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The Department of Work and Pensions (DWP) is set to redraft pensions legislation after defeat in a key pensions case in the Supreme Court this morning.
The department had appealed against a Court of Appeal ruling over the dividing line between defined benefit and defined contribution pension schemes.
The judgment, dismissing the DWP’s arguments, means the department will now have to reconsider legislation to ensure that pensioners are protected where money purchase pension schemes run up deficits.
Current pensions legislation does not extend any protection to so-called ’money purchase’ pension schemes, where benefits are calculated according to their contributions, as the Government believed they were incapable of running up deficits and therefore did not need protecting.
The original case was filed by Bridge Trustees, the trustee company managing the Imperial Home Décor Pension Scheme. The trustee company is owned by Eversheds and was represented in court by partner Giles Orton, who is also a scheme trustee.
Bridge Trustees was seeking to clarify a number of issues arising with the winding up of the scheme, which has a deficit of around £40m. Following a High Court ruling in 2008, which found that benefits in the scheme should be covered by legislation, the DWP intervened and took the case to the Court of Appeal, offering to pay all parties’ costs on an indemnity basis.
The DWP then appealed the Court of Appeal’s March 2010 judgment, leading to today’s Supreme Court decision. In it, Lords Walker, Collins and Clarke, together with Lady Hale, dismissed the DWP’s arguments. Lord Mance dissented.
The court decided that equilibrium of assets and liabilities is not a requirement of the statutory definition of a money purchase scheme, and similarly for money purchase benefits.
In a statement the DWP said: “Workers who up to now thought their rights were protected have been put in doubt by this ruling of the Supreme Court. In the circumstances, the Government intends to ensure these rights are clarified through retrospective legislation.”
It said the legislation would have retrospective effect at least from the judgment date, and would make it clear that benefits cannot be regarded as money purchase benefits if it is possible for a funding deficit to arise in respect of any of those benefits.
“This will ensure that the legal definition of money purchase benefits has the meaning that it has commonly been believed to hold. The Government considers that this course of action will better help ensure appropriate protection for pension scheme members,” added the DWP.
In his leading judgment Walker praised the submissions of counsel, particularly those of Wilberforce Chambers’ Christopher Nugee QC for the DWP and 5 Stone Buildings’ Andrew Simmonds QC, who represented scheme members Mark Houldsworth and John Hunter.
For the appellant, the Secretary of State for Work and Pensions: Department of Work and Pensions and Department of Health Legal Services instructed Wilberforce Chambers’ Christopher Nugee QC and Jonathan Hilliard.
For respondents Mark Houldsworth and John Hunter: 3volution partner Tim Stone instructed 5 Stone Buildings’ Andrew Simmonds QC and Outer Temple Chambers’ Nicholas Stallworthy QC.
For respondent Bridge Trustees: Eversheds partner Giles Orton instructed Radcliffe Chambers’ Keith Rowley QC.
Sitting: Lord Walker of Gestingthorpe, Lady Hale of Richmond, Lord Mance of Frognal, Lord Collins of Mapesbury and Lord Clarke of Stone-cum-Ebony.