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02 August 2018

Open or closed? The High Court rules on ambiguous pensionable service question

The High Court has recently ruled that a  closed defined benefit scheme that maintains a final salary link must be held to be a frozen scheme. Members in such a scheme cannot be held to be in pensionable service after the closure date, as simply remaining in service does not qualify them for accrual of benefits.

The G4S Pension Scheme is a multi-employer scheme, two sections of which closed to accrual in 2011. A fetter on the amendment power meant that a final salary link to benefits was maintained for members in service at the closure date.

The presumption that, following closure, the scheme was a frozen scheme had been challenged. It was claimed that the maintenance of the final salary link constituted a member remaining in pensionable service.

However, the High Court held that service after closure, in these circumstances, only serves to quantify a member’s already accrued benefits, rather than qualifying the member for further accrual of benefits. As a result, despite maintaining a final salary link, a closed scheme should still be held to be frozen for the purposes of the Employer Debt Regulations and Pensions Act 1995.

This clarifies the historic uncertainty as to whether members whose schemes have been closed to future accrual of benefit, but whose past service benefits are linked to future final salary, remain in pensionable service. The Court held that the term should not extend to such members and that they are not active members under relevant legislation.

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