Equalisation: a judicial change of approach?

Jason Shaw

The knotty question of whether a pension scheme has been properly equalised or not is an issue that the industry has been grappling with for over 20 years – and it’s still causing headaches. The story will be familiar to most of us: “The trustees thought we’d equalised retirement ages, the company thought we had, members were told we were equalising to age 65, the scheme’s been administered on that basis for years and no members have ever suggested otherwise – so why are the lawyers now saying we haven’t equalised properly?”.

The problem is derived from trust law and the strict approach taken by the courts when dealing with amendments to trusts. A string of authority tells us that failing to comply with the formalities of a scheme’s power of amendment will mean that the amendment is invalid. This is the case even if it leads to absurd results or results which are detrimental to the members. Another problem is the wording of the equalisation document itself and how the courts construe that wording. But are the courts starting to move away from this rigid approach? Are they being more commercial? A few of the more recent cases suggest that this might be so.

In the case of Wembley, the courts used the equitable maxim, ‘equity looks on that as done which ought to be done’ in order to cure an otherwise defective equalisation amendment and to give effect to the parties’ clear intentions to equalise the normal retirement age.

In the ICM case last year, the courts had no trouble construing an announcement to members in such a way as to give effect to the clear intention to equalise retirement ages. In that case, the announcement in question didn’t explicitly state that the retirement ages were being changed to 65 but the court was prepared to read those words into the document because it would have been clear to the ‘reasonable reader’ what the announcement meant.

This month has also seen the High Court, in the case of Vaitkus, find that a notice issued in 1991 was effective to equalise the scheme’s normal retirement ages, despite a clearly conflicting provision in a subsequent deed in 1992.

These cases all turn on their particular facts and the provisions of their governing documentation, but it is arguable that in pension trust cases, if it is clear what the parties intended and the courts can get to a position where they can reasonably give effect to those intentions, the courts may now be more willing than has historically been the case to find that equalisation has been achieved.

Jason Shaw is a senior associate at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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