Arcadia: court blesses scheme merger and sharing surplus
The High Court has agreed to ‘bless’ amendments to the Arcadia Staff Scheme (the Scheme) to allow it to accept a bulk transfer-in of the Arcadia Executive Scheme. The schemes are both in wind-up and the intention is to share the surplus in the Scheme with members of the Executive Scheme.
The Scheme’s amendment power is unrestricted, so would allow the changes; the questions were whether there was an implied fetter which would prevent the amendments and whether the Trustee would be acting properly in making them. The Court found there was nothing to stop the changes.
The Scheme’s rules include a discretion to use surplus to augment benefits but set out that the main object of the scheme was to provide members with benefits to which they are entitled. The Court found that the merger and sharing of surplus would not deprive members of their benefits: rather, it ‘merely dilutes their contingent interest in augmentation’.
The Court extracted guidance from case law:
- It should usually have regard to the circumstances in which the surplus has arisen and give weight to those who are the effective source of the surplus.
- The trustee must address the question of what is fair and reasonable in all the circumstances.
- Exercising fiduciary powers often requires a trustee to weigh the interests of one cohort of beneficiaries against those of another, or even of non-beneficiaries (for example, the employer or current employees).
Arcadia Group Pension Trust v Smith
What does this ruling mean for trustees?
The facts here are quite specific: the schemes are both in wind-up; historically, the schemes had been run with the clear intention of keeping the funding position equal; and the specific wording of the Scheme rules was key. However, the ruling provides helpful parameters for trustees’ treatment of surplus, including commentary on the potentially wide range of interests – including those of non-beneficiaries – that may be relevant.
TPO: promise to provide ‘mirror’ benefits created an enforceable contact
The Pensions Ombudsman (TPO) has, unusually, found that statements made to a member created a contractual obligation that overrode scheme rules. Mr H was told that he would receive ‘mirror’ benefits if he moved to his employer’s new scheme but this was not recorded in the rules. TPO found that all the elements of a binding contract were present. Therefore, failure by the employer to document this was a breach of the implied duty of good faith.
TPO rejected an argument by the Trustee that the statements made to Mr H did not bind the Trustee because they were not a valid rule amendment. He found that the Trustee had been administering mirror benefits in some respects, so the transfer-in must have been accepted on that basis. Therefore, the Trustee was in breach of trust for failing to administer the benefits correctly. Also, the Trustee had been aware of the communications, some of which had been made by its agents; it was therefore estopped from arguing that it did not, as a matter of fact, exercise its power to grant mirror benefits.
CAS-50353-Y4X5
What does this ruling mean for trustees?
This case demonstrates the importance of being clear in communications to members where benefits are being described and recording these properly in the rules. Where trustees are aware of communications they may be responsible for acting in line with them.
TPO willing to consider buy-out implications in judgments
Another aspect of the case above was that the scheme was moving to buy-out. The employer requested that TPO’s directions be given in a way that would resolve issues in the benefit specification, and TPO was willing to help with this request: he allowed the employer chance to comment on the preliminary decision before it was published and included, on the request of the employer, a statement that the decision did not extend to other members.
He also confirmed that the determination (which confirmed that increases could be changed going forward) does not preclude the Trustee from buying out Mr H's benefits on the basis that the rate of increase in force at the date of completion of the buy- out will apply thereafter.
What does this ruling mean for trustees?
Where schemes are in the process of buy-out but a question around benefit entitlement is to be determined by TPO, it is helpful to know that TPO will accommodate requests to aid that process.
Delays in GMP equalisation not unreasonable where in line with industry practice
TPO has rejected a complaint about delays in implementing GMP equalisation. The Scheme acted consistently with industry-wide practice and guidance, but could not provide the complainant (Mr N) with a definite timescale for his benefits being corrected.
TPO acknowledged that GMP equalisation is a difficult and complicated project, and it is important to ensure it is carried out correctly. Although it should not be unnecessarily delayed, it is understandable that it takes a reasonable period of time to implement.
Mr N, who had transferred out, also complained that his records had been lost. TPO did not find that this was maladministration; he acknowledged that the transfer was a considerable time ago (1991) and, in any event, the amount of data kept in respect of past transfers is limited. In addition, Mr N had not shown any resulting loss.
CAS-71351-P8X2
What does this ruling mean for trustees?
This ruling helpfully confirms that where trustees are acting in line with industry on GMP equalisation, TPO will be understanding about the time needed. It also shows a reassuringly pragmatic approach on the issue of lost records.
