For those in the pensions industry, it seems that this case has been rumbling through the courts for a very long time; not least, because the subject matter to which it relates has not only been considered by the courts in high profile pensions cases a number of times, but also the fact that it relates to a decision made nearly 30 years ago.
The latest ECJ (Court of Justice of the European Union) judgment was handed down last Monday.
What is the background to this case?
As was common to many schemes established in the 1970s (and indeed earlier), the Safeway Pension Scheme (the Scheme) had a normal pension age (NPA) of 65 for men and of 60 for women.
Following the ECJ decision of Barber v Guardian Royal Exchange on 17 May 1990, where the court held, in essence, that fixing an NPA differentiated by gender constituted discrimination that was prohibited under the EC Treaty, the Scheme sought to equalise men and women’s benefits in compliance with this decision. How the Scheme did this has been the source of greater than three years’ worth of hearings (to date), with the financial consequences of the dispute in the main proceedings amounting to approximately £100 million (not including legal fees).
As advisers to schemes have seen many times in respect of this issue, the Scheme sought to affect the move to age 65 as the retirement age for all members of the Scheme i.e. equalising the Scheme by way of member announcement (one in September 1991 informing members of the forthcoming change, and one in December 1991 confirming the change effective as at that later date). A formal amending deed was not executed until May 1996, seeking to change the NPA to 65 retrospectively as from the effective date of the December 1991 announcement. As such, the Scheme had been administered on the basis of an NPA for all members of age 65 since December 1991.
Slight unusually, the Scheme’s power of amendment did in fact allow for retrospective amendments, including dating back to “the date of any prior written announcement to Members of the alteration or addition…” (as set out at clause 19 of the Scheme’s governing trust deed and rules). However, it also required amendment by deed.
How the case has progressed through the courts
- First instance: In 2016, the High Court rejected Safeway’s (as the employer) application for a declaration that the NPA was equalised at 65 for men and women by virtue of announcements to members made in 1991. Mr Justice Warren held that the Scheme's power of amendment required amendments to be implemented by deed. Further, the deed executed in 1996 was not effective to retrospectively equalise NPA for the purpose of EU law. As such, affected members’ benefits should be calculated based on an NPA of age 60 for the period from December 1991 (the date of the announcement) to May 1996 (the date of the deed). Prior to December 1991, the NPA for members remained at 65 for men and 60 for women.
- Court of Appeal: Safeway appealed the decision, which was heard the following year, in 2017. Safeway argued that it was industry practice at the time for schemes to issue a written announcement to its members about equalisation and later formalise it in a deed, which we have indeed seen many employers and trustees seek to rely on and fail if a scheme’s power of amendment required amendment by deed alone. The Court of Appeal also held here that the evidence “fell woefully short of establishing any industry practice which would require a very strained meaning to be given to the clear language of clause 19”, namely that amendment by supplemental deed was the only method under the Scheme’s power of amendment to alter or add to any of the trust powers and provisions of the Scheme. However, the Court of Appeal referred a question to the ECJ as to whether the power to amend the Scheme retrospectively to level down rights (permitted under domestic law) was prohibited by EU law.
- ECJ: Whilst the Attorney General reformulated the question in March 2019, the ECT judgment was released last Monday, 7 October 2019. In summary, it concluded that, in the absence of objective justification, it was contrary to EU law to level down rights retrospectively.
What does this mean?
The ECJ considered that measures seeking to end discrimination contrary to EU law may, exceptionally, be adopted retrospectively where an overriding reason in the public interest so demands and where the legitimate expectations of those concerned are duly respected. Whilst the UK courts have not stated that retrospective equalisation was “necessary to prevent the financial balance of that pension scheme from being seriously undermined”, the ECJ commented such a fact may constitute such “an overriding reason in the public interest”.
Given the amount of money at stake here (approximately £100 million), and with the case being referred back to the Court of Appeal, it is possible that this case may be an exception to the retrospective levelling down treatment being contrary to EU law.
However, the ECJ commented that it will be for the Court of Appeal “to verify that such is the case”.