Alexander Forbes Trustee Services Ltd v Clarke & Ors [2008] EWHC 153 (Ch)

[2008] EWHC 153 (Ch)Case No HC06C02041
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 05/02/2008
Before
THE HONOURABLE MR JUSTICE HENDERSON
Between
ALEXANDER FORBES TRUSTEE SERVICES LTDClaimant(1) GEOFFREY ALAN CLARKEDefendants(2) JOHN MORGAN LEWISDefendant(3) ROBERT FREDERICK UNWINDefendant
Mr Geoffrey Topham (instructed by Eversheds) for ClaimantMr Nigel Burroughs (instructed by Hammonds) for First DefendantMr Nicolas Stallworthy (instructed by Wragge & Co) for Second DefendantMr Jonathan Evans (instructed by Wragge & Co) for Third DefendantHearing Hearing dates: 16 and 17 January 2008
JudgmentThe Honourable Mr Justice Henderson :Introduction
[1]The Demaglass Pension Scheme (“the Scheme”) is a contributory defined benefits occupational pension scheme which was placed into winding up on 23 May 2000 following the insolvency of the principal (and only) employer Demaglass Limited. The Scheme is being wound up in deficit. As at the date of the last full actuarial valuation, 1 April 2003, the assets of the Scheme were £15,093,000 and its total liabilities were £24,817,000, with the result that it was only 61% funded on a winding up basis and had a deficit of £9,764,000.[2]Demaglass Limited went into receivership on 21 March 2000, and on 29 March 2000 the claimant, Alexander Forbes Trustee Services Limited, then named Bradstock Trustee Services Limited, was appointed as the statutory independent trustee of the Scheme. By the date when the resolution to terminate the Scheme was passed on 23 May 2000 the other trustees had already resigned, and at all material times the claimant has been the sole trustee of the Scheme.[3]As at the winding up date the membership of the Scheme was as follows:(a) Pensioners with pensions in payment - 235(b) Deferred pensioners who had attained 50 years - 129(c) Deferred pensioners who had not attained 50 years - 201(d) Active members - 369[4]In these proceedings, which were started by a Part 8 claim form issued on 24 May 2006, the Trustee seeks directions as to the appropriate order of priority for application of the net assets of the Scheme between the different classes of beneficiaries, having regard to the provisions (as in force at the relevant time) of section 73 of the Pensions Act 1995. By virtue of section 73(3)(b), priority was given in the winding up to the pension (but not future pension increases) of any member whose “entitlement to payment of pension or other benefit has arisen”. At the bottom of the statutory order of priority, by contrast, was “any liability for pensions or other benefits which have accrued to or in respect of any members of the scheme (including increases to pensions)”: section 73(3)(f).[5]In the light of the recent decision of the Court of Appeal in Cripps v Trustee Solutions Ltd [2007] EWCA Civ 771, [2007] PLR 237 (“Cripps”), on appeal from Trustee Solutions Ltd v Dubery [2006] EWHC 1426 (Ch), [2006] PLR 177, it is clear that section 73(3)(b) applies at least to members whose pensions are already in payment, or who have satisfied all the conditions under the scheme rules which entitle them to immediate payment of a pension or other benefit. It remains unclear, however, whether section 73(3)(b) also affords priority to a member who has not at the relevant date satisfied all the conditions which would entitle him to immediate payment of a pension, but who would be able to do so by taking one or more steps which are within his own power and do not require the consent or intervention of any third party. In particular, does section 73(3)(b) apply to a member who is currently entitled to a deferred pension at a future date (typically on reaching normal retirement age), but who has the option to take an actuarially-reduced immediate pension by giving notice of his wish to do so? And if so, does section 73(3)(b) apply only to members who have already left service, or does it also extend to members who are still in pensionable service at the relevant date, but who have the right to retire early with a deferred pension? These are in broad terms the questions which fall for decision in the present case.[6]The second and third defendants, Mr Lewis and Mr Unwin, are members of the Scheme who have been joined to represent, respectively:(a) members over the age of 50 who had left service on 23 May 2000 and were entitled to deferred pensions, but had not exercised any right to take a reduced pension with immediate effect; and(b) members over the age of 50 who had not left service and were still employed by Demaglass Limited on 23 May 2000, but who had the right to take early retirement.[7]The first defendant, Mr Clarke, is a former member-nominated trustee of the Scheme. He was born in February 1944 and has been a member of the Scheme since a date in the early or mid 1990s when the company for which he previously worked was taken over by Demaglass Limited. He was offered voluntary redundancy and took early retirement, with the consent of Demaglass Limited, with effect from 30 September 1998. He was then aged 54. He exercised his right to take an immediate pension, and has received it ever since (although, in common with all the other pensioner members, he has received no increases to his pension since the date of winding up). He has been joined to represent all members and beneficiaries of the Scheme apart from those represented by the second and third defendants, including in particular all members whose pensions were already in payment on 23 May 2000.[8]The representation of the parties before me was as follows. Mr Geoffrey Topham, instructed by Eversheds, appeared for the Trustee. Mr Nigel Burroughs, instructed by Hammonds, appeared for the first defendant. Mr Nicolas Stallworthy, instructed by Wragge & Co, appeared for the second defendant; and Mr Jonathan Evans, also instructed by Wragge & Co, appeared for the third defendant. I am grateful to all counsel for their clear and helpful arguments. I should add that, although Mr Topham’s position on behalf of the Trustee was one of neutrality, he did also at my invitation make some submissions on a few points which had not been covered in the opening arguments of the other three counsel. They then had an opportunity to reply on these points, as well as to each others’ arguments.

