UK – Trustees with wide contribution-setting powers should exercise their powers when setting contributions in a buy-out-situation, according to a ruling at the Court of Appeal.

The court has pronounced on a case that saw trustee services provider Capital Cranfield Trustees bring an action against its former adviser Pinsent Curtis over contribution advice.

In 1998 Capital Cranfield sought Pinsent’s advice on the group pension scheme of K&J Holdings Ltd., a company which had notified it would terminate its contributions. The pension fund has currently a £10m deficit.

After the notice had expired, trustees realised that the scheme did not have enough assets to meet the buy-out cost in full, but it was too late to demand a contribution to meet the shortfall.

Now the Court of Appeal has upheld the decision - ruling that during the notice period the trustees could have demanded contributions from the employer, calculated on the basis of annuity costs.

“It clarifies the fact that where trustees have got a wide contribution power they can use that to demand contribution at the very highest level, a level needed to be able to finance the purchase of annuities,” Anna Rogers, partner in the law firm Mayer, Brown, Rowe & Maw told IPE.

She explained that the impact of this ruling on trustees’ activities depended on the circumstances of the scheme.

"Potentially this ruling affects many UK pension schemes. It strengthens the hand of trustees to fund at a high level,” she said.

“Where a winding-up is on the horizon this will give trustees the confidence to use their contribution powers, if they have one to get higher contribution in anticipation.”

“I do think it might cause some to ask themselves: ‘maybe we should have called for more contributions and nobody advised us that we could’.”

Capital Cranfield declined to comment while Sacker & Partners, the law firm appointed by the trustees, was not available for comment.

Lovells’ partner Angela Dimsdale Gill, who represented Pinsents, was also not available for comment.