Houldsworth and another (Respondents) v Bridge Trustees Limited and another (Respondents) and Secretary of State for Work and Pensions (Appellant)
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Houldsworth and another (Respondents) v Bridge Trustees Limited and another (Respondents) and Secretary of State for Work and Pensions (Appellant)
Trinity Term [2011] UKSC 42 On appeal from: [2010] EWCA Civ 179
JUDGMENT Houldsworth and another (Respondents) v Bridge Trustees Limited and another (Respondents) and Secretary of State for Work and Pensions (Appellant) before Lord Walker Lady Hale Lord Mance Lord Collins Lord Clarke JUDGMENT GIVEN ON 27 July 2011 Heard on 20 and 21 June 2011Appellant Respondent (Houldsworth) Christopher Nugee QC Andrew Simmonds QC Jonathan Hilliard Nicolas Stallworthy QC (Instructed by DWP/DH Legal Services) (Instructed by 3volution LLP) Respondent (Bridge Trustees Ltd)Keith Rowley QC (Instructed by Eversheds LLP) LORD WALKER (with whom Lady Hale, Lord Collins and Lord Clarke agree) Introduction 1. This appeal raises a question of some importance on the law relating to occupational pension schemes. The agreed statement of facts and issues ("SFI") sets out three issues, but they are all variations on the same general theme, that is the dividing line, for regulatory purposes, between defined benefit (normally earnings-related) schemes and defined contribution (or money purchase) schemes. 2. The general nature of the distinction between these two types of scheme is familiar, and it may be helpful to start with that (though counsel on both sides properly reminded us that we are concerned with a particular statutory definition, and not with the range of meanings in which imprecise expressions may be used). Under a defined benefit scheme (the commonest variety of which is a final salary scheme) the primary benefit to which a scheme member is prospectively entitled, on retirement at normal pension age, is a pension for life calculated (in a final salary scheme) by reference to the member's pensionable salary at retirement. A typical formula for calculating the pension was N/60ths, where N is years of pensionable service, but today the formula is more often N/80ths. The member pays contributions (typically a fraction, such as 5%, of current pensionable salary) and the employer is under a general obligation to pay the balance needed to provide all the benefits under the scheme. Final salary schemes are therefore also referred to as balance of cost schemes. What the member pays makes an important contribution to the benefit, but the amount of the benefit is not calculated by reference to the amount of the member's contributions, and the risk of a disappointing investment return on the pension fund is assumed by the employer. 3. Under a defined contribution scheme, by contrast, the member's benefit is calculated by reference to the contributions that the member makes, and those that the employer makes in respect of that particular member (for instance the member may pay 4% of his or her current pensionable salary, with the employer matching that with an equal contribution). These contributions, and the investment return on them, are the measure of the member's benefits, and for that reason these schemes are also called money purchase schemes. The member, and not the employer, takes the risk of the investment return disappointing expectations. That is one of the main reasons why large numbers of employers have, since the last years of the 20th century, closed their final salary schemes (either completely or to new entrants) and introduced money purchase schemes. 4. There is a variety of techniques by which, under a money purchase scheme, the amount of the contributions by or for a member, and the investment return on them, are mathematically transposed into quantifying the pension that is the primary benefit that the member expects to receive. Indeed the appellant's case is that some of the techniques (and in particular, those applicable to the voluntary investment planning ("VIP") and MoneyMatch benefits under the scheme that are the subject of this appeal) take the scheme outside the statutory definition of "money purchase benefits" in section 181 of the Pension Schemes Act 1993 ("PSA 1993") as applied for the purposes of section 73 of the Pensions Act 1995 ("PA 1995"). Section 73 provides a statutory order of priority in the winding up of pension scheme but it does not apply to money purchase schemes, and it applies only in a limited way to "hybrid schemes" (under which some but not all of the benefits provided are money purchase benefits). 5. These...See the full content of this document
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