Statutory Provisions

[9]I shall begin by setting out the relevant provisions of section 73, as amended and in force at the winding up date. “73 Preferentialliabilities on winding up(1) This section applies, where a salary related occupational pension scheme … is being wound up, to determine the order in which the assets of the scheme are to be applied towards satisfying the liabilities in respect of pensions and other benefits (including increases in pensions).(2) The assets of the scheme must be applied first towards satisfying the amounts of the liabilities mentioned in subsection (3) and, if the assets are insufficient to satisfy those amounts in full, then – (a) the assets must be applied first towards satisfying the amounts of the liabilities mentioned in earlier paragraphs of subsection (3) before the amounts of the liabilities mentioned in later paragraphs, and (b) where the amounts of the liabilities mentioned in one of those paragraphs cannot be satisfied in full, those amounts must be satisfied in the same proportions.(3) The liabilities referred to in subsection (2) are – (a) any liability for pensions or other benefits which, in the opinion of the trustees, are derived from the payment by any member of the scheme of voluntary contributions, (aa) … (b) in a case not falling within paragraph (aa), where a person’s entitlement to payment of pension or other benefit has arisen, liability for that pension or benefit and for any pension or other benefit which will be payable in respect of that person on his death (but excluding increases to pensions), (c) any liability – (i) for equivalent pension benefits (within the meaning of section 57(1) of the National Insurance Act 1965), guaranteed minimum pensions, protected rights or section 9(2B) rights (within the meaning of regulation 1(2) of the Contracting-out (Transfer and Transfer Payments) Regulations 1996) (but excluding increases to pensions), or (ii) in respect of members with less than two years pensionable service who are not entitled to accrued rights under the scheme, for the return of contributions, (d) any liability for increases to pensions referred to in paragraphs (aa) and (b), (e) any liability for increases to pensions referred to in paragraph (c), (f) so far as not included in paragraph (c) or (e), any liability for pensions or other benefits which have accrued to or in respect of any members of the scheme (including increases to pensions) and, for the purposes of subsection (2), the amounts of the liabilities mentioned in paragraphs (aa) to (f) are to be taken to be the amounts calculated and verified in the prescribed manner.(4) To the extent that any liabilities, as calculated in accordance with the rules of the scheme, have not been satisfied under subsection (2), any remaining assets of the scheme must then be applied towards satisfying those liabilities (as so calculated) in the order provided for in the rules of the scheme. … ” (a) the assets must be applied first towards satisfying the amounts of the liabilities mentioned in earlier paragraphs of subsection (3) before the amounts of the liabilities mentioned in later paragraphs, and (b) where the amounts of the liabilities mentioned in one of those paragraphs cannot be satisfied in full, those amounts must be satisfied in the same proportions. (a) any liability for pensions or other benefits which, in the opinion of the trustees, are derived from the payment by any member of the scheme of voluntary contributions, (aa) … (b) in a case not falling within paragraph (aa), where a person’s entitlement to payment of pension or other benefit has arisen, liability for that pension or benefit and for any pension or other benefit which will be payable in respect of that person on his death (but excluding increases to pensions), (c) any liability – (i) for equivalent pension benefits (within the meaning of section 57(1) of the National Insurance Act 1965), guaranteed minimum pensions, protected rights or section 9(2B) rights (within the meaning of regulation 1(2) of the Contracting-out (Transfer and Transfer Payments) Regulations 1996) (but excluding increases to pensions), or (ii) in respect of members with less than two years pensionable service who are not entitled to accrued rights under the scheme, for the return of contributions, (d) any liability for increases to pensions referred to in paragraphs (aa) and (b), (e) any liability for increases to pensions referred to in paragraph (c), (f) so far as not included in paragraph (c) or (e), any liability for pensions or other benefits which have accrued to or in respect of any members of the scheme (including increases to pensions)[10]It will be seen from the above provisions that the order of priority set out in subsection (3) takes precedence over any order of priority in the scheme rules, and the scheme rules can only take effect in relation to any liabilities which have not been satisfied under the statutory scheme. Within the statutory order of priority, liabilities in the earlier paragraphs of subsection (3) take precedence over the liabilities in the later paragraphs, and in relation to any category which cannot be satisfied in full the amounts are to abate rateably.[11]By virtue of regulation 4(1) of the Occupational Pension Schemes (Winding Up) Regulations 1996, SI 1996 No. 3126 (“the1996 Regulations”), for the purposes of section 73(2) the amounts of the liabilities mentioned in section 73(3) are to be calculated and verified by the actuary of the scheme “(a) on the assumption that the questions whether or not a person’s entitlement to payment of a pension or other benefit has arisen and whether any amount must be treated as an increase or as part of a pension are to be determined as at the crystallisation date.” Paragraph (6) of regulation 4 provides that “the crystallisation date” means, so far as material, the date on which the scheme begins to be wound up. Accordingly, in the present case the crystallisation date was 23 May 2000.[12]I was informed by Mr Topham that no assistance on the questions of construction which arise in the present case can be obtained either from Hansard or from the report on Pension Law Reform produced in September 1993 by the Pension Law Committee, chaired by Professor (now Sir) Roy Goode QC, the reason in the latter case being that the recommendations of the Goode Report relating to priorities on a winding up were not accepted by the Government.[13]I should also mention that section 73 was extensively amended by the Pensions Act 2004 with effect from 6 April 2005, with the result that the questions in the present case will not arise, at least in their present form, in cases where winding up began after that date. However, the amendments were not retrospective, and I was told that the decision in this case is likely to be of significance to many other schemes that are being wound up in deficit and where the winding up began before 6 April 2005.

