Decision in IMG case overturned by the Court of Appeal?

25 June 2010

Summary

The media and lawyers connected with the case of HR Trustees v German and International Management Group (UK) Ltd (In the Matter of the IMG Pension Plan) (IMG case) are reporting that the Court of Appeal has reversed the earlier High Court judgment in this matter.

High Court decision

Broadly speaking IMG, as the sponsoring scheme employer, attempted to convert its pension scheme from a defined benefits (DB) to a defined contribution (DC) scheme. IMG attempted to do this by using the power of amendment in the pension scheme to alter the benefit structure for all service, i.e. both past and future service.The High Court decided that the employer or the then trustees of the IMG pension scheme did not have the power to impose such a change on the members of the scheme in the way it had done so, because the scheme amendment power was not wide enough to allow it. Neither could a change in the pension scheme’s benefit structure be imposed retrospectively in the circumstances of this case. A number of employees had signed compromise agreements “surrendering” their pension entitlement as part of the conversion. The Judge stated that the compromise of inalienable pension rights was unlawful. This left IMG sponsoring a hybrid DC scheme which had a DB underpin.

Court of Appeal decision

We are informed that the Court of Appeal has ruled that s.91 of the Pensions Act 1995 did not apply to compromises or settlements involving genuine pensions disputes and so the compromise agreements in this case were not ineffective. We also understand that parts of the conversion were effective in creating a DC scheme. Unfortunately, the transcript of the case is not available at the moment and so we cannot comment in detail about what was decided.

Note

It is interesting to note that the legal action to date has reportedly cost IMG nearly £2 million. In 1992 when the amendment converting the scheme was attempted, the pension fund was worth around £1.5 million.

We intend to issue a briefing not on this case once the transcript of it is available. This judgment will be of significant interest to those in the pensions industry given the trend of employers wanting to convert from DB to DC schemes.