The High Court has today delivered its decision in the Imperial
Home Décor case, which has significant implications for pension
schemes in winding-up. Pinsent Masons acted for one of the
groups of members involved in the case.
The case concerns a pension scheme which sought to provide money
purchase benefits (which were contracted-out of the State Earnings
Related Pension Scheme (SERPS) on the Guaranteed Minimum Pension
(GMP) basis) and separate final salary benefits.
The scheme went into winding-up in 2003. There were
insufficient funds to pay all the members' benefits in full.
In order to work out how much money each member would receive, the
trustees had to take account of the statutory order of priority for
securing benefits on winding-up (at that time). Money
purchase benefits fall outside this regime, but final salary
benefits (and money purchase benefits which underpin other
benefits) do not.
The funds relating to a member's money purchase benefits would
therefore effectively be ring-fenced and so would not be available
to secure any other member's benefits. In practice, this
means that members usually receive their money purchase benefits in
full, even if members with final salary benefits receive a reduced
benefit.
In this case, the Court decided that, for schemes in winding-up,
the GMP should be treated as a separate benefit. The money
purchase benefits therefore underpinned other benefits. This
is significant as it meant that those benefits fall within the
statutory order of priority, and are not ring-fenced.
Stephen Scholefield, partner at Pinsent Masons comments: "It was
unclear whether GMPs should be regarded as a benefit in their own
right, as a previous Court decision had suggested that they were
simply a calculation factor. For members with money
purchase benefits and a GMP, this decision means that their benefit
falls within the statutory order of priority and is not
ring-fenced. It is disappointing that the complexity of the law is
such that, 10 years after it came into force, the Court is still
having to decide how it works."
It is understood that the Court's decision may be appealed.
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