Introduction

The abrdn (SLSPS) Pension Trustee Company Ltd v. Roxburgh; Pinsent Masons LLP case, adjudicated by the Scottish Court of Session in August 2023, addresses critical issues in the management and de-risking of defined benefit pension schemes. The primary focus is on the trustee's authority to enter into de-risking arrangements and the legal implications concerning the surplus assets within the pension fund. This case sets a significant precedent regarding the application of resulting trusts in pension schemes, particularly during the winding-up process.

Summary of the Judgment

The petitioner, abrdn Pension Trustee Company Ltd, sought court directions on three pivotal questions:

1. Whether the trustee could enter into a buy-in and buy-out arrangement within the framework of the scheme's rules and fiduciary duties.
2. Whether any remaining surplus assets post-de-risking would be subject to a resulting trust in favor of the participating employers.
3. Details regarding the beneficiaries of such a resulting trust and the conditions under which it operates.

The court, after thorough examination and considering unopposed submissions from participating employers, affirmed the trustee's authority to engage in the proposed de-risking transactions. Additionally, it confirmed that any surplus assets would indeed be held in a resulting trust for the participating employers, subject to specific conditions.

Analysis

Precedents Cited

The Judgment extensively references several key cases that influenced its decision:

• Edge v Pensions Ombudsman [1998] Ch 512: This case clarified that trustees are not required to act impartially between different groups of beneficiaries, such as members in service and pensioners, provided they act within their fiduciary duties.
• Trustees of the Joy Manufacturing Holdings Ltd Pension and Life Assurance Scheme [1999]: Emphasized that trustees cannot delegate discretionary powers to the court and must act in the beneficiaries' best interests.
• In re British Red Cross Balkan Fund [1914] 2 Ch 419: Addressed the rights of participant employers to surplus funds in a pension scheme.
• Air Jamaica Ltd v Charlton [1999] 1 WLR 1399: Discussed the principles surrounding resulting trusts in the context of pension schemes.

These precedents collectively underscore the court's approach to trustees' discretion, fiduciary duties, and the handling of surplus funds within pension schemes.

Legal Reasoning

The court's reasoning can be dissected into several key components:

• Trustee's Authority:

  The trustee's decision to enter into buy-in and buy-out arrangements was within the scope of its powers as defined by the trust deed and the scheme's rules. The court emphasized that trustees hold discretionary power to administer the fund, including making arrangements to secure member benefits.

• Resulting Trust:

  The surplus assets, once all liabilities and winding-up expenses were addressed, were deemed to be held in a resulting trust. This was because the trust deed did not provide specific instructions for surplus asset distribution, and the primary purpose of the trust had been fulfilled.

• Beneficiaries of the Resulting Trust:

  Only the participating employers who remained active at the time when no members were in pensionable service were recognized as beneficiaries of the resulting trust. Former employers who had ceased participation and were dissolved did not retain any entitlement to the surplus.

• Fiduciary Duties:

  The trustee's actions were in line with fiduciary duties, as the arrangements benefited the members by securing their pensions and enhancing their benefits. The court found no evidence of conflict of interest or breach of trust.

Impact

This Judgment has profound implications for the administration of pension schemes, particularly those undergoing de-risking processes. Key impacts include:

• Clarification of Trustee Powers: Reinforces the trustee's authority to make arrangements that secure member benefits, provided they act within the trust deed and fiduciary responsibilities.
• Application of Resulting Trusts: Establishes a clear precedent on how surplus assets are to be handled when the trust's primary purposes are fulfilled, emphasizing that such assets revert to the original contributors—in this case, the participating employers.
• Guidance on Fiduciary Duties: Highlights the balance trustees must maintain between safeguarding member benefits and managing surplus assets, ensuring actions align with fiduciary obligations.
• Procedural Insights: Demonstrates the court's approach to petitions for directions, especially in scenarios where petitions are supported by all involved parties, thereby streamlining future proceedings.

Complex Concepts Simplified

To ensure a comprehensive understanding, several complex legal concepts addressed in the Judgment are clarified below:

• De-risking: A strategy employed by pension scheme trustees to minimize financial risks associated with defined benefit schemes. This typically involves transferring investment and longevity risks to an insurance company through buy-in and buy-out arrangements.
• Buy-in: An insurance contract where the insurer agrees to make payments to the trustee that correspond to the pension liabilities, effectively transferring investment and longevity risks.
• Buy-out: A definitive transfer of pension liabilities to an insurance company, which then becomes directly responsible for paying out individual pensions to members.
• Resulting Trust: A legal principle where assets held by a trustee are returned to the original contributor (or their successors) when the trust's primary purposes have been fulfilled, and there are surplus assets with no designated beneficiary.
• Fiduciary Duty: The obligation of trustees to act in the best interests of the beneficiaries, ensuring prudent management of the trust's assets and adherence to the trust's terms.

Conclusion

The abrdn Pension Scheme case [2023] CSIH 31 serves as a pivotal reference for trustees managing surplus assets within pension schemes undergoing de-risking. By affirming the trustee's authority to engage in buy-in and buy-out arrangements and clarifying the application of resulting trusts, the Judgment provides clear guidance on fiduciary responsibilities and asset management post-de-risking. This case underscores the importance of adhering to trust deeds while balancing member benefits and the equitable distribution of surplus assets. As pension schemes continue to evolve amidst changing economic landscapes, this precedent will undoubtedly inform future legal interpretations and trustees' strategic decisions.