Overview of Pensions Litigation

Pension disputes are frequently quite complex and technical, and hence hiring legal advice is strongly suggested. Trustees and managers of pension plans are required by law to establish an internal dispute resolution system as a first point of contact for pension scheme members.

Pension litigation remains a complex and significant area of law. As is the case with many other types of litigation, pensions litigation frequently thrives in difficult economic times. And, for many, the economic situation has been difficult in recent years, necessitating the need for employers and trustees to manage their schemes’ liabilities during times of instability and uncertainty.

We have seen this most clearly where courts have continued to rule on schemes’ capacity to convert from RPI to CPI as the applicable index for benefit increases. Additionally, there has been a continual stream of cases involving the correction of pension system documentation, where large sums are frequently in danger due to a slip of the pen or a moment of inattention.

Without including the Pensions Regulator (TPR), the Pensions Ombudsman (Ombudsman), or the Pension Protection Fund, no account of pensions litigation is complete (PPF). They have also been involved in various ways in the pensions litigation area. And, with the full financial toll of the COVID-19 pandemic yet to be determined, we may see even more of them in the coming year.

RPI/CPI

Unsurprisingly, the subject of whether inflation measures may be used to calculate pension increases continues to be a point of contention for a number of employers and trustees, as seen by a flurry of litigation before the courts and the Ombudsman.

The recent verdicts reinforce the message that everything is contingent on the precise wording of the applicable legislation, emphasising the result lottery for individual pension systems. That However, where there has been sufficient dispute for the parties to seek a binding judgement, the courts’ trend (as demonstrated in Ove Arup, Carr v Thales, Atos, and Britvic) has been against the existence of a power to deviate from the RPI.

Finally, the lottery may be resolved through the ongoing consultation on the planned alignment of RPI and CPIH (as CPI, but containing ‘H’ for owner occupiers’ housing expenses). However, with that change not projected to occur until between 2025 and 2030, additional litigation on this subject is still possible.

Rectification

The court-ordered correction of drafting errors in pension system paperwork has progressed at a rapid rate, and the applicable legal principles have evolved as well.

Following the Court of Appeal’s decision in FSHC, which refined the relevant rectification principles in a non-pensions setting, a trio of High Court judgements applied these principles to pensions (Blatchford, Colart and Univar).

The above cases demonstrate that while the test for intent is subjective, “convincing proof” is required to displace the terms used in the document, while evidence of “an outward display of agreement” amongst the parties to the relevant document is not required. With such a high standard to meet, the strength of the evidence will be critical. Nonetheless, it is now abundantly evident what the courts require before granting rectification.

Despite the high hurdle, Lloyds and SPS Technologies demonstrated that summary judgement is nevertheless attainable in relatively easy rectification instances. Additionally, we were reminded in ITV and Honda that parties may agree on a compromise outcome even in the context of rectification actions, albeit subject to court permission.

Liability for professional services

Numerous rectification claims will be accompanied by a claim for professional culpability. Given the growing scrutiny that all participants in the pensions business continue to undergo, such claims have also arisen in other contexts.

Despite their regularity, it is astonishing that another year has passed without a High Court judgement on such a claim – all cases have been withdrawn, resolved, or are still pending. That may be a sign that the parties and their legal representatives are conducting alternative conflict resolution in a rational manner. However, it also means that a number of legal questions concerning professional liability claims in the pensions context remain unsettled and uncertain as a result.

Decision-making by trustees

The Airways Pension Scheme’s trustee resolved a long-running dispute with the scheme’s sponsoring company, British Airways (BA). Following BA’s successful Court of Appeal appeal in 2018, a settlement was negotiated, subject to the High Court concluding that the settlement was a legitimate exercise of the trustee’s discretion.

The court judgement was sought not because there was any genuine uncertainty about the trustee’s authority but because the decision to agree to the settlement was particularly “momentous.”

Such judicial applications have been uncommon but not unheard of in the pensions sector (see, for example, MNRPF and Pollock v Reed). They have been more prevalent in the setting of private trusts, though we may see such instances in the future, including pensions.

Pension Security Fund

The PPF is more relevant than ever in the pensions landscape, providing lifeboat compensation to approximately 250,000 members and managing assets totalling more than £30 billion. As part of its duties, it has been involved in (and frequently at the centre of) lawsuits involving a number of issues.

Bauer was a test of the legal minimum compensation that the PPF (and other similar compensation systems) must offer. It has addressed further issues of PPF compensation, including the technique used to calculate the compensation cap and whether its use constituted unconstitutional age discrimination.

Additionally, the Corporate Insolvency and Governance Act 2020 has endowed the PPF with particular rights in relation to pension schemes that are subject to a moratorior restructuring plan’ under this new legislation. There has already been controversy over the Act’s application to pension systems, and we may very well see the PPF in the courts in that regard in the near future.

Ombudsman for Pensions

The Ombudsman supports members in resolving concerns about their schemes. Recent economic difficulties have resulted in an exceptionally high volume of transfer requests from members. The Ombudsman has been instrumental in ensuring that members’ rights to timely transfers are upheld while also assisting in the fight against pension frauds by giving judgements on the necessary level of due diligence required of trustees when faced with transfer requests.

Although several of the Ombudsman’s findings have been appealed to the High Court, just 5% of all completed investigations in 2019/2020 required a formal conclusion, with the remaining 95% resolved satisfactorily through informal methods.

What comes next?

As is customary in pensions litigation, the coming year will be busy, with more of the same but also a few surprises are thrown in.

The Ombudsman is bracing for an upsurge in complaints as a result of the pandemic. Particularly with regard to the furlough system, transfers and scams, auto-enrolment contribution payment, ill-health and redundancy pension benefit claims, and delays in delivering information and processing requests.

While TPR has been extremely active in several areas, it has been rather calm in terms of litigation over the last year or so. However, with additional anti-avoidance authorities and the capacity to apply much greater fines on the horizon under the forthcoming Pension Schemes Act, not to mention a significantly more difficult economic situation, this may likely change shortly.