The In-House Lawyer

The Court of Appeal judgment in Foster Wheeler v Hanley & ors [2008] is a welcome judgment that sets out the principles that must be applied to sex equalisation cases for defined-benefit pension schemes. Schemes have been told that they can adopt pragmatic approaches to equalisation, with no need to allow members windfall bonuses where these are not required to comply with the basics of European discrimination law.

facts

Foster Wheeler Ltd (the company) applied to the Court of Appeal for assistance in determining how the sex equalisation requirements should apply to its defined-benefit pension scheme.

European law (Douglas Harvey Barber v Guardian Royal Exchange Assurance Group (Social Policy) [1990]) provides that from 17 May 1990 retirement ages for men and women must be equal. Until a scheme complies with Barber and equalises normal retirement dates (NRDs), both men and women accrue benefits with the more generous NRD (the Barber window period).

At the date of Barber, the Foster Wheeler Pension Plan (the Plan) had an NRD of 60 for women and 65 for men. To comply with Barber the Plan’s rules were amended with effect from 16 August 1993 to provide an NRD of 65 for both men and women but with an option for early retirement, subject to company consent, from age 60 with no actuarial reduction.

The key question was whether members with ‘mixed NRDs’, that is members who have accrued pension by reference to both an NRD of 60 and an NRD of 65 for different periods of service, were entitled to take all of their pension at age 60 and, if so, whether there would be any reduction to the NRD 65 benefits for early receipt.

High Court decision

The High Court decided that to comply with European law, mixed NRD members were entitled to take all of their pension at age 60. The Court considered that since the Plan’s early retirement provisions made no reference to NRD 65 benefits being reduced on retirement at age 60 (until this was modified for service after 1 April 2003), mixed NRD members could take their pension at age 60 as though their NRD had been 60 throughout the whole period of their membership.

Court of Appeal judgement

The Court of Appeal considered that the appropriate solution depended on the circumstances of the scheme in question. However, the Court set out the following guiding principles to be applied to ensure that Barber rights are given effect to:

• provisions of scheme rules should be adhered to where possible in preference to another approach;
• if it is necessary to depart from scheme provisions, that departure should represent ‘minimum interference’ in both substance and form, the extent of any textual amendment required to the rules, as well as the substantive effect of the amendment must be considered; and
• the principle of minimum interference should be applied on the basis that the effect of European Law is to impose NRD of 60 only for pension benefits accrued during the Barber window period, but not for anything more than that.

In addition, the Court of Appeal made it clear that only in rare cases should applications to court be made to determine how the guiding principles are applied.

The Court also decided that the appropriate solution in this case was for the part of a mixed NRD member’s pension with an NRD of 65 to be treated in accordance with the deferred-pension rule. This means that where a mixed NRD member retires at age 60, they will be entitled to an immediate payment of benefits with an NRD of age 60, as well as an actuarially reduced deferred pension in respect of benefits with an NRD of age 65. The requirement for company consent to early payment of a deferred pension is disapplied. The Court of Appeal, therefore, avoided conferring the benefit windfall that was the result of the High Court approach and which was considered unfair to the company and potentially unfair to the other scheme members.

Comments

Equalisation issues are often minefields that can trap the unwary. As a result of Foster Wheeler, trustees and employers have clear and concise principles that they can use to determine the most appropriate way to achieve sex equalisation. They should also note the judicial comment that only in rare cases should recourse to the courts be needed to determine how the guiding principles are applied. However, trustees and employers need to remember that equalisation issues can be difficult and should not be pushed under the carpet. They should consider both whether their scheme has properly equalised and whether this has been appropriately documented.

Ruth Bamforth, associate practice lawyer,

Eversheds LLP.

E-mail: ruthbamforth@eversheds.com.