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If it looks like a duck!


United Kingdom

The Scottish court has had to consider a number of cases where changes have been reflected in a scheme's administration, but it has been discovered there is no evidence of a formal amending document.

The Scottish court has recently had to consider a number of cases where changes have been reflected in a scheme's administration, but years later it is discovered that there is no evidence of a formal amending document.  The court's eminently sensible approach could be summarised as: if it looks like an amendment, swims like an amendment and quacks like an amendment, then it is probably an amendment!  It increases the pressure on the English courts to take a similar approach.

The Outer House of the Court of Session in Scotland (akin to the High Court in England) has handed down an important decision dealing with the effectiveness of schemes' attempts to equalise normal retirement date following the decisions in Barber and Coloroll.  Many schemes in the UK continue to encounter this issue – for example, during benefit audits prior to buy-in or buy-out.  What is refreshing about the judgment is that it takes a common sense approach to pension scheme amendments by utilising the "presumption of regularity" to treat equalisation amendments as effective, even where a resolution or deed is missing.  If the courts in England could be persuaded to adopt a similar approach, it would reduce the number of cases where equalisation, or any other benefit change, which has been announced to members and reflected in the administration of the scheme, is treated as ineffective due to the lack of a formal amendment to the scheme rules.

The case is also noteworthy in that the Scottish court, with its less rigid approach to amendments, ruled on the effectiveness of equalisation in English schemes.

What the case was about

The case arose out of a negligence claim against professional advisers by Johnston Press and the Trustees of its (Scottish) scheme relating to the way in which equalisation had been carried out in four English schemes which had been merged into the Johnston Press scheme.  The claim was for loss due to the failure of the advisers to provide adequate advice to the four English schemes to ensure that the necessary procedural steps were taken to amend the rules of the schemes at the time equalisation was intended to take effect.  The failure to amend would create additional liabilities for the Johnston Press scheme following the merger of the four English schemes into it. The professional advisers successfully argued that there was no loss because the four schemes had been amended at the intended time, notwithstanding the absence of a formal resolution or deed making the amendment.  The advisers argued that all the surrounding circumstances indicated that the trustees and employers for each of the four schemes had intended the schemes to be amended at the time and had then administered the schemes on the basis that they had been amended: so it was reasonable to assume that the amendments had been made at the appropriate time.

The court's decision

The court agreed with the advisers, applying the legal "presumption of regularity".  This is a presumption that things have been properly done, with the appropriate procedural steps having been taken, unless the contrary can be shown.  In a pensions context, it means that those seeking to challenge the validity of a change, where there is evidence that the employer and trustees intended the change, have to show the presumption is wrong.  The absence of a deed or resolution complying with the requirements of the amendment power is not necessarily fatal.

Implications for pension schemes

The presumption provides a common sense approach to matters of technical law where, due to the passage of time, it is not easy to piece together exactly what happened and everyone has proceeded in good faith on the assumption that an amendment has been validly made.

The presumption will not come to the rescue in every case - each case has to be considered on its own facts.  It is doubtful, for example, that it would have helped in facts similar to the recent case of the Gleeds Retirement Benefit Scheme where there was no problem finding the relevant deeds of amendment – the deeds simply had not been executed properly.  The presumption does not allow something to be treated as properly done when there is clear evidence that it was not.

As the decision was made in Scotland, it is not binding on the English courts where judges have tended to insist on strict compliance with every element of a scheme's amendment power, no matter the practical difficulties in unravelling invalid changes which have been in place for many years.  But the presumption of regularity equally exists under English law.  It is to be hoped that this latest case will cause the English courts to rethink their approach – or we may find the sponsors of English schemes searching for a connection with Scotland when questions about the validity of amendments arise!

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