Victory for Safeway at last but it is unlikely to significantly change the Barber world as we know it
Details
The Court of Appeal has handed down its decision on the latest in the series of cases relating to the Safeway Pension Scheme: Safeway -v- Newton and another. The cases follow on from the Barber case (Barber -v- Guardian Royal Exchange Assurance Group) and subsequent cases relating to the equalisation of normal retirement dates (NRDs) for male and female members.
The general principle established to date is that when NRDs, in respect of benefits that have already accrued, are equalised they must be ‘levelled up’. That is benefits of the disadvantaged sex must be improved to the level of the benefits that the advantaged sex is entitled to from the date of the Barber case (17 May 1990) until the effective date of the equalisation amendment. This period is known as the ‘Barber window’. Before equalisation, typically male NRDs were age 65 and female NRDs were age 60. Generally, equalising the NRDs for male and female members at age 60 is ‘levelling up’ because a pension payable from age 60 is more valuable than a pension payable from age 65 as it will be payable for longer. Conversely, equalising at age 65 in this example is ‘levelling down’. There is no general restriction on levelling down benefits accruing after the date of the equalisation amendment.
The Safeway case concerned a retrospective levelling down of female members’ benefits. The European Court of Justice had already ruled in an earlier hearing in the Safeway series of cases that retrospective amendments could not be effective to level down during the Barber window period. It also expressed the opinion that the Barber window period ends when ‘effective measures’ are taken to bring about equal treatment and to comply with the relevant European legislation (Article 119 of the Treaty of Rome). English law then applies after that time. The question of when effective measures had been taken and therefore when the Barber window period had come to an end in respect of the Safeway Pension Scheme was referred to the Court of Appeal.
The Court of Appeal decided that the Barber window period ended on 1 January 1996 because section 62 of the Pensions Act 1995 came into effect on that date. This is because section 62 implied into pension scheme rules an equal treatment rule that automatically treated the benefits of the disadvantaged sex as having been improved to the level of the advantaged sex. The Court of Appeal held this was a ‘measure’ that implemented Article 119 and brought to an end the Barber window period.
The general effect of the Court of Appeal’s decision is that, for all pension schemes subject to English law and affected by the equalisation requirement, the Barber window period ended on 1 January 1996 or, if earlier, the effective date of a valid amendment to equalise NRDs.
Most schemes will have amended their rules to terminate the Barber window period before 1 January 1996 and therefore the Safeway judgement will not affect them. For those that did not, another window period will have arisen that can be called the ‘Safeway window’ period. English law will apply to this period and it will end when benefits are equalised under English law. The main practical difference is that under English law before 6 April 1997 it was possible to reduce benefits by retrospective amendments if so allowed by the Scheme’s rules. 6 April 1997 is significant because section 67 of the Pensions Act 1995 came into effect on that date to prohibit amendments that adversely affect accrued entitlements and rights of members of occupational pension schemes.
It is likely that most schemes that had not closed their Barber windows before 1 January 1996 will not in practice be affected by the Safeway decision in any event. Section 62 will apply during the Safeway window to level up the benefits of the disadvantaged members to the level of the advantaged members until the effective date of the equalisation of normal retirement dates (commonly male members will be treated as having an NRD of age 60 to be the same as female members). The situation will therefore be the same as was generally understood before the Safeway decision.
Safeway could, however, make a difference where scheme rules were amended to equalise normal retirement dates retrospectively by a document dated on or between 1 January 1996 and 5 April 1997. Such equalisation could be effective from a retrospective date but no earlier than 1 January 1996. If the stated retrospective date is before 1 January 1996 it could still be effective but only from 1 January 1996.
For a retrospective amendment to be effective, the amendment must have been made in compliance with the scheme’s amendment clause, both in respect of the procedural requirements and the ability to make retrospective amendments. The procedural requirements will be set out in the amendment clause and will include such matters as how the power must be exercised, such as for example by a deed or with any required consents.
A retrospective amendment can only be made if the power allows a retrospective amendment and does not prevent amendments that prejudice accrued benefits. Some amendment powers state that they can be exercised retrospectively whilst it may be possible to interpret others as allowing retrospective amendments even though not specified. Many amendment powers prohibit amendments that prejudice accrued benefits for some or all members. The prohibition may, for example, only protect benefits of pensioners and deferred members so that they do not apply to active members at the time of the amendment. Such a restriction would prevent a levelling down of NRDs for the specified protected members in respect of benefits accrued prior to the date of the amendment.
Consequently, the Safeway decision is only likely to have any practical effect on past amendments where a procedurally correct retrospective equalisation amendment was made under a suitable amendment power between 1 January 1996 and 5 April 1997. Lawyers should reanalyse their equalisation advice for schemes that did not equalise before 1 January 1996 to take account of the Safeway window but in most cases they are likely to come to the same end result as before this Safeway decision.
Some commentators have expressed the view that Safeway opens up the possibility of retrospectively amending NRDs with the consent of members. This may be possible where the scheme amendment clause allows it and if the consent of the members can be obtained in accordance with the requirements of section 67B of the Pensions Act 1995. This section enables prejudicial amendments to accrued benefits to be made with member consent.
The amendment must, however, also comply with section 91 of the Pensions Act 1995 which prohibits members from surrendering their entitlements and rights under an occupational pension scheme. It may be possible to comply with section 91, such as where there is an element of compromising a dispute but these circumstances will be limited.
