Railways Pension Trustee Company Ltd v Atos IT Services UK Ltd & Anor

Factual and Procedural Background

The Trustee, sole trustee of the Railways Pension Scheme ("the RPS"), brought a Part 8 claim seeking the Court's directions on the interpretation and operation of certain provisions of the RPS, an industry-wide defined benefit occupational pension scheme established at railway privatisation in 1994. The RPS comprises 106 ring-fenced Sections, including the Atos Section, whose Participating Employers ("Atos") are defendants in this case. The dispute primarily concerns the interpretation of Rule 21 of the Atos Section Rules, relating to deficit contributions where there is a shortfall in Section funding as determined by the Scheme Actuary ("the Actuary").

Prior to privatisation, British Rail operated pension schemes including the British Rail Pension Scheme ("the BRPS"), with Government funding support. Upon privatisation under the Railways Act 1993, the RPS was established to replace the BRPS, with protections for "Protected Persons"—employees with pension rights under the BRPS. The Atos Section was established in 1997, closed to new entrants in 1999, and currently includes both Protected and unprotected members.

The Trustee is required to obtain actuarial valuations at intervals not exceeding three years. The last completed valuation was in 2013, showing a deficit of approximately £6 million, with a recovery plan in place. Subsequent valuations in 2016 and 2019 remain incomplete due to unresolved interpretative questions regarding Rule 21. Discussions between the Trustee and Atos have proceeded on draft valuations showing a persistent deficit, but no agreement has been reached.

The dispute centers on whether the Actuary has discretion under Rule 21(1) to determine contribution rates and benefit reductions in light of affordability, value for money, and collectability, or whether the Rule mandates a mechanical calculation to make good the shortfall in full. The Pensions Regulator has an interest but has suspended regulatory action pending these proceedings.

Legal Issues Presented

1. Does the Actuary have discretion under Rule 21(1)(ii) to determine member contribution rates below that required to make good the shortfall in full, considering factors such as affordability, value for money, and member opt-out risk?
2. What matters fall within the scope of the Actuary’s discretion in setting contributions and benefit reductions under Rule 21?
3. Does Article 7(1) of the Railway Pensions (Protection and Designation of Schemes) Order ("the Protection Order") apply after the Actuary determines normal member contributions under Rule 21(1)(ii), and if so, how does it affect employer contribution obligations?
4. Does Article 5 of the Protection Order prohibit the Employer or Trustee from agreeing to lift the 130% contribution cap or reduce future service benefits under Rule 21(1)(iv) if such actions would likely cause protected members to opt out?
5. What obligations does Article 7(1) impose on the Employer regarding making good any shortfall not covered by Rule 21(1)(ii)?
6. Given the Atos Section is unsegregated between protected and unprotected members, how is the shortfall to be allocated between these groups?
7. Under Rule 21(1)(iv), what discretion do the Trustee, Employer, and Actuary have in deciding whether and how to reduce future service benefits?

Arguments of the Parties

Trustee's Arguments

• The Actuary has a discretion under Rule 21(1)(ii) to determine member contribution rates based on affordability, value for money, and collectability, including the discretion not to increase contributions if it would cause member opt-out and worsen the shortfall.
• The phrase "as determined by the Actuary" connotes judgment and discretion rather than a mechanical calculation.
• The Trustee owes a fiduciary duty to members, requiring consideration of practical consequences such as opt-out risk when agreeing contribution increases or benefit reductions.
• Rule 21(1) is not an exhaustive regime to eliminate shortfalls; the phrase "so far as practicable" implies discretion to balance competing interests.
• Article 7 of the Protection Order imposes an additional sufficiency of funding obligation on the Employer beyond Rule 21, requiring the Employer to make good any shortfall not addressed by member contributions.
• Article 5 prohibits the Employer or Trustee from taking actions likely to cause protected members to opt out, such as lifting the 130% cap or reducing future service benefits in a way that forces opt-out.
• The Actuary’s discretion extends to setting contribution rates and benefit reductions, considering all relevant factors, not limited to a fixed formula.
• Rule 21(1)(iii), which applies if no active members remain, is a provision of last resort and does not provide a comprehensive solution to current shortfalls.
• The Protection Order and the Pension Trust must be read together, with Clause 7H requiring operation of the Rules to comply with the Protection Order, giving protected persons enhanced rights.
• The Trustee relies on established principles of pension scheme construction emphasizing textual analysis with practical and purposive interpretation, as explained by Lord Hodge in Barnardo's v Buckinghamshire County Council.

