Equalisation of Retirement Ages and Winding up a Pension Scheme
Failure to properly deal with equalisation of retirement ages is surprisingly common - even a quarter of a century after the original 'Barber' judgement in the ECJ. This issue can remain hidden until someone asks that awkward question, but it cannot be ducked - particularly if a scheme is going into wind up.
Once the assets of the scheme have been spent on securing benefits, any subsequent query by a member over this, or any other benefit issues, could fall on the trustees to put right from their own resources. Even if the trustees have insurance cover in place, will it pay out if they can't show that they have taken reasonable steps to resolve this matter?
Smaller schemes are particularly vulnerable, as they may have relied on insurance company documentation to effect the change to retirement ages, ignoring the caveat that trustees should seek their own legal advice. The danger is that the correct procedure to amend the scheme's Rules may not have been followed, and the change could be deemed ineffective.
I have seen many cases where the 'Barber window' (ie the period of time between the date of the Barber judgement on 17th May 1990 and the date when the scheme Rules were actually changed) has remained open until the next time the Rules were consolidated - typically following 'A-Day' in April 2006.
What should you do if you find yourself in this difficult situation?
- Examine the documents that purported to change the retirement ages. Note that any attempt to backdate the change will not be effective.
- Check that the procedure followed the amendment provisions in the Trust Deed and Rules. If there is any doubt, ask a competent pensions lawyer to advice.
- Every scheme will have a Barber window of some size due to the delay in clarifying how trustees should act. The benefits accrued during this period must be 'levelled up' - in other words the benefits accrued by male members must be valued as if they could be taken at the lower age that applied to female members. As they are payable sooner, and potentially for longer, they will be more expensive to provide.
- Instruct your actuary to calculate any additional liability, if equalisation has not already been factored in. This is likely to increase the liabilities of the scheme and make any deficit worse.
- Review any benefits settled since May 1990. Pensions in payment will have to be reviewed to ensure that the correct, equalised, pension is being paid. You may also need to review any transfers out of the scheme, or death settlement in respect of members with post-Barber service.
- Having an independent trustee on board can be a definite help, as they are familiar with the issues and can help the scheme get back on track.
There is never a good time to receive bad news, but there is no point in ignoring this issue. At least having grasped the nettle, the trustees can sleep more soundly knowing that they will not be on the hook further down the line.