Summary

Reduction of a pension fund surplus in order to avoid tax payments did not constitute a breach of duty by the fund's trustees, as it was fair and equitable in all the circumstances. Notwithstanding s.146(1) Pension Schemes Act 1993, the Pensions Ombudsman had no discretion to set aside the trustees' decision which had been reached by a proper exercise of discretionary power.

Facts

Appeal by the Pensions Ombudsman ('the Ombudsman') from the decision of Sir Richard Scott V-C. The Vice-Chancellor allowed the appeal of the trustees of the Industrial Training Board Pension Funds ('the Funds') from the decision of the Ombudsman that the trustees had acted in breach of trust in making certain amendments to the Scheme Rules under which the Funds were administered, for the purpose of reducing a surplus of £29.9 million so as to avoid a charge to tax. The nature and effect of the amendments was such that a number of pensioners, principally those who were no longer in service and not making contributions, did not benefit from them. The Ombudsman determined that the amendments were unduly partial. The trustees' appeal was allowed for the reasons summarised below. On further appeal the Ombudsman argued that the Vice-Chancellor: (i) was wrong in law to hold that the Ombudsman had no jurisdiction under s.146(1) Pension Schemes Act 1993 to determine the present dispute; (ii) was wrong to hold firstly that the trustees were not under a duty to act impartially as between individuals or classes of individuals, and secondly that the trustees were themselves the judges of whether the exercise of their power to amend was fair; and (iii) was wrong to hold that the facts found by the Ombudsman did not justify his conclusion that the amendments were made in breach of trust.

Held

(1) It was important to bear in mind the nature and purpose of the pension scheme. It existed to provide defined benefits; it did not entitle its members to a proportionate share of the entire fund; the setting of levels of contribution from time to time was an attempt to balance assets and liabilities and was not an exact science; the generation of surpluses (and deficits) was bound to arise as a consequence, but it was no part of the trustees' function to generate surpluses other than those required as a reserve against contingencies. (2) In considering what to do with any surplus, the trustees were obliged to act in a way that appeared to them fair and equitable in all the circumstances. There was a raft of considerations which trustees could properly take into account. If they did so, and also did not take into account irrelevant considerations, they could not be criticised if they reached a decision that appeared to prefer the claims of one interest to others: any preference would be the result of the proper exercise of a discretionary power. Accordingly, the Vice-Chancellor was correct to hold that the Ombudsman had approached his task on the wrong basis. (3) The trustees' decision could not be challenged as manifestly irrational. The circumstances in the present case were different to those in Hillsdown Holdings plc v Pensions Ombudsman & Ors (1997) 1 All ER 862. Accordingly, it was for those challenging a decision of the trustees to establish that the decision had been reached improperly. The trustees' decision was, in the circumstances, unimpeachable. (4) The beneficiaries adversely affected by the amendments were not persons to whom Part X of the Act applied. Part X made no general provision for the representation of class interests. Therefore, there was no framework in which all interested parties could be heard. Although s.146(1) of the Act allowed the Ombudsman to investigate and determine "any complaint", Part X as a whole, and the Personal Occupational Pension Schemes (Pensions Ombudsman) Regulations 1991, indicated that Parliament intended investigation by the Ombudsman to be conducted according to ordinary natural justice. Accordingly, the court declined to hold that there was an absence of jurisdiction, but rather that the Ombudsman should have declined to entertain the complaint. (5) (per curiam) Under s.151(4) of the Act, the Ombudsman should only challenge a decision of the High Court given on appeal if there was some point of principle which affected his ability to perform his statutory function.

Appeal dismissed.