The relevant Rules of the Scheme

[14]The Scheme was first established by a trust deed dated 12 September 1990 as the Tickhill Pension Scheme. It subsequently changed its name to the Demaglass Pension Scheme in 1996. It is currently governed by the Definitive Trust Deed and Rules dated 11 June 1999 (“the Rules”). The Rules are incorporated in the Definitive Trust Deed itself, and are not (as is often the case) set out in a separate document.[15]The Principal Company under the Rules is Demaglass Limited. Provision is made for associated employers to participate in the Scheme, but none have done so. “Normal Pension Age” is defined as the age of 65 for employees and 60 for directors. It should be noted that the ages are the same for both men and women. “Service” is defined as employment by (relevantly) the Principal Company.[16]Membership of the Scheme is open to employees under the age of 65. Once admitted, an employee becomes an Active Member. By virtue of rule 2.4, Active Membership ceases when the member ceases to be in service or on the occurrence of certain other events, including discontinuance of the Scheme under rule 15.2. It is now common ground that the Active Membership of all members employed by Demaglass Limited ceased when the Scheme was terminated on 23 May 2000, even though the termination did not in itself have any effect on their contracts of employment, and even though they remained in Service (as defined) thereafter.[17]“Member” is defined as meaning a person who is, or has been, an Active Member.[18]There is no definition of “pension”, but “Deferred Pension” is defined as meaning a Member’s pension which is not yet payable but which is, or (if the Member had not died and circumstances had remained unchanged) would have been, calculated under rule 4.2.[19]I can now turn to rule 4, which is headed “Member’s Pension” and provides so far as material as follows:
“4.1 Pension at pension age Except as provided below, a Member is entitled to a pension for life from Normal Pension Age equal to the total of one fiftieth of his Final Pensionable Pay for each Year of Adjusted Pensionable Service. Directors shall be entitled to a pension for life from Normal Pension Age equal to one thirtieth of his [sic] Final Pensionable Pay for each Year of Adjusted Pensionable [Service]. 4.2 Early leavers For a Member who ceases to be an Active Member before Normal Pension Age, Rule 4.1 is varied as follows: - 4.2.1 Early pension in normal health if the Member after he attains the age of 50 retires from Service, without qualifying under Rule 4.2.2, he may request an early pension, which will only be granted with the Principal Company’s consent. The early pension will be calculated as described in Rule 4.1 but reduced for early payment on a basis certified as reasonable by the Actuary. … 4.2.2 Early pension on incapacity [Provision is made for the payment of an early pension to an Active Member who retires from Service due to serious incapacity. For present purposes nothing turns on these provisions.] 4.2.3 Deferred pension at pension age if neither 4.2.1 nor 4.2.2 applies, the rate of pension at Normal Pension Age will be calculated under Rule 4.1 and then revalued as required by [the Pension Schemes Act 1993] for Members … 4.2.4 Deferred pension accelerated or postponed a Member with a Deferred Pension may request that his pension start either before or after Normal Pension Age (unless the Member remains in remunerated employment). An early pension under this Rule 4.2.4 may however not start before the Member leaves Service or (except in case of Incapacity) before he attains the age of 50; and the start of a late pension may not be deferred after he reaches the age of 75 nor … after he ceases all employment. The pension will (in the case of early commencement) be reduced or (in the case of late commencement) be increased on a basis certified as reasonable by the Actuary. … ”
[20]Other rules provide for pensions for spouses, death in service, transfer payments and other matters of a usual nature. Rule15.1 provides that the Scheme will terminate in various circumstances, including if the Trustee so determines after the Principal Company has been the subject of a Default Event. A Default Event includes the appointment of a receiver in respect of the Principal Company or any of its assets. As I have already said, rule15.2 provides for the termination of all Active Membership upon termination of the Scheme. Rule 15.4 provides an order of priorities on winding up the Scheme, but this order takes effect subject to section 73 of the Pensions Act 1995. By virtue of rule 15.9, all powers and discretions under the rules are to continue to apply while the Scheme is being wound up, but subject to the requirements of rule 15.[21]Rule 18.1 provides that the rules are to be construed in accordance with English law and without reference to the headings, which are used for convenience.[22]I would make the following comments at this stage on the provisions of rule 4.(1) Rule4.1 confers the basic entitlement to a pension for life from normal pension age, linked to the member’s final salary. Nobody disputes that, once entitlement to payment of a pension has arisen under this rule at normal pension age, the liability to pay it falls within section 73(3)(b).(2) Rule4.2 is concerned with members who cease to be active members before normal pension age. It therefore applies to all members who were under the age of 65 (or in the case of directors 60) and who had not already left service when the Scheme was wound up on 23 May 2000, because all active membership of the Scheme then terminated: see rule 15.2 and paragraph 16 above.(3) Rule 4.2.1 provides for payment of an actuarially reduced pension if a member retires from service after the age of 50, but only with the consent of the Principal Company. It is common ground that Demaglass Limited has a discretion whether or not to grant such consent.(4) Rule 4.2.3 provides for payment of a deferred pension at normal pension age in cases where rule 4.2.1 does not apply, that is to say where a member ceases to be an active member (for whatever reason) before normal pension age, but does not request and obtain the consent of Demaglass Limited to payment of an early pension under rule 4.2.1.(5) However, rule 4.2.4 provides that a member with a deferred pension (under rule 4.2.3) may “request” that his pension start either before or after normal pension age, unless he remains “in remunerated employment”, but subject to the restrictions that an early pension may not start before he leaves service and attains the age of 50, and the start of a late pension may not be deferred beyond the age of 75. In either case, the pension will be actuarially reduced or increased as the case may be.(6) It will be noted that there is no requirement for the Principal Company’s consent under rule 4.2.4, and that rule 4.2.4 provides an alternative method by which a member may obtain payment of an early pension between the ages of 50 and 65. The only conditions that a member has to fulfil for this purpose, apart from attaining the minimum age of 50, are: (a) to make a request for his pension to start early; (b) not to remain in “remunerated employment”; and (c) to leave service (defined relevantly as employment by Demaglass Limited).(7) Conditions (a) and (b) above give rise to possible difficulties of interpretation, but the Trustee has sought legal advice on them and the court has not been asked to resolve them in the present proceedings. In particular, the Trustee has been advised, and is content to proceed on the basis, that the word “request”, in this context, means “require”, and the Trustee has no discretion to refuse such a request once it has been made. This advice was principally based, as I understand it, on the wording of previous versions of the rules, which the present rules were intended to consolidate, and on the failure to follow the requirements in section 67 of the Pensions Act 1995 which would have applied had it been intended to amend the previous rules in a way which affected the entitlement or accrued rights of members.(8) It follows that, at first sight, rule 4.2.4 appears to enable a member over 50 who wishes to take early retirement with an immediate pension to sidestep the requirement of obtaining the Principal Company’s consent in rule 4.2.1. All he has to do is to leave service and then require payment of an accelerated pension under rule 4.2.4. Under each rule the amount of early pension that he receives will be reduced on a basis certified as reasonable by the Scheme Actuary. There is, however, an explanation for this apparent discrepancy. It appears from the evidence of the first defendant (who, as I have said, is a former trustee of the Scheme) that the pension paid to a member leaving service with the company’s consent under rule 4.2.1 was in practice significantly greater than an accelerated pension under rule 4.2.4, because different actuarial factors were applied in each context. On the basis of an illustration appended to his witness statement, the difference is of the order of 20%. This was a matter of deliberate policy, because rule 4.2.1 was in practice used when the company wanted to make people redundant or to encourage them to take early retirement, and the rule therefore contained an element of financial incentive.

