Pension scheme goes to court to avoid £10m increase

Pension scheme goes to court to avoid £10m increase

An orthotics and prosthetics manufacturer has been forced to go to court to amend the wording of its pension scheme rules drafted 20 years ago, which if left unchanged would have given some of its members a total £10m benefits hike.

Blatchford – the sponsor of the Chas A Blatchford & Sons Limited Group Pension Scheme – saw the High Court approve a rectification to the plan’s 1996 rules, which had dictated that members of the scheme’s category D would receive increases of the greater of 5 per cent and the annual hike in the retail price index.

The original announcement of 1992, when the raise was introduced, dictated that members were entitled to increases to their pensions in paymentof the lesser of 5 per cent and the RPI.

But when this was documented in the deed in 1996, a mistake in the wording meant instead of a cap on pension hikes, the rule operated as a collar.

Currently, category D of Blatchford’s pension scheme has 107 deferred members and 131 members with pensions in payment.

According to Capita Employee Benefits, the scheme’s current administrator, not rectifying the rules as written would have given members a pension increase of between £9m and £10m.

The sponsor had first tried to fix the mistake in 2008 but this was ineffective, Chief Master Marsh said in the judgment.

Some 11 years later the matter was taken to the High Court, with the judge finding there was no evidence that when the deed was written there was any intention to change the increases promised in the earlier announcement. 

The trustees could not recall the discussion of the amending deed and the solicitor who drafted the 1996 rules admitted she made a mistake at the time, with the judge concluding that an order to fix the rules should be issued.

According to David Everett, partner at consultancy firm LCP, rectification proceedings can fix mistakes where it is very clear that documentation does not reflect the intentions of the parties.

However, it is not always possible to demonstrate this after the passage of time. “It was in this case, which shows that the rectification route may sometimes be the best way to fix this sort of mistake, albeit with the trouble and expense of litigation,” Mr Everett said.

Stephen Scholefield, partner at Pinsent Masons, stressed that lawyers were human and errors in documents do arise. 

Fortunately, the process for correcting errors is now “well established and where it can be demonstrated that an error occurred, it can often be corrected”, he noted.

“It is not always straightforward though, as the passage of time can occasionally make it difficult to tell what the parties were trying to achieve,” Mr Scholefield said.

“And even where it is clear that an error occurred, pulling together the evidence can be a time-consuming process.”

Rosalind Connor, a partner at Arc Pensions Law, noted rectification was being used more frequently by pension schemes.

She said: “They highlight a fundamental problem that if you find that the pension scheme documents don’t fit with what people, or at least some of the people, think should be the rules, it is not easy to fix.