UK - A legal ruling clarifying the powers of trustees to recover deficits in a multi-employer pension scheme confirms that trustees can require employers to make greater contributions. It also outlines when an employer triggers a section 75 debt on leaving the scheme.

The legal proceedings were brought by the PNPF Trust Company - trustees of the industry-wide pension scheme for marine pilots - to help decide the liability of the 53 employers and the self-employed members in relation to the scheme deficit of £285m (€352m) as of 31 March 2009.

In particular, the case focused on when exactly an employer was deemed to trigger the one-off lump payment of a section 75 debt once it was no longer considered an ‘employer’ within the scheme, and the extent that trustees could amend the scheme rules to demand higher contributions, and how that is affected under UK funding legislation.

The judgement by Justice Warren clarified a number of points of legislation relating to the funding of multi-employer schemes, including: 

Trustees have the power to amend the scheme rules to require competent harbour authorities (CHAs) to pay higher contributions even if they no longer employ any active members of the scheme; These higher contributions do not have to be limited in relation to the proportion of deficit attributable to the individual CHA’s membership either past or present; Trustees have the power to impose contribution obligations on self-employed CHAs even if they do not employ any active members of the scheme, and again with no limit relating to the liabilities built up by members under their supervision; The statutory scheme funding regulations underpin the pension scheme rules and do not override them; A CHA will not trigger a section 75 debt once it stops employing active members, providing it has employees that are eligible to join the scheme if they so wish. Employing only deferred or pensionable members would still trigger the debt.

Angela Dimsdale Gill, head of pensions litigation at Hogan Lovells, the law firm acting on behalf of the PNPF Trustees, said the judgement had provided “much needed clarification of vital legislative provisions for multi-employer, industry-wide schemes such as this one”.

She said finance directors will need to carefully evaluate whether their pension liabilities have increased as a result of the judgement, and said there may be some employers that believed they had left their pension liabilities behind them but will now find they are still “on the hook”. But she noted: “There was no perfect solution to reconciling the different legislative provisions and the court has given an interpretation which is rigorously analysed.”
Dimsdale Gill said that the decision on when an employers ceases to be involved in a scheme appears in line with legislation, yet “many within the pensions community thought the trigger was a different one”. She noted this ruling has potential consequences for the government, as some employers will have paid a section 75 debt on the basis of what is now understood to be an incorrect interpretation of the legislation, while other companies could still be liable for pension obligations they thought they had solved.

However, she noted the issues arise not from the ruling but from regulations that have not been properly joined together. “No doubt the situation will give rise to calls for yet more legislation in what is already something of a legal minefield,” she added.

Peter Murphy, partner at Sacker & Partners who represented the Port of London Authority, said: “A judgment dealing with such a vast array of issues as this one can never please everyone concerned. But it is undoubtedly comprehensive, and the result of a great deal of work from all involved.”

“The trustees now have a legal framework from which to start addressing the massive deficit in the pension scheme. One must hope they do so in a fair and reasonable way, which minimises the impact on the health of individual ports as well as the UK ports industry as a whole,” he added.