Summary

Trustees were not entitled to apply part of the pension scheme monies in their hands towards the acquisition of indemnity insurance cover which would be for their exclusive benefit prior to a winding up and final distribution: monies applied from one part of the fund towards employer's contributions due in respect of the other part were improperly applied.

Facts

Application by the claimants ('the trustees') for the determination of certain questions arising out of the final winding-up and distribution of an occupational pension scheme ('the scheme') of which they were the trustees. The scheme was in part a final salary scheme ('the FS fund') and in part a money purchase scheme ('the MP fund'). The trustees were concerned as to the possibility of adverse claims being made against them after the final distribution, in which event there would be no assets to which they could have recourse to meet the expenses of any litigation. They wished the court to sanction the acquisition by them of a suitable indemnity insurance policy, albeit that they conceded that the claims which such a policy would cover would fall within the terms of the exoneration clause contained in the definitive deed. In addition, there were two issues in relation to the MP fund, the benefits under which were secured by a contract with the then principal employer of the scheme ('SL'). First, in one year the employer's contributions to that fund had been paid out of the then surplus on the FS fund, and secondly, the subsequent insolvency of the employer had led SL to sell some of the units in which the insurance contract was vested in order to meet its administrative expenses. This had had an adverse impact on the benefits to be received by the beneficiaries under the MP fund. The trustees sought to establish whether: (i) the employer's contribution had been properly paid out of the surplus on the FS fund; and (ii) whether they could use the assets of the FS fund to repurchase the cancelled units so as to restore the level of benefits.

Held

(1) Although the court had sympathy with the trustees in relation to their wish to acquire insurance cover, it could not be said that the cost of the premium was an expense of the administration of the scheme or its determination: they were simply costs which the trustees wished to expend for their own exclusive benefit. Nor did s.57(1) Trustee Act 1925 sanction the proposed expenditure. (2) Although both funds were part of the same scheme, they were nevertheless entirely separate and different considerations applied to each of them. The surplus on the FS fund should not have been used to discharge the employer's liability. (3) By the like reasoning, there was no justification for using the assets of the FS fund to buy back the cancelled units.

Declarations accordingly.