The decision in Cripps

[23]Much of the argument before me revolved around the decision of the Court of Appeal in Cripps, so I will begin by explaining what the issue was in that case and how it was resolved.[24]The case concerned a final salary defined benefit contracted-out pension scheme, which went into winding up on 15 February 2002 heavily in deficit. The principal employer was a company called The Colour Processing Laboratories Limited. The pension scheme had been established in 1960, and was governed by rules which provided for male members to retire at 65 and female members to retire at 60. The effect of the decision of the European Court of Justice (“the ECJ”) in Barber v Guardian Royal Exchange [1991] 1 QB 344 (“Barber”) was that this requirement for unequal retirement ages between men and women was contrary to Article 141 (formerly Article 119) of the amended Treaty of Rome and therefore unlawful. In its subsequent decision in Coloroll Pensions Trustees Ltd v Russell [1995] ICR 179 the ECJ further decided that:(a) for pensionable service before 17 May 1990 it was not unlawful for pension benefits to be provided at different normal retirement dates (“NRDs”) for men and women;(b) a scheme could be amended so as to equalise benefits up or down, for example to make the NRD for both men and women either 60 or 65; and(c) for pensionable service between 17 May 1990 and the date of any such amendment (a period known in the pensions industry as the Barber window or corridor) men were entitled to be treated as if their NRD was the same as the NRD for women.[25]In Cripps the principal employer and the trustees had attempted to close the Barber window in 1992 by amending the scheme rules so as to increase the NRD for women with effect from October 1991. From then onwards the scheme had been administered on the footing that benefits had been equalised in this way. However, it was held by the judge at first instance (Lewison J) that the power of amendment had not been validly exercised, and that no estoppel had arisen as a result of the way in which the scheme was subsequently administered. There was no appeal against his decision on either of those questions. Accordingly, the Barber window had never been validly closed, and by virtue of Barber male members of the scheme were entitled to be treated in respect of all their pensionable service from 17 May 1990 onwards as if their NRD was 60 instead of 65. By contrast, the entitlement of women members remained unchanged, because the attempt to increase their NRD to 65 had been abortive.[26]Against this background, the question arose whether, and if so to what extent, the benefits of male members under 65 when the scheme went into winding up were given priority under section 73(3)(b) of the Pensions Act 1995 as being liabilities “where a person’s entitlement to payment of pension or other benefit has arisen”. The relevant rules of the scheme, so far as they can be gathered from paragraph 7 of the judgment of Sir Peter Gibson in the Court of Appeal and paragraph 8 of the judgment of Lewison J at first instance, provided that:(a) a member in service on NRD was entitled to an immediate pension, but could opt to postpone retirement and the commencement of the pension for up to five years; unless this option was exercised, the member was treated as having retired on NRD: rule 12(A);(b) a member could leave service before NRD with the employer’s consent, in which case the member was entitled to a deferred pension with effect from NRD, but could opt with the consent of the trustees to take a reduced pension beginning on or after the age of 50: rule 12(B); and(c) a member could also take early retirement with an immediate pension over the age of 50, but only with the employer’s consent or on account of incapacity: rule 12(C).[27]The beneficiary joined as a defendant to represent the interests of male members with service during the Barber window was a Mr Dubery. He had been a contributing member of the scheme from 1992 to 2000, when he presumably retired or left service with a deferred pension. He was aged 64 when the winding up began. I was told by Mr Stallworthy, who appeared for the trustees in Cripps, that (subject to certain arguments which the Court of Appeal found it unnecessary to deal with) the members of the class represented by Mr Dubery included both men with Barber service who had left service before the winding up and men with Barber service who were still in service at that date. They were, however, all under the age of 65 when the winding up began, and (ignoring their Barber entitlement) none of them was in receipt of an early pension at that date.[28]The argument for Mr Dubery at first instance was as follows:(a) a person’s entitlement to payment under section 73(3)(b) is not confined to cases where the pension is already in payment, but might equally arise where that person is entitled to call for immediate payment;(b) a male member with an accrued Barber window pension has an absolute right under European law to take that pension at the age of 60;(c) the rules of the scheme, referring to the payment of “a pension” not “part of a pension”, and the requirements of the Inland Revenue do not allow only part of a pension to be taken; and accordingly(d) if a male member wanted to take his Barber window pension at age 60, he must retire and accept the application of an early retirement factor to the remaining accruals, the required consent of the employer under rule 12(C) being treated as not capable of refusal as otherwise there would be a breach of European law.[29]The argument for the other beneficiaries of the scheme, represented by a Mrs Cripps, was that there can only be one NRD, and nobody had an entitlement to payment of a pension within the meaning of section 73(3)(b) before the NRD prescribed by the rules in force at the commencement of the winding up.