scheme, basing this interpretation on the nature of the merged plan’s trust fund and the legislation’s intent that the term “scheme” should retain broad generality.

Application of s.75(1B)

The court also considered whether s.75(1B) applied, which addresses the treatment of a scheme divided into sections pertaining to different employers. The court concluded that s.75(1B) did not apply as the Plan’s rules did not create different sections of the scheme correlating to different employers or groups of employers.

The Need for Proper Consultation

A critical procedural aspect of the case was the requirement for trustees to consult the employer before revising a Statement of Investment Principles under s.35(5)(b) of the Pensions Act 1995. The court held that the trustees’ actions did not constitute genuine consultation as required by law, which invalidated the adoption of the new investment policy and the Actuary’s subsequent valuation certificate.

Gilts-Matching Policy

The court held that, notwithstanding the consultation failure, the content of the purportedly adopted Statement of Investment Principles did contain a gilts-matching policy in alignment with the requirements of the Minimum Funding Regulations. This would have implications for the valuation of the scheme’s liabilities had the policy been properly adopted.

Consequences of Process Failure

Lastly, the court considered the implications of failing to conduct proper consultation before adopting a gilts-matching policy. Since the adoption of the investment policy was not valid, neither was the Actuary’s valuation and certificate, leading to the dismissal of the claimed debt. The court, however, did not preclude the trustees from issuing a new claim based on a subsequent valid valuation.

Outcomes

The court resolved the following:

1. The Plan was recognized as a single scheme comprising both final salary and money purchase benefits, making Roxspur liable for the whole of the Plan’s deficit.
2. The trustees had failed to consult Roxspur in accordance with s.35(5)(b) before adopting a revised Statement of Investment Principles, rendering the adoption invalid.
3. Because of the failure to properly adopt the revised investment policy, the Actuary’s valuation and certificate were invalid.
4. As a result of the procedural failing, the Trustees’ claim for the debt as at 31st May 2003 was dismissed.

Conclusion

The case of Pitmans Trustees Ltd. & Ors v The Telecommunications Group Plc underscores the intricate statutory and regulatory framework governing occupational pension schemes in the UK, particularly when schemes merge and involve different types of benefits. The decision reinforces the primacy of properly following legislative requirements, such as the need for true consultation with employers before trustees adopt revised investment policies, especially in the context of winding up a pension scheme. The judgement serves as a clear message that trustees must adhere strictly to procedural obligations to ensure their actions are legally sound.