The English High Court has recently given its judgment on the question of whether a pension scheme actuary, in being asked to give a certificate on a bulk transfer without consent, is obliged to take into account the security of benefits in a receiving scheme.
What happened?
The trustees of Halcrow Pension Scheme (HPS) submitted an application to the English High Court, seeking a declaration from the court on the pension aspects of the restructuring of the scheme’s principal employer, Halcrow Group Limited (HGL). HGL was at the time, “heavily balance sheet insolvent” and was only able to maintain operations with substantial support from its parent company. HPS had a solvency deficit of £600m.
There was a concern that the parent company would withdraw its financial support and that HGL would enter administration with HPS entering a Pension Protection Fund (PPF) assessment period. These events gave rise to a restructuring exercise, which had as its aim the transfer of the assets and liabilities of HPS into a new scheme known as ”HPS2”. The benefits that would be available in HPS2 would have been the same as those under HPS, other than those relating to future increases to pensions in payment and deferment: these would drop to the statutory level, while HGL would have discretion to make additional increases on an annual basis.
Due to the complexity and sensitivity of the transfer it was necessary that this took place without members’ consent, and so the scheme actuary was required to provide a certificate confirming that the transfer credits to be provided in HPS2 were “broadly, no less favourable than the rights to be transferred”. The central argument of the trustees was that, in deciding on whether or not the transfer credits in HPS2 were “broadly no less favourable”, the actuary should take into consideration the security of the benefits in each of the schemes and therefore, the likelihood of the benefits being paid. The employer disagreed, arguing that the actuary in assessing the favourability of members’ rights in the new scheme, could consider a variety of factors that they considered relevant – including the security of benefits – but was not obliged to do so.
What did the High Court say?
The Court found no express (or implied) reference to the security of benefits as a matter for an actuary to consider in the relevant regulations and commented that if a scheme actuary was required to give any attention to benefit security on a bulk transfer, this would have been made clear.
The court also pointed out that the actuarial certificate in the context of a bulk transfer is “…neither authorisation for nor a recommendation to the trustees to make the bulk transfer”, and that an actuary is not as well placed as trustees to decide on the merit of a transfer. The court highlighted that the question of benefit security is one for the trustees alone to consider, and to be satisfied of in accordance with their fiduciary duties to the scheme.
What does this mean?
This case reaffirms the important role that is played by pension scheme trustees where a bulk transfer is proposed and provides useful clarification of the factors that scheme actuaries need to consider when providing certification for a bulk transfer without consent.