[30]Lewison J accepted the argument for Mr Dubery in its entirety, holding that members of the scheme who had the right to retire at 60 in respect of any part of their service and who were aged between 60 and 64 at the date of winding up fell within section 73(3)(b), even in respect of pension or other benefits accrued by service to which an NRD of 65 applied. In paragraph 65 of his judgment, Lewison J pointed out that the effect of Barber was to confer on male members the right to retire at the age of 60, and that right could not be taken away from them.[31]On appeal to the Court of Appeal, a new and fuller case was advanced on behalf of Mrs Cripps by Mr Keith Rowley QC, who had not appeared below. He relied on the fact that a male member with Barber window service would have an NRD of 60 in relation to that service, but a different NRD of 65 in relation to pensionable service before 17 May 1990 or indeed after the closing of the Barber window. He submitted that there were three possibilities regarding the application of section 73(3)(b) to such a situation:(a) no entitlement to payment of pension or other benefit had arisen at all;(b) entitlement to payment of the member’s Barber window benefits only had arisen; and(c) entitlement to payment of the whole of his benefits, including his Barber window benefits and benefits in respect of any pensionable service before and after the Barber window, had arisen. Lewison J had found that (c) was correct, but had not dealt with (b) as a possibility because neither counsel had advocated it.[32]On the hearing of the appeal it appeared that counsel on both sides would have been content to adopt possibility (b), but the court requested counsel to argue the various possibilities fully, with the result that Mr Rowley deployed arguments in favour of(a) and, alternatively,(b) while Mr Newman, who appeared for Mr Dubery, argued against both (a) and (b) and supported the judge’s conclusion that(c) was correct.[33]Having heard full argument, the Court of Appeal decided that possibility (b) was indeed correct. In reaching this conclusion the Court had first to reject possibility (a), and it is their decision on this part of the case that is most material for present purposes. Barber is not directly in issue in the present case, because the Scheme provides for the same normal pension age for both men and women.[34]Mr Rowley’s first submission in support of possibility (a) was that the normal meaning to be attributed to the wording of section 73(3)(b) was that the person in question should be in receipt of the pension or other benefit. He supported this submission by reference to two authorities on the meaning of “entitlement”, and the distinction between that term and “accrued right” in a different section of the 1995 Act, namely section 67. The authorities, to which I will return later, were Barclays Bank v Holmes [2000] PLR 339 and Aon Trust Corporation v KPMG [2005] EWCA Civ 1004, [2006] 1 WLR 97. However, Sir Peter Gibson (with whom Tuckey and Ward LJJ agreed) evidently found little assistance in these authorities, reading them as doing no more than giving typical examples of what is an entitlement and what is an accrued right. He then went on to deal with Mr Rowley’s next argument, which was that if “entitlement” should be given a wider meaning, it should be limited to the case where the member satisfies the qualifications prescribed by the scheme’s rules and has done all that is necessary to render himself eligible to receive the benefit. On this alternative basis, he submitted that section 73(3)(b) “also included a case where the pension or other benefit had unconditionally fallen due for payment”. He suggested that Lewison J had construed section 73(3)(b) too widely in holding that it embraced not only pensions in payment, but also cases where a person was entitled to call for immediate payment of a pension. He submitted that a right to call for payment of a pension is not the same as an entitlement to receive it: see paragraph 25 of the judgment.[35]Sir Peter Gibson then continued as follows in paragraph 26:
“26. Mr Newman pointed out that elsewhere in the 1995 Act (see sections 52(1), 54(2) and 163(3)) the phrase “pension in payment” or materially indistinguishable phrases appear and could have been used in section 73(3)(b) if that is what was intended. Further, any requirement that the pension or other benefit be actually in payment could lead to gross injustice, for example where the payment of the benefit had been requested by the member but through mistake, oversight or other delay not the fault of or outside the control of the member the payment had not been made. It would also be surprising if Parliament intended to place in a lower priority liabilities owed to those who had attained their NRDs but had chosen to continue working than those who had already elected to take their pensions. I need not say more on this as what I take to be Mr Rowley’s substantial case was demonstrated by his concession that Mr Dubery, although not in actual receipt of his pension, was a person with the requisite entitlement, in that he had become unconditionally entitled under European law to payment of his pension on reaching the NRD. Mr Newman submitted that the fact that a member who has reached the NRD can elect to receive his or her pension by retiring from service means that he or she is at all times entitled to the pension. He further submitted, in my view correctly, that the difference between Mr Rowley’s position, accepting that an entitlement to pension included the situation where the member had the right to receive a pension, and Mr Newman’s own position, supporting the judge that such entitlement included a right to call for payment in circumstances where the entitlement lay wholly in the hands of the member, was wafer thin. ”
[36]Having considered, and accepted, a further argument of Mr Newman’s based on some technical provisions in the Pension Schemes Act 1993, Sir Peter Gibson then stated his conclusion at the beginning of paragraph 28:
“For these reasons I would reject Mr Rowley’s submissions in favour of possibility (a).”
