High Court 'blesses' merger of scheme in winding-up and sharing of surplus: Arcadia Group Pension Trust Limited v Smith
The High Court has approved an application to ‘bless’ amendments to the Arcadia Group Pension Scheme (the Staff Scheme) to allow it to accept a bulk transfer-in of the assets and liabilities of the Arcadia Group Senior Executives Pension Scheme (the Executive Scheme). The merger would be on an unsegregated basis, meaning that a surplus in the Staff Scheme would be shared with beneficiaries of the Executive Scheme, which is in deficit. The unusual element is that both schemes are in the course of being wound up following the liquidation of their joint principal employer. Given this, and the fact that the decision could be characterised as a ‘momentous’ one, the Trustee sought the Court’s confirmation that it was acting within its powers and properly exercising its discretion.
The proposed amendments include the reversal of a 2010 change to the trust deed, which provided that ‘no transfer of assets may be accepted into the Fund from any other pension scheme’. The Staff Scheme’s power of amendment is broad and unrestricted. The question was whether there is an implied fetter to this power when the scheme is in the course of being wound up and/or the company is in liquidation, which would prevent amendments to facilitate the merger. The Court found that there was not.
Of key importance was that, although the trust deed included a discretion to use scheme surplus to increase benefits, it did not give members a right to any augmentation. The main object of the scheme, set out in the trust deed, was to provide members with the benefits to which they are entitled. Applying this to the question of the transfer and sharing of surplus, the Court found that ‘a merger of the two schemes does not deprive members of the Staff Scheme of an entitlement in accordance with its Main Objects. It merely dilutes their contingent interest in augmentation’. It also highlighted that ‘The interests of the current members of the Staff Scheme do not have to be considered exclusively’.
A factor taken into account was that the schemes had consistently been run with the intention of reaching parity between them; it was due to unforeseen external factors that the Executive Scheme’s funding position had declined while the Staff Scheme had gathered a surplus. Therefore, the merger would be in line with the intentions of the trustees and principal employer.
The judgment extracted three points for assessing a trustee’s treatment of a scheme’s surplus, when determining if discretion has been properly exercised:
- The Court 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 essential requirement is for the trustee to 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 the interests of another cohort of beneficiaries or even non-beneficiaries (for example, employers or current employees).
While the scenario of making a bulk transfer when schemes are in wind-up is unusual, and the situation for another scheme would depend on the wording of its trust deed and rules, the judgment may be helpful for schemes undertaking similar exercises.
Read the Arcadia Group Pension Trust Ltd v Smith judgment.
TPR blog post on scams initiatives
The Pensions Regulator (TPR) has published a blog post discussing its approach to fighting pension scams. The blog post outlines some of TPR’s existing efforts, such as its Scamsmart campaign and the pensions industry Pledge. It also sets out new initiatives including better intelligence sharing, secondments to law enforcement agencies and improvements to the Action Fraud reporting processes. It encourages schemes to report any suspicions of fraudulent activity to Action Fraud as early as possible and highlights the Government’s ‘Stop! Think Fraud’ site to help signpost information about how to protect themselves from all fraud.
Read the TPR blog here.
PPF levy ceiling updated
The annual Order increasing the Pension Protection Fund (PPF) levy ceiling amount has been published. The levy ceiling is increased annually in line with growth in the general level of earnings; the Order restricts the amount that can be collected by the Board of the PPF for the 2025/26 financial year. Given last week’s announcement that the levy estimate for 2025/26 has been reduced to its lowest ever level, the levy ceiling may never come into play.
Read the PPF levy ceiling Order.
Call for evidence on use of AI in pensions
The Government’s Treasury Committee has launched a Call for Evidence seeking views on how financial services, including pensions, can utilise AI while protecting consumers against potential risks. They have set out questions relating to how AI is used currently; what benefits and risks there are; and how regulation should encourage the opportunities presented by AI while protecting consumers. The deadline for submissions is March 17.
Read the Call for Evidence on the use of AI in pensions.
Save the date: Pensions Academy Online, March 11 and 13, 2025
Our next Pensions Academy Online webinars will take place on Tuesday, March 11 and Thursday, March, 13, 2025. Each webinar begins at 9.30am and will last approximately one hour. Use the link below to register for:
- Cyber risks and mitigations in the pensions world – Tuesday, March 11: members of our specialist cyber team will share insights on mitigating the risks (and, in the worst case scenario, dealing with the aftermath) of cyber breaches. How can pension scheme trustees be better equipped to deal with this pervasive and ever-evolving threat?
- Legal update – Thursday, March 13: we’ll round up all the latest developments and outline what’s on the pensions horizon.
Click here to register for either or both of our Pensions Academy webinars.
