The challenge of Lucas Industries to the decision of the company pension scheme trustees to make a large payment from the scheme to the company.
Pensioners of Lucas Industries are reported to bechallenging the decision of the company pension scheme trustees tomake a large payment from the scheme to the company. The challengecomes at a time when there is considerable debate over who shouldbe entitled to pension fund surpluses.
Many surpluses arose in the 1980's when substantial redundancyprogrammes were followed by low wage inflation and good investmentreturns in the bull markets of the decade.
Tax legislation requires surpluses arising under an approvedscheme to be eradicated over a given period but there isconsiderable debate about who should benefit from any surplus - thecompany or its employees.
Under current law, trustees can approve the return of a surplusto the employer provided they are given the power to do so in thetrust deed. But even if this power does not exist it may beintroduced, either through the scheme's own powers of amendment orby a modification order authorised by the Occupational PensionsBoard (OPB). The OPB recently made a modification order in the caseof the Lucas Pension Scheme permitting a large payment ofsurplus to the employer. It is therefore difficult to speculate asto the precise grounds of the pensioners' challenge.
Ownership of pension fund surpluses is one of the key areasaddressed by the Pension Law Review Committee, chaired by ProfessorGoode, in its recently published consultation document. It notesthat employers advance three arguments for their right to determinethe use of a surplus:
Since most defined benefit schemes are balance of cost schemes,the surplus can only arise because subsequent events have shownthat there had been over-funding by the employers.
There is no correlation between the value of the fund or theexistence of the surplus and a member's pension entitlement, whichis predetermined by the scheme rules.
Since the employer is solely responsible for any deficit, itshould be the employer who is solely entitled to direct the use ofany surplus.
On behalf of employees it is argued that:
Pension rights are not gratuities but part of a remunerationpackage earned by service (and, in the case of a contributoryscheme, by employees' contributions).
Pre-knowledge of the events generating a surplus would notnecessarily have resulted in reduced funding by the employer, sinceboth parties armed with that knowledge might have negotiatedimproved pension rights from the outset.
The existence of surpluses leads to reasonable expectations onthe part of employees which it is the duty of the trustees and theemployer to take into account.
The consultation document asks what factors and whose interestshould be taken into account in considering what use should be madeof a surplus, and how those interests should be balanced.
It is interesting to note that in a recent case (Re ThrellsLtd (1974) Pension Scheme) the Vice-Chancellor awarded asignificant portion of the surplus of a scheme which was beingwound-up to the Company. (See Bulletin, Pensions).
