Trustees cannot rely on PPF safety net when taking decisions
Today (10 November 2009) the High Court determined, in the case of Independent Trustee Services Limited v Hope and Others, that, usually, trustees cannot rely on the safety net afforded by the PPF when taking decisions. This case has significant implications for how trustees take decisions and it brings some much-needed clarity to an important aspect of pensions law, although there are still some grey areas.
Lawyers Mark Smith
Independent Trustee Services Limited ("ITS") sought the directions of the Court as to whether it may properly purchase annuity policies from an insurance company, to secure certain benefits for certain members, before the Ilford Pension Scheme enters a Pension Protection Fund ("PPF") "assessment period". The annuity policies would have "bridged the gap" between the compensation that the PPF pays and the benefits promised under the scheme. The intention being for ITS to secure as great a proportion as possible of the benefits that members were promised. If lawful and successfully implemented, the proposal would have resulted in a better outcome for the beneficiaries than winding up the scheme outside of the PPF or the PPF assuming responsibility for the scheme without the proposal first having been implemented. However, Mr Justice Henderson held that this was not permitted.
The judge held that the purpose of the relevant power under the scheme was (only) to enable the trustee to apply a fair share of the assets available in purchasing an annuity policy for any member, disregarding any future PPF compensation payments.
Moreover, the judge said that it would not be possible to amend the scheme to extend the power. He said that the availability of future PPF compensation payments was not something that ITS could properly take into account when deciding how to proceed.
The judge did, however, say that, in certain contexts, the existence of the PPF would be a legitimate matter for trustees to take into account. The judge did not elaborate, but in his submissions, Leading Counsel for the PPF (who accepted that proposition) gave the following examples of when it might apply:
- trustees deciding whether, or when, to bring about a "qualifying insolvency event", as part of the planning for an orderly running down of an under-funded scheme; and
- considering whether an action that trustees might otherwise be minded to take might render a scheme ineligible for entry into the PPF.
In light of this case, a practical way for trustees to proceed would be to ask themselves: "would I be taking the same decision if the PPF did not exist?" If the answer is no, trustees will need to consider matters very carefully before proceeding. Taylor Wessing acted for ITS in this matter and so are perfectly placed to help.
For more information or advice please contact:
