A clash of public policy? The IMG decision on compromises

Mervyn Parry

Sometimes pension issues take a long time to emerge and can lead to disputes.  Often the issues can be difficult.  There have been several pension dispute cases recently, for example the cases concerning attempted equalisation back in the early 1990s.  In some of those cases it might be sensible to compromise to save the costs and time of going to court and agree a full and final settlement.

But can you compromise a pension claim?  When Professor Goode looked at the issues after Maxwell he said there were public policy reasons why pensions couldn’t be given up.  Members need protecting against their own improvidence and need to keep their pensions to avoid the state having to provide support for them in their old age.  So legislation now provides for this – an entitlement or right under a pension scheme cannot be assigned, commuted or surrendered and an agreement to do any of this is unenforceable (subject to expected exceptions such as pension commencement lump sum commutation).

Does this mean that pension disputes cannot be compromised?  The issue arose recently in the International Management Group case when there was a dispute about converting DB benefits to DC benefits.  Later on there was an attempt to compromise the members’ claims that the conversion was unsuccessful under a “full and final settlement” compromise.  Isn’t there a public policy interest in enforcing such agreements to encourage settlements and ensure people abide by their agreements?  Yes but the compromises were held in IMG to be ineffective because they contravened the rule forbidding surrenders of pension rights.

So how can it be decided which public policy should prevail?  In this case the judge pointed to the absence of any exceptions in the legislation against pension surrenders for compromises, whereas other legislation (eg sex equality legislation) does contain exceptions.  It wasn’t as if Parliament had overlooked exceptions because some are allowed – for example surrenders of some pension rights for other rights under the same scheme are expressly permitted.  As so often it is left to the courts to resolve this type of clash where Parliament fears to tread.

So does this mean that no pension dispute can be settled?  One answer may be that in some genuine disputes there is no right or entitlement to surrender but only the hope or claim to one.  But it is likely to take further cases to shed more light.  Probably not much use in listening to Yesterday in Parliament.

Mervyn Parry is a consultant 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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