Atos' Arguments

• Rule 21(1) mandates a mechanical calculation by the Actuary to determine contributions and benefit reductions sufficient to make good the shortfall in full, without discretion.
• The "waterfall" structure of Rule 21(1) ensures the shortfall is eliminated by sequential application of increased contributions (capped at 130%) and, if necessary, benefit reductions.
• The Actuary’s role is to calculate the required amounts, not to exercise judgment on affordability or collectability.
• The 130% cap on employer contributions is binding unless the Employer unilaterally agrees to lift it, which Atos has not done.
• Any reduction in benefits under Rule 21(1)(iv) must be sufficient to eliminate the shortfall in full, calculated on a reasonable basis consistent with Revenue approval, but the discretion relates only to the manner of allocation among members, not the amount.
• Rule 21(1)(iii) provides a fallback mechanism if all active members opt out, triggering an employer balance of cost obligation to cover the shortfall.
• Article 7 of the Protection Order does not impose a freestanding obligation on Atos to fund the shortfall beyond the scheme’s provisions; it requires actuarial involvement but does not alter the scheme’s funding regime.
• Article 7(1) applies only after Rule 21(1)(iii) operates, i.e., when no active members remain and only accrued rights require funding.
• Article 5 does not prevent voluntary opt-out by members resulting from contribution increases; participation concerns initial entry, not continuing membership.
• The Rules and Protection Order were drafted in 1994 with the expectation that members could be affected by contribution increases or benefit reductions; this was commercially understood and accepted.
• Consultation materials from 1993 support the interpretation that the scheme is a hybrid with employer contributions capped and members bearing risk of shortfall through benefit reductions or opting out.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by adopting the interpretative approach set out by Lord Hodge in Barnardo's, which emphasizes textual analysis with purposive construction, especially appropriate for pension schemes due to their formal drafting, long-term operation, and impact on non-parties such as members.

Regarding Rule 21(1), the Court rejected Atos' argument that it provides an exhaustive and mechanical regime to eliminate the shortfall in full. The Court noted the Rule's historical amendments and the language "so far as practicable," which imply discretion rather than a rigid formula. The phrase "as determined by the Actuary" was interpreted as conferring judgment and discretion, not merely calculation, supported by the use of "shall be increased" qualified by the Actuary's determination.

The Court found that the Actuary must consider practical factors including affordability, value for money, and the risk of member opt-out, as ignoring these would lead to an uncommercial and unrealistic outcome where shortfalls worsen rather than improve.

The Court held that the Trustee's fiduciary duty requires balancing these considerations, and the Employer can act in its own interests subject to good faith obligations.

On the Protection Order, the Court found that Article 7 imposes a sufficiency of funding or balance of cost obligation on the Employer beyond the scheme’s own provisions. This obligation applies to both accrued and accruing pension rights of protected persons and, because the Atos Section is unsegregated, extends effectively to all members.

The Court rejected Atos' submission that Article 7 only applies after Rule 21(1)(iii) (when no active members remain), finding instead that Article 7 applies contemporaneously with Rule 21(1)(ii) or (iv), providing an additional employer obligation to make good any shortfall not covered by member contributions or benefit reductions.

Article 5 of the Protection Order was interpreted as prohibiting actions by the Employer or Trustee that would prevent protected employees from continuing participation or acquiring no less favourable pension rights, which includes preventing forced opt-out caused by unaffordable contribution increases or unreasonable benefit reductions.

The Court rejected Atos' mechanical construction of "determine" and the rigid application of the 130% cap without regard to practical realities, finding such an approach would lead to an uncommercial result and fail to give reasonable and practical effect to the scheme.

Rule 21(1)(iii) was held to be a provision of last resort, not a comprehensive solution to the shortfall issue, which would only apply after active members ceased participation, a scenario unlikely to resolve shortfalls promptly given the required valuation and consultation processes.

Holding and Implications

The Court's final decision was as follows:

• The Actuary has discretion under Rule 21(1)(ii) and (iv) to determine member contribution rates and benefit reductions, taking into account factors such as affordability, value for money, and collectability, rather than being bound to a mechanical calculation to make good the shortfall in full.
• Article 7(1) of the Protection Order imposes a sufficiency of funding obligation on the Employer to make good any shortfall not addressed by member contributions or benefit reductions, applying to both protected and unprotected members due to the unsegregated nature of the Atos Section.
• Article 5 prohibits the Employer and Trustee from agreeing to actions that would likely cause protected members to opt out, such as lifting the 130% cap or reducing future service benefits in a way that forces opt-out.
• Rule 21(1)(iii) is a last resort provision that applies only when no active members remain and does not provide a prompt or comprehensive solution to shortfalls.

The decision directly affects the administration of the Atos Section by clarifying the Actuary's discretionary role and the Employer's funding obligations under the Protection Order. It rejects a purely mechanistic approach to shortfall funding, emphasizing practical, commercial realities and protections for members. The Court did not set new legal precedent beyond interpreting the existing statutory and contractual framework in this context.