It follows, in my judgment, that the Court of Appeal must be taken to have rejected Mr Rowley’s alternative submission that entitlement under section 73(3)(b) is confined to cases where the pension or other benefit has unconditionally fallen due for payment, and to have accepted Mr Newman’s submission that “such entitlement included a right to call for payment in circumstances where the entitlement lay wholly in the hands of the member”. The Court of Appeal clearly considered that the distinction between these two categories of entitlement was “wafer thin”, and that there could be no principled basis for setting the boundary of entitlement under section 73(3)(b) in such a way that the former category fell within the concept and the latter category outside it.[37]The particular example of a “right to call for payment” given in paragraph 26 of the judgment is that of a person who had attained his NRD but had chosen to continue working. Such a person is neither in receipt of a pension nor, without more, entitled to demand payment of a pension from the trustees. For so long as he elects to remain in service and postpone his retirement, the trustees would be bound to refuse any demand for immediate payment of the pension. However, the member could at any time elect to receive his pension by retiring from service, a unilateral step that would not require the consent of the employer or anybody else (although there would, no doubt, be a minimum period of notice required if the retirement was not to involve a breach of the member’s contract of employment). Accordingly, the right to take a unilateral step which would bring the pension into immediate payment is enough to satisfy the requirement in section 73(3)(b) that entitlement to payment of the pension has arisen.[38]The Court of Appeal in Cripps did not give any other examples of cases where a member may have a right to call for payment of a pension, but the nature of the principle endorsed by the Court is in my judgment reasonably clear. If a member has the right to bring about the payment of an immediate pension or other benefit, by taking one or more steps which lie wholly in his own hands, then entitlement to payment of that pension has arisen for the purposes of section 73(3)(b). Furthermore, it cannot make any difference to the application of this principle, in my judgment, whether the step in question is the removal of a supervening condition which prevents the member from requiring payment of a pension to which he would otherwise already be entitled (such as an election to continue working after NRD), or whether it consists of doing something to complete the member’s entitlement to a pension to which he would not otherwise already be entitled (such as making a request to the trustees in order to trigger an entitlement to an early pension). I cannot see any good reason for drawing a distinction of this nature if, as I think, the touchstone applied by the Court of Appeal is the ability of the member to call for payment of a pension by taking steps that lie wholly within his own power, or as Sir Peter Gibson put it “wholly in the hands of the member”.[39]It is relevant to note at this point that Mr Rowley’s skeleton argument before the Court of Appeal in Cripps (a copy of which was provided to me by counsel in the present case) specifically drew attention to some of the implications for other final salary schemes of the construction of section 73(3)(b) which had been adopted by Lewison J at first instance. The examples given by Mr Rowley included the following, in paragraph 42 of his skeleton:
“(c) Take also the case of a scheme which has always had equal NRDs and hence its members have no Barber window periods, but which has [a] rule permitting a member to retire on an actuarially reduced pension on attaining, say, age 50. Although that member may not have exercised his right under the rules, preferring instead to receive a full pension at NRD, on the judge’s reasoning the member would nevertheless be a person who is “entitled to call” for his benefits and hence would, on that reasoning, enjoy priority under section 73(3)(b). (d) As appears from paragraph 61 of the judgment, the judge’s reasoning would also extend to a member who, in example (c) above, remains in service after attaining 50.”
[40]Example (c) above is precisely the position of those members in the present case who are represented by the second defendant, Mr Lewis. Such members, it will be remembered, were aged over 50 and had already left service on 23 May 2000, and were entitled to deferred pensions under rule 4.2.3, but had not exercised their right under rule 4.2.4 to require payment of an early actuarially-reduced pension. Furthermore, example (d) replicates the position of those members who are represented by the third defendant, Mr Unwin, the difference between their position and that of members in the previous category being that they were still in service when the Scheme terminated on 23 May 2000.[41]It is fair to say that the examples given by Mr Rowley in his skeleton argument were not discussed by the Court in Cripps, and they were also directed to the wider construction of section 73(3)(b) adopted by Lewison J rather than the intermediate construction adopted by the Court of Appeal. Nevertheless, the implications set out by Mr Rowley seem to me to follow from the principle which was endorsed by the Court of Appeal in rejecting Mr Rowley’s alternative argument in support of possibility (a), and it is in my judgment reasonable to assume that those implications were taken into account by the Court, and did not deflect it from adopting the test which I have described.

Conclusions

[42]I have dealt at some length with Cripps because, carefully read and properly understood, it seems to me to be determinative of the present case.[43]Taking first the members represented by Mr Lewis, their only existing entitlement on 23 May 2000 was to a deferred pension at normal pension age under rule 4.2.3. However, under rule 4.2.4 they had the right to “request” (which the Trustee accepts means “require”) that an early pension be paid to them with immediate effect on a reduced basis certified as reasonable by the Scheme Actuary. The making of such a request was a unilateral act entirely within the power of the member concerned. In particular, unlike a request for an early pension under rule 4.2.1, it did not require the consent of the Principal Employer. Accordingly, these members had the right to call for payment of an early pension, within the meaning of the test applied in Cripps, even though they had not actually done so when the Scheme terminated.[44]Turning now to the members represented by Mr Unwin, they face the additional hurdle that they were still in service when the Scheme terminated. However, it was within their power to terminate their service by giving appropriate notice, or by simply ceasing to attend for work. The definition of “Service” in rule 1 provides that:
“Service ceases when, in connection with (or anticipation of) termination of employment, the individual ceases, or is required to cease, attending for work even if payment of (or in lieu of) remuneration continues.”
