Pension scheme closure found effective in high court ruling

The trustee of the Wedgwood Pension Plan applied to the High Court for directions to determine whether the participating employers’ notices terminating their liability to contribute were effective to cease future accrual and to break the final salary link.

The scheme’s amendment power contained a fetter against amendments which prejudiced or adversely affected any pension or annuity then payable or the rights of any member.

The parties agreed that the fetter preserved a final salary link.

The Court considered two issues:

1. the scope of the fetter on the amendment power
2. whether a new rule which the participating employers had used to give the notices to terminate their liability to contribute to the scheme had been validly introduced. The predecessor rule had included a restriction which required the employer using the power to find that it is “impractical or inexpedient” for them to continue to participate in the scheme. The new rule did not contain such a restriction.

The Court held that the employers’ notices terminating their liability to contribute was effective to cease future accrual.

In relation to the first issue, the Court decided that the word “rights” did not cover benefits which might in the future be obtained as a result of future service with an employer.

On the second issue, the Court decided that the introduction of the new rule was valid but it fell foul of the amendment power fetter by prejudicing or adversely affected the right of members and, as such, it was subject to an implied limitation that notice of termination could not be validly given unless it was “impractical or inexpedient” for the employer to continue to participate. However, the Court found that, when exercising the power, the employers could have proved that it was impractical or expedient for them to continue to participate in the scheme.

The case is quite fact-specific. However, it is a useful reminder of the importance of considering any fetters on the amendment power when seeking to make an amendment to scheme rules.