The trustees and the principal employer of a private sector defined benefit occupational pension scheme introduced inflation-linked annual increases to the pensions of members of the scheme earned by service. The rules which governed the scheme were subsequently superseded by a new definitive deed and rules which were expressed to take effect retrospectively. On the employer’s challenge to the increases, the judge held that while they had been invalidly granted under the rules applicable at the time, the increases had been validated by the retrospective effect of the new deed and rules.
On the employer’s appeal—
Held, appeal allowed. The only way in which the increases could have been validly introduced at the time was by a valid exercise of the power of amendment under the rules in effect at that time. That was not altered by the fact that, as a result of the introduction of the superseding rules, the trustees could be regarded as having had available to them one or more enabling powers which could have validated the invalid steps which they had actually taken to introduce the increases. It is not enough to point to the introduction of the new powers with retrospective effect, and to test the validity of the steps actually taken by the trustees at the time by reference to those powers, as if they had actually been in existence but without any deemed exercise of them. It was necessary for there to be some proper basis for treating the trustees as having exercised the further powers notionally made available to them. There had to be some positive evidence that the trustees had addressed their minds to the problem and decided to rectify it in that way, or at the very least, a common intention on the part of the trustees and the employer that the introduction of the superseding rules was to have the effect of validating any purported amendments to the scheme which had been invalid in point of form when made but could have been validly effected under the superseding rules. Accordingly, the parties not having addressed the matter explicitly, and no steps having been taken to remedy the issue with retrospective effect, the invalid steps taken to introduce the increases could not be retrospectively validated by the introduction of the subsequent deed and rules (paras 60, 61, 64, 72–73, 93, 94, 95).
Per curiam. The ability to exercise a power of amendment so as to confirm a previous purported exercise of the power which was invalid through an unwitting failure to comply with the necessary formalities for a valid exercise of the power is in principle salutary and conducive to good trust administration. In such a case, there is nothing objectionable about the trustees taking remedial action by a further exercise of their powers of amendment (paras 65, 67).
Keith Rowley QC and Elizabeth Ovey (instructed by Trowers & Hamlins llp) for the employer.
Andrew Short QC and Saaman Pourghadiri (instructed by Stephenson Harwood llp) for the trustees.