In my view it is implicit in this definition that a member’s service will cease even if he wrongfully breaches his contract of employment by leaving without notice. Termination of Service (as defined) was therefore something that a member could bring about by his unilateral act in not attending for work, and he could do so with immediate effect, whether or not his action involved a breach of his contract of employment. The penalty for leaving service with immediate effect is, of course, that the member’s pensionable service would be correspondingly shorter than if he had given proper notice. The important point for present purposes, however, is that the member has the option to retire immediately, and if he does so his position is then indistinguishable from that of the deferred pensioners over 50 who are represented by Mr Lewis. The member’s active membership ceases on leaving service (see rule 2.4.1), and he is therefore entitled to a deferred pension under rule 4.2.3 with the option to convert it into an early pension under rule 4.2.4.[45]It cannot make any difference, in my judgment, that a member still in service and over 50 on 23 May 2000 would have had to take two steps (leaving service and electing for an early pension) instead of a single step (electing for an early pension) in order to qualify for payment of an immediate pension. All that matters is that the step or steps required lay wholly in the member’s hands.[46]In arguing against this analysis, on behalf of the Scheme members other than those represented by Mr Lewis and Mr Unwin, Mr Burroughs submitted that the question of what amounts to entitlement under section 73(3)(b) can only be answered by reference to the rules of the Scheme, and that it is necessary to distinguish between a present and immediate entitlement to a pension or other benefit on the one hand, and a right to future benefits on the other hand.[47]He supported this submission by reference to the two authorities on section 67 of the 1995 Act which I have already mentioned in paragraph 34 above. Section 67 contains restrictions on powers of amendment in occupational pension schemes, and provides in subsection (2) that such a power “cannot be exercised on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised ” unless certain requirements are satisfied.[48]In Barclays Bank v Holmes [2000] PLR 339, in the context of an argument that a member with an interest in a surplus under the scheme had an entitlement or accrued right within the meaning of section 67(2), Neuberger J said this at 362:
“129. Quite apart from this, it appears to me that, when using the word “entitlement” in section 67(2), the legislature had in mind a case where the right to payment had arisen, in other words, to take the normal case, it covers a pension in payment. As a matter of ordinary language, that is what “entitlement” means, particularly when contrasted with “accrued right”
. That view is heavily reinforced once one considers the provisions of sections 91, 92 and 93 of the 1995 Act … 130. I do not consider that my views as to the meaning of the words “accrued right” and “entitlement” render the latter word otiose. It is clear from section 124(2)(a) of the 1995 Act that “accrued right” is an expression used to refer to “future” benefits. Once a pension has come into payment, it seems to me that it is not realistic to treat future instalments of that pension as “accrued rights” in the sense of payments in the future: the right to receive the pension for the rest of one’s life, once one has retired, is an “entitlement”, and not an “accrued right” as those expressions are used in the 1995 Act.”[49]More briefly, Jonathan Parker LJ drew a similar distinction in Aon Trust Corporation v KPMG [2006] 1WLR 97 where he said in paragraph 181 of his judgment (with which Chadwick and Mummery LJJ agreed):
“As to the meaning of “entitlement” and “accrued right” in [section 67(2)], I accept the submissions of Mr Green and Mr Ham that “entitlement” refers to a pension already in payment, whereas “accrued right” refers to a member’s current right to a future pension. This interpretation accords with the many other references in the scheme to “accrued” benefits … and is supported by the definition of “accrued rights” in section 124(2) of the 1995 Act …”
The definition of “accrued rights” in section 124(2) is in the following terms:
“For the purposes of this Part [which includes sections 67 and 73] – (a) the accrued rights of a member of an occupational pension scheme at any time are the rights which have accrued to or in respect of him at that time to future benefits under the scheme, and (b) at any time when the pensionable service of a member of an occupational pension scheme is continuing, his accrued rights are to be determined as if he had opted, immediately before that time, to terminate that service; and references to accrued pension or accrued benefits are to be interpreted accordingly.” and references to accrued pension or accrued benefits are to be interpreted accordingly.”
[50]In my judgment any support that Mr Burroughs might otherwise be able to derive from these two authorities is greatly reduced, if not eliminated, by the fact that the Court of Appeal in Cripps found them of no assistance in the context of section 73(3)(b): see paragraph 23 of the judgment. One reason for this is no doubt the fact that in the context of section 67 it is not usually necessary to draw a sharp distinction between the concepts of entitlement and accrued right, because the restrictions on powers of amendment apply in any case where either an entitlement or an accrued right under the scheme would or might be affected.[51]In relation to Cripps, Mr Burroughs suggested that a good test of whether an entitlement to payment had arisen for the purposes of section 73(3)(b) was whether the trustees would be acting in breach of trust if they were to refuse a request for payment of the pension as at the termination date. However, the answer to this submission, in my judgment, is that the suggested test cannot be conclusive, because if it were it would have ruled out in Cripps those members of the scheme who had elected to postpone their retirement after reaching the NRD. As I have already pointed out, such members had to take the step of retiring before they could become entitled to the immediate payment of a pension. Nevertheless, the Court of Appeal held that their entitlement fell within section 73(3)(b).[52]Mr Burroughs also asked, rhetorically, when the entitlement of members in the position of Mr Lewis or Mr Unwin arose, if the true view was that it arose before the making of a request for an early pension under rule 4.2.4. The answer to this question was in my judgment correctly provided by Mr Stallworthy and Mr Evans, who said that the entitlement arose at the age of 50. From then onwards members were entitled to obtain payment of an early pension by taking steps that lay entirely in their own hands. However, the amount of the early pension to which they were entitled on this basis would be quantified as at the crystallisation date, which was 23 May 2000, by virtue of regulation 4(1) of the 1996 Regulations: see paragraph 11 above.