Ruling reduces ‘wind-up’ member priority

UK - The Court of Appeal has overturned an earlier ruling stating defined benefit pension scheme accruals falling under the "Barber Window Service" should be given priority when an underfunded scheme is in wind-up.

A judgment issued yesterday by the Court of Appeal in the Cripps vs Trustees Solutions and Dubery case states where an individual is over the age of 60 but under 65 at the date of the scheme's winding-up, higher priority in payouts should be limited only to any pension calculated beyond the age of 60, while the remaining amount will be given lower priority for a payout.

The matter is somewhat complicated but should mean fairer pensions benefit distribution as those individuals who would previously have been given higher priority for the entire payout if they were over the age of 60 at the time of wind-up - and receiving either all or part of their pension at that time - will now only be given higher payout priority on the funds accrued at age 60.

In the earlier High Court ruling of June 2006, the judgment stated all pension accruals beyond age 60 should be given higher priority for payout when the scheme winds up or falls into the Pension Protection Fund if all or part of the pension was in payout, as calculations should be treated as paying all at once.

Many schemes in wind up are said to have delayed payment to members until this ruling was made.

This latest decision will therefore have a huge impact for trustees of schemes which went into winding-up between 6 April 1997 and 6 April 2005, according to Stephen Scholefield, director of Trustee Solutions Limited, as any part of a member's pension earned at the lower retirement age will now fall within the higher priority category if that age has been reached.

"This judgment will involve a significant amount of administration and actuarial calculations to implement, and will change the fortunes of all members under the age of 65 at the date of scheme wind-up," said Scholefield.

"The fact that the court has interpreted the law in a way that is very different to the way it has been applied by the industry for the last 10 years really does go to show how ridiculously complicated the legislation is."

The cost of this latest ruling will be an additional £50m (€75m) to the taxpayer, according to a spokesman for consultancy firm Hewitt Associates, as it increases payout requirements on the Financial Assistance Scheme.

The "Barber Window Service" ruling originated in 1990 when the European Court in Barber declared a final salary pension scheme had applied unlawful sex discrimination by having differing retirement ages for men and women and all pensions, and pensions should therefore be calculated based on the retirement age providing the higher benefit.

Trustees of the scheme and the employer attempted to rectify the situation in 1991 by increasing the retirement age for all members to 65 but the scheme went into wind-up in 2002 and there insufficient funds to pay all members' benefits in full so trustees sought to consider should be entitled to the payment under the Pensions Act 1995.

The High Court then ruled last year, however, this had been ineffective so higher priority had to be given to members with retirement age of 60 where there was service after 17 May 1990.