The Court of Appeal has today handed down its decision in Foster Wheeler v Hanley, the latest of a long line of cases looking at the way in which schemes equalised retirement ages following the European Court's decision in Barber in 1990.
The Foster Wheeler scheme equalised retirement ages in 1993 at age 65. The rules never clearly set out how benefits accrued before the date of equalisation should be treated and how effect should be given to members' rights under European law to have some benefits calculated by reference to a normal retirement date ("NRD") of 60. However, the rules did provide that pensions could be taken unreduced from age 60 on retirement from active member status, subject to the consent of the company.
The company and the trustees had agreed a policy where consent would not be refused to those members whose benefits included an element of benefit with an NRD of 60. This provision was changed in 2003 as the scheme was in deficit and an actuarial reduction was applied to benefits on early retirement by reference to age 65.
The Court of Appeal held that although European law rights to equal treatment should be implemented by the minimum changes possible to the scheme, this did not mean the minimum changes in terms of textual amendments, but what would require the minimum changes to parties' substantive rights.
The court said that "the task of devising appropriate modifications... is one in the course of which a number of choices will need to be made as regards the best and most sensible and practical way of achieving the necessary equalisation. The guiding approach should be that of making the least substantive alteration to the scheme that is compatible with the required equalisation. Apart from that principle, the parties must exercise their judgement in choosing between different options". In principle "the necessary modifications ought to be agreed between the trustees and the employer" and only in hopefully rare cases where this was not possible should recourse to the courts be necessary.
In this case substantive changes would be minimised by allowing the employer to refuse consent to benefits being taken under the early retirement rule and the members therefore having to take benefits before age 65 under the deferred benefits rule. Unlike the active member early retirement rule, the deferred member rule allowed the trustees to impose whatever actuarial reductions they considered appropriate and therefore to reduce benefits by reference to age 65, except to the extent that the member had some benefits with an NRD of 60. The possibility of construing the rules to allow the payment of split pensions at different times in respect of benefits with different NRDs was rejected.
The decision turns on the facts of the case and the wording of the scheme rules. However, the approach adopted by the court and its acknowledgement that, in the wake of the Barber decision, many schemes did not reach a neat drafting solution which properly reflected the rights which members had post-Barber will be welcome news to many employers.
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The original publication date for this article was 08/07/2009.