The High Court has handed down its judgment in a rectification claim relating to the Axminster Carpets Group Retirement Plan (Punter Southall Governance Services Limited v Jonathan Hazlett (2021)). In the absence of a representative beneficiary being identified from the Plan membership, Jonathan Hazlett, head of our pensions advisory team, was appointed as representative defendant in this important case.
The claim asked questions concerning the validity and effect of a number of deeds and other documents which purported to fix the rate of pension increases under the Plan.
The parties successfully compromised these questions, leaving the court to consider how statutory limitation periods and forfeiture provisions apply to member claims for unpaid pension increases.
Mr Justice Morgan's detailed judgment offers welcome clarity and will be of interest to any trustee faced with past underpayments, including as part of a Guaranteed Minimum Pension (GMP) equalisation exercise.
No limitation period
The judge agreed to revisit his decision on limitation in the first Lloyds decision. The judge noted that in Lloyds he only heard "brief argument" on the subject and that the court had the benefit of the much more detailed arguments put forward in this case.
Upholding the decision reached in Lloyds on limitation, the judge confirmed that a claim by a beneficiary against a trustee for payment of arrears of pension when the trustee was in possession of trust property is not subject to a limitation period. The claim would fall under the exemption in section 21(1)(b) of the Limitation Act.
Forfeiture clause must refer to forfeiture
Like many other occupational pension schemes, the Plan's deed and rules contained provisions which sought to allow the Plan's trustees to apply unclaimed benefits for other purposes.
The provision in the 1992 trust deed and rules did not use the word "forfeit" or expressly refer to forfeiture. Instead, it gave the trustee the discretion to apply unclaimed monies for other purposes. In contrast, the provision in the 2001 trust deed and rules expressly provided for the forfeiture of benefits that remained unclaimed within six years of becoming due.
Faced with these contrasting rules, and having identified references to "forfeiture" of benefits elsewhere in the 1992 trust deed and rules, the judge concluded that the 1992 provision could not be construed as a forfeiture provision that extinguished a member's right to underpaid pension. Very clear language was needed to take away a member's right to benefits which was lacking in the provision in question. In contrast, the provision in the 2001 trust deed and rules was a valid forfeiture provision as it expressly referred to a benefit being forfeited by the trustees if not claimed within six years of it becoming due.
How to apply forfeited benefits
Where there is a valid forfeiture clause but on a discretionary basis, trustees can face difficult choices when deciding whether and how to exercise their discretion.
The judge offers commentary and guidance, including the extent to which historic breaches of trust - that may well have resulted in the unclaimed benefits in the first place - should influence how forfeited benefits should be applied.
Osborne Clarke comment
Where trustees discover past underpayments of pension scheme benefits, including as part of their GMP equalisation project, the position on limitation is now very clear; no limitation period applies and as such historic claims may still be valid.
While the decision on the purported forfeiture provisions is scheme specific, the judgment provides helpful guidance on interpreting provisions which purport to remove a member's right to unclaimed pension. The guidance on how trustees should exercise a discretionary power to forfeit is of general relevance and application.
Trustees should consider taking legal advice on how the decision affects the underpayments they are responding to.