4: CJEU delivers judgment on retrospective equalisation in Safeway v Newton

The Court of Justice of the European Union (CJEU) has handed down its judgment in the long-running case of Safeway Ltd v Newton and Safeway Pension Trustees Ltd, ruling that normal pension age (NPA) could not be equalised retrospectively from the date of an earlier announcement to members, despite a power in the scheme’s rules permitting this, unless there was a public interest exception. For the Safeway scheme, the potential financial consequences of this judgment amount to around £100 million.

Initially, Safeway’s pension scheme had an NPA of 65 for men and 60 for women. Following Barber v Guardian Royal Exchange Assurance Group, in September 1991, Safeway issued a written announcement to members notifying them that the NPA would be equalised at 65 for service after 1 December 1991. The scheme was then administered on the basis that benefits were equalised on that date. However, the NPA was not formally amended in the governing deed and rules until a replacement definitive trust deed was executed in May 1996 (the 1996 Deed). The 1996 Deed purported to equalise NPA from 1 December 1991.

The scheme’s amendment power required amendment by deed but expressly allowed amendments to take effect retrospectively from the date of an earlier written announcement to members.

At first instance, the High Court ruled that equalisation was not effective until May 1996. The Court of Appeal held that the amendment power could only be exercised by deed and, therefore, equalisation could not have been achieved by the member announcement in September 1991. However, the Court referred to the CJEU the question of whether the power to amend the scheme retrospectively to level down rights (permitted under domestic law) was prohibited by EU law.

The CJEU has now ruled that levelling down rights retrospectively is prohibited by EU law, even if it would be permitted by the scheme’s amendment power. However, the CJEU also confirmed that a measure seeking to end discrimination that is contrary to EU law may, in exceptional circumstances, be adopted retrospectively if it is for an overriding reason in the public interest and the legitimate expectations of those involved are respected. For example, this might be justified if there was a ‘risk of seriously undermining the financial balance of the pension scheme concerned’.

It is now left open for the Court of Appeal to verify whether the public interest exception applies to this case.

The CJEU’s decision will have limited application. It will be relevant to schemes that have an amendment power which expressly permits retrospective amendments and does not protect accrued rights and that, before the introduction of section 67 of the Pensions Act 1995, tried to use that amendment power to retrospectively level down benefits, and have not subsequently hardcoded a later equalisation date into their scheme rules. For schemes that fall into this category, the judgment provides for a public interest exception to the general prohibition on retrospectively levelling down. However, it is yet to be seen how this public interest exception will be applied. Interestingly, the Attorney General’s opinion in Smith v Avdel (one of the equalisation cases heard in 1994, following the Barber judgment) recognised that, in exceptional cases, it may be possible to take account of circumstances required for the very existence of the employer or solvency of its pension scheme. However, the Attorney General suggested that the fact that applying the principle of equal treatment will cause financial burdens which have an impact on the financial equilibrium of an occupational pension scheme would not in itself be a sufficient ground for justification.