A pension plan operated by the company was amended, leading to members of the pension plan either becoming better off (“revaluation winners”) or worse off (“final salary winners”) with regards to their accrued benefits under the plan. The trust documents under which the plan operated contained a power of amendment that was subject to a fetter preventing any amendment that affected prejudicially, inter alia, any rights accrued up to the date of amendment. The company, acting as a representative of the revaluation winners, brought proceedings to determine whether the amendments were effective in relation to the revaluation winners, on the assumption that the amendments in relation to the final salary winners were invalid because of the fetter. The representative beneficiary of the final salary winners contended that the amendments were invalidated by the fetter for all members of the pension plan and that it was not possible to sever the effect of the amendments as regards different categories of members. He argued that the two groups of revaluation winners and final salary winners were insufficiently discrete and that the test for severance was not met since the same decision would not have been taken had the decision maker known of the legal invalidity, flowing from the fetter, of the amendments. The company’s position was that the fetter only invalidated the amendments as regards the final salary winners and that they were valid so far as they affected the rights of revaluation winners.
On the claim—
Held, claim allowed. Where, in the pension context, there had been valid and invalid exercises of a power and a court was asked to uphold the valid exercise, either as a matter of construction by implication of a limitation on the terms of the exercise of the power so that it read as only effecting the valid part of the exercise, alternatively as a matter of severance, it had to be satisfied that the person exercising the power, had they properly appreciated the true limits on the power, would have exercised it in the same way. That “would still have exercised” test was an objective one and did not require investigation into the actual intention of the person who exercised the power. Rather, the test was a way of showing that the invalid exercise was but incidental, and it required that the court satisfy itself that severing the invalid part and allowing the valid part to survive would not produce a substantially different exercise of the power than objectively originally intended. In the instant case, the concepts of the final salary winners and revaluation winners were clearly sufficiently different and identifiable. The substantial purpose of the amendments was to remove the final salary link and, assuming that link could not be severed for the final salary winners, severing it for the revaluation winners was precisely within the overall objective intention. Accordingly, the amendment was valid in relation to the revaluation winners (paras 167–174, 175–176, 179).
Richard Hitchcock KC and Lydia Seymour (instructed by Eversheds Sutherland (International) LLP) for the company.
Paul Newman KC (instructed by Blake Morgan LLP) for the pension plan trustees.
Keith Bryant KC and Naomi Ling (instructed by Pennington Manches Cooper LLP) for the representative beneficiary of the final salary winners.