Wedgwood Pension Plan Trustee Ltd v Salt

Factual and Procedural Background

An application was made by the trustee ("the Trustee") of the Wedgwood Group Pension Plan ("the Plan") seeking directions on whether a notice served by the employers in 2006 effectively closed the Plan to the future accrual of benefits for all members from 30 June 2006 and whether the final salary link for those members was discontinued. The Plan had undergone several rule amendments since its establishment in 1978, with significant rules being the 1995 Rules and the 2001 Rules, the latter being a complete rewrite effective from 1997.

In June 2006, the participating companies ("the Participating Companies") served notices terminating their liability to contribute to the Plan for employees in pensionable service, effective from the end of June 2006 ("the Employers' Termination Notice"). Subsequently, the parent company and some participating companies entered administration and liquidation, triggering relevant insolvency events under pension legislation. The Plan, being a "last man standing" scheme, placed liability on the remaining company, which also went into administration. Consequently, the Plan entered a Pension Protection Fund ("PPF") assessment period in 2010, with the PPF likely to take over the Plan's assets and liabilities.

The Trustee and a representative beneficiary ("the Representative Beneficiary") engaged in litigation to clarify the effect of the Employers' Termination Notice on future benefit accrual and the final salary link.

Legal Issues Presented

1. Whether rule 62 of the 2001 Rules was validly introduced in its entirety to allow termination of future accrual for all members and break the final salary link by the Employers' Termination Notice.
2. If not, whether the introduction and exercise of rule 62 was valid subject to an implied limitation aligning it with the fetter on the amendment power in rule 48 of the 1995 Rules.
3. Whether the Employers' Termination Notice was effective to terminate future accrual for some or all members but with the final salary link maintained (not argued as parties agreed on outcome if fetter applied).
4. Whether rule 62 was validly introduced in respect of members who joined the Plan on or after 8 October 2001 ("New Members").
5. If any member is entitled to accrue benefits after 30 June 2006, various sub-issues concerning the scope, validity, and exercise of rules 10 and 28A of the 2001 Rules, and whether PPF compensation would reflect certain adjustments.

Arguments of the Parties

Trustee's Arguments

• Rule 62 was validly introduced and the Employers' Termination Notice effectively terminated future accrual for all members and broke the final salary link.
• The fetter in rule 48 protects accrued rights but does not extend to future rights accrued after the amendment.
• If rule 62 was invalid in part, it should be read subject to an implied limitation requiring the Participating Companies to find it impracticable or inexpedient to continue participation before serving notice.
• There is evidence that in 2006 the Participating Companies found it financially inexpedient to continue participation, thus satisfying the implied limitation.
• The amendment power should be construed to allow necessary flexibility given changing commercial circumstances.
• Rules 10 and 28A permit actuarial adjustments and deduction of outstanding contributions, subject to statutory limitations.

