Relief for UK trustees and employers as Foster Wheeler ruling stops windfall pensions
The UK Court of Appeal's long awaited decision in the Foster Wheeler case about equalisation of pension benefits was issued yesterday. The Court of Appeal found in favour of the sponsoring employer, overturning the decision of the High Court. The High Court had decided that a member with a right to draw any pension unreduced at 60 could draw all of his or her pension unreduced at 60 without the need for employer consent. The Court of Appeal said that the High Court, in conferring a windfall on members, came up with a solution which was unfair to the sponsoring employer and potentially unfair to other members. The windfall element was a "fatal flaw" in the High Court's decision. The Court of Appeal decided that the right answer in the context of this scheme was that such members were entitled to draw all their pension from age 60, but the benefits earned by reference to age 65 will be subject to actuarial reduction for early payment.
Ian Wright, partner in the Pensions Group at Mayer Brown, commented: "This is a common sense decision which should be welcomed by trustees and sponsors alike – delivering members' proper entitlements without conferring unintended and unjustified windfalls that would put schemes and sponsors at risk, particularly in the current economic climate where they are already having to manage scheme deficits.
"The Court not only found a solution for the scheme in question, whose rules were very unusual, but also clearly supported the way most UK pension schemes dealt with equalisation in the 1990s – by introducing a single retirement age for all members, allowing members to draw pension early as of right at the old (earlier) retirement age, and actuarially reducing any part of the pension that wasn't earned by reference to that earlier retirement age".
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