High Court – security of benefits not a factor for actuary when giving transfer without consent certificate

Summary

In Pollock -v- Reed [2015] EWHC 3685 (Ch), the High Court confirmed that when certifying a ‘without consent’ bulk transfer under the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (Preservation Regulations), a scheme actuary should not take into account the security of benefits in the transferring or receiving schemes but should only compare the ‘headline benefits’ in each scheme. The position does not change if the transferring scheme is in wind-up.

Facts

This case concerned the Halcrow Pension Scheme (HPS1) which was a defined benefit scheme. The trustees of HPS1 issued Part 8 proceedings to seek guidance from the court in connection with a transaction by which they proposed to transfer the assets and liabilities of HPS1 to a new occupational pension scheme (HPS2), owing to the decline in the financial health of HPS1’s principal employer.

Due to the commercial sensitivity of the restructuring the transfer needed to be done without the members’ consent. This required an actuarial certificate under regulation 12(3) of the Preservation Regulations confirming that the transfer credits in HPS2 were ‘broadly, no less favourable than the rights to be transferred’.

The trustees of HPS1 argued that the actuary was entitled, and should, take into account the security of the benefits in each scheme and therefore the likelihood of receipt of the benefits, when comparing the rights in HPS1 and the transfer credits in HPS2. The trustees argued that even if security of benefits could not be taken into account where the transferring scheme was ongoing, it was relevant where the transferring scheme was in wind-up.  

In contrast, the principal employer rejected the trustees’ position. It submitted that the correct approach was that the actuary could take into account a variety of factors which he considered relevant as part of his decision-making process in granting a certificate. However, he was not bound to do so under the Preservation Regulations. The Pensions Regulator and the representative beneficiary also submitted that the assessment that the actuary carries out requires the comparison of the ‘headline’ package of benefits in HPS1 and HPS2 and that the respective security of the benefits was not relevant.

Judgment

Asplin J held that there was no ground for the trustees’ construction of regulation 12(3) of the Preservation Regulations. Properly construed, the actuary’s assessment did not include the security of benefits as a factor to be taken into account noting that:

‘It seems to me that if security of benefits were part of the certification process carried out by the actuary there would be little left for the trustees to determine, the bulk of the discretion having been already exercised by the actuary who owes no fiduciary duties to the members of the scheme.’ (Paragraph 87)

Asplin J emphasised the plain reading of the Preservation Regulations, noting that if it had been intended that security of benefits should be taken into account, the Preservation Regulations would have said so. To adopt a different approach where the transferring scheme was winding up was contrary to the ordinary reading of the Preservation Regulations.

Comment

This case highlights the difficulties associated with the ‘broadly no less favourable’ test under the Preservation Regulations. In light of the recent issues surrounding the BHS Pension Scheme and the British Steel Pension Scheme and the desire to reorganise such schemes, this case shines a light on the balancing act required when seeking to rescue ailing pension schemes against the need to protect the benefits that members already have.

The decision is a significant one for actuaries and they will no doubt be relieved by the decision which, if decided differently, would have potentially required them to conduct a complex analysis of the likelihood of receipt of benefits under the transferring and receiving schemes whenever certifying a ‘without consent’ bulk transfer.

The decision is also noteworthy for the emphasis placed by Asplin J on the plain reading of the Preservation Regulations.

Please see the full judgment here.