Representative Beneficiary's Arguments

• Rule 62 was not validly introduced in its entirety to allow termination of future accrual and breaking of the final salary link.
• The fetter in rule 48 protects both accrued rights and future rights to benefit accrual.
• The Employers' Termination Notice was ineffective to break the final salary link.
• Rule 62 was not validly introduced for New Members.
• The power to amend should be strictly construed to protect members' rights.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Buckinghamshire v Barnado's [2016] EWCA Civ 1064	Rules of pension schemes are interpreted like any other written instrument; importance of natural and ordinary meaning in context.	Used to establish approach to interpretation of pension scheme rules.
Arnold v Britton [2015] UKSC 36	Principles of contractual interpretation emphasizing textual meaning and commercial common sense.	Applied in conjunction with Buckinghamshire to guide interpretation of scheme rules.
Stevens v Bell [2002] Pens LR 247	Principles on construction of pension schemes including practical effect and avoiding undue fettering of amendment powers.	Summarized and applied to assess the scope of the fetter on amendment powers.
Lloyds Bank Pension Trust Corporation Ltd v Lloyds Bank plc [1996] PLR 263	Whether fetters on amendment powers protect future rights as well as accrued rights.	Distinguished due to different wording; found fetter protected both accrued and future benefits under different language.
Gas & Fuel Corporation of Victoria v Fitzmaurice [1991] PLR 197	Interpretation of "any benefit" to include future rights in pension scheme amendments.	Considered but found not directly applicable due to different wording of fetter.
Re Courage Group's Pension Schemes [1987] 1 WLR 495	Fetters protect accrued rights, not future rights; final salary link protection.	Applied to confirm fetter protects accrued rights including final salary link.
HR Trustees Limited v German [2010] PLR 23	Fetter protecting benefits secured by contributions already made excludes future rights.	Referenced to distinguish scope of fetter wording.
The National Grid Company plc v Laws [1997] PLR 157	Whether court may consider superseded pension scheme provisions to aid interpretation.	Considered but court held such exercise should be cautious and limited.
Bestrustees plc v Stuart [2001] PLR 283	Excessive execution of power may be severed; distinction between valid and invalid parts of amendment.	Relied upon to consider severance or limitation of amendment power to save valid parts.
Betafence Ltd v Veys [2006] Pens LR 137	Construction of amendment subject to overriding limitation; severance principles.	Supported approach of construing amendment subject to fetter without requiring severance.
IBM United Kingdom Holdings Ltd v Dalgleish [2017] EWCA Civ 171	Exercise of power subject to implied limitations; excessive execution and final salary link protection.	Applied to confirm power of amendment could be valid subject to implied limitation preserving final salary link.
Pitt v Holt [2013] 2 AC 108	Clarification of rule in Hastings-Bass; failure to take relevant considerations renders exercise voidable, not void.	Considered in reviewing the requirement for trustees' hypothetical exercise of power.
Re Hastings-Bass [1975] Ch 25	Principle on invalidity of trustee decisions made in ignorance of relevant considerations.	Referenced in context of excessive execution and severance of amendment powers.
Jayne v National Coal Board [1963] 2 All ER 220	Definition of "impracticable" as a legal concept distinct from impossibility.	Used to interpret requirement for Participating Company to find impracticability or inexpediency.

Court's Reasoning and Analysis

The Court first considered the proper construction of the fetter on the power to amend contained in rule 48(i) of the 1995 Rules, which prohibits alterations that prejudice or adversely affect any member's rights. The Court analyzed whether this fetter protects only accrued rights or also future rights to benefit accrual. Drawing on precedent and the natural meaning of the words, the Court concluded that the fetter protects rights accrued by past service but does not extend to future rights that might accrue from continued employment.

The Court then compared rule 45 of the 1995 Rules, which required a Participating Company to find it impracticable or inexpedient to continue participation before retiring from the Plan, with rule 62 of the 2001 Rules, which allowed a Participating Company to stop contributing by notice without such a requirement. The Court found that rule 62 relaxed the conditions, making it easier for companies to cease contributions. This change adversely affected members' rights by removing the requirement of impracticability or inexpediency, thus engaging the fetter.

However, the Court considered whether the amendment introducing rule 62 could be read subject to an implied limitation requiring the Participating Companies to find it impracticable or inexpedient to continue participation before serving notice. The Court relied on authorities concerning excessive execution of powers and severance, concluding that such a limitation could be implied to preserve the validity of the amendment to the extent consistent with the fetter.

On the facts, the Court found sufficient evidence that in 2006 the Participating Companies legitimately found it financially impracticable and inexpedient to continue participation in the Plan, satisfying the implied limitation. Therefore, the Employers' Termination Notice was validly served under rule 62 subject to this limitation.

Consequently, the Court held that the Employers' Termination Notice was effective both to stop future accrual of benefits and to break the final salary link for existing members. The remaining issues concerning New Members and other detailed questions did not arise for determination.

Holding and Implications

The Court's final decision is that the Employers' Termination Notice served in 2006 was effective to close the Plan to the future accrual of benefits for all members from 30 June 2006 and to break the final salary link for those members, subject to an implied limitation on the amendment power requiring the Participating Companies to find it impracticable or inexpedient to continue participation before serving such notice.

DISPOSED OF

The direct effect of this decision is that the Plan's closure to future accrual and the breaking of the final salary link by the Employers' Termination Notice is upheld. The Court did not express views on the other issues raised, as they were rendered unnecessary by this conclusion. No new precedent beyond the application of existing principles on amendment powers and fetters in pension schemes was established.