[53]More generally, Mr Burroughs submitted that it was undesirable in principle to adopt a construction of section 73(3)(b) which interfered more than was necessary with the actual choices that members had made and which had not been revoked when the Scheme terminated. If, for example, a member had taken early retirement but had decided against taking an early pension, preferring instead to receive a deferred pension at the age of 65, why should he be treated as if he had taken a further step (namely electing for an early pension) which he never had any intention of taking? Is it not paradoxical to regard him as being entitled to payment of a pension which he could have taken, but had deliberately decided not to take? If the matter were free from authority, I would have considerable sympathy with this approach. However, for the reasons which I have given I consider that it is precluded by Cripps. Furthermore, although the approach has superficial attractions, it may be said with some justice that choices made by members in the context of an ongoing scheme should not affect their entitlement in the very different context of a winding up.[54]Finally, Mr Burroughs also sought to draw a distinction between members who had attained their NRDs but had chosen to continue working, and members who had still to fulfil one or more of the conditions of entitlement to a pension, such as electing to take a reduced early pension instead of a deferred pension. He suggested that although Cripps was authority for including within section 73(3)(b) cases where entitlement to a pension had arisen, but the member had then elected not to receive it, it would be an unwarranted extension of the principle to apply it in cases where one or more of the conditions of entitlement remained unsatisfied at the termination date. In my judgment, however, the principle adopted by the Court of Appeal in Cripps cannot sensibly be restricted in this way: see paragraph 38 above. Once it is accepted that the concept of entitlement to payment in section 73(3)(b) goes beyond the situation where all the conditions of entitlement have already been satisfied and the member is entitled to require payment as of right in the circumstances as they are on the termination date, and that the relevant test is whether the member can bring about such an entitlement by taking steps which are exclusively within his own power, I can then see no good reason for distinguishing between steps which remove a supervening disqualification from immediate receipt of a pension and steps which complete the member’s entitlement to a pension. To draw a distinction of this nature would in my view add an unnecessary and unprincipled degree of complexity in a situation where there is a clear need for a rule that is relatively simple and easy to apply.[55]It is unnecessary for me to rehearse the submissions advanced by Mr Stallworthy on behalf of Mr Lewis, because I have already substantially accepted them in my analysis and discussion of Cripps. It is also unnecessary for me to deal in any detail with the submissions of Mr Evans on behalf of Mr Unwin, because I have already explained why it seems to me that the position of members over 50 who had not left service on 23 May 2000 is, in the light of Cripps, indistinguishable from the position of those who had left service and were entitled to a deferred pension. Mr Evans advanced a number of ingenious alternative arguments for reaching this conclusion, but as they turn on particular points in the drafting of the Scheme rules, and do not involve any questions of general interest, I intend with no disrespect to him to say no more about them.[56]In the course of his reply, Mr Stallworthy accepted, I think, that the only possible basis for drawing a distinction between Mr Lewis and members over 50 who were still in service on 23 May 2000 was a timing point, namely whether the principle in Cripps extended to a step (leaving service) which it was not possible for a member to take with immediate effect. He accepted that a member in service had the right to leave service by giving the necessary period of notice, but submitted that this was not sufficient because what mattered was the member’s entitlement to require payment of an immediate pension on the crystallisation date. There are in my judgment two answers to this submission. The first answer, as I have already said, is that the definition of “Service” in the rules does in fact permit a member to leave service with immediate effect and thereby to bring his pensionable service to an end, whether or not this involves a breach of the member’s contract of employment. Secondly, and in any event, even if a period of notice were required in order to bring the member’s service to an end, that would not in my judgment prevent the principle in Cripps from applying. What matters is that the member should have the unfettered right to bring about payment of a pension by taking steps that are entirely within his own power. It is not essential that he should have been able to take all of the necessary steps on the crystallisation date.[57]I should finally notice one submission advanced by Mr Topham on behalf of the Trustee in a neutral capacity. He suggested that it might be possible to found an argument on the requirement for actuarial reduction in ascertaining the amount of an early pension to be taken under rule 4.2.4. He questioned whether the word “pension” in section 73(3)(b) could include an actuarially reduced payment of pension, particularly if it represented the amount of an accrued right to a deferred pension at normal retirement age which would otherwise fall within section 73(3)(f) as a liability for pension which had accrued to the relevant member. He asked whether Parliament could sensibly have envisaged what was essentially the same benefit falling under two separate heads in section 73(3), or whether paragraphs (b) and (f) of that subsection were to be interpreted as being mutually exclusive.[58]In my judgment the answer to these submissions was provided by Mr Stallworthy. The scheme of section 73, as shown by subsection (2), is that the liabilities in subsection (3) are to be satisfied as far as possible in the order in which they appear, with earlier paragraphs taking priority over later ones. There is no reason in principle why there should not be an overlap between individual paragraphs. For example, guaranteed minimum pensions within paragraph (c)(i) would be included within pensions in payment under paragraph (b), and would also form part of pensions which had accrued under paragraph (f). The purpose of affording them a separate place in the order of priority must therefore have been to ensure that, where they were included in accrued pensions not already in payment, they would take priority over the liabilities in paragraphs (d) and (e) (increases to pensions). Similarly, increases to pensions within paragraph (e) would also otherwise fall within paragraph (f), and again the purpose of dealing with them separately is to move them up the order of priority. Accordingly, I can see no reason in principle why Parliament should not have decided to give priority to an actuarially reduced pension in respect of which entitlement to payment had arisen under paragraph (b), even if it was economically equivalent to a deferred pension which would otherwise have fallen under paragraph (f). The justification for giving it priority is that it is a pension which the member could unilaterally require to be brought into payment on the crystallisation date.[59]To conclude, I consider for the reasons which I have given that both Mr Lewis and Mr Unwin, and the members of the classes whom they represent, are persons whose entitlement to payment of pension had arisen within the meaning of section 73(3)(b) on 23 May 2000 when the winding up of the Scheme began. Their entitlement was in each case to payment of an early pension under rule 4.2.4, on the footing that they could complete their entitlement to such a pension by taking steps that lay entirely in their own hands.

Cited in 1 later judgment