Inner House finds trustee of pension scheme not in breach of duty by seeking to alter scheme benefit increases

About this case:

• Citation:
  [2023] CSIH 31
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Tyre

Petitioner abrdn (SLSPS) Pension Trustee Co Ltd sought directions in terms of the Court of Session Act 1988 asking whether it was entitled to make a decision to enter into an arrangement relating to a “de-risking” process in relation to the scheme. The participating employers appeared as respondents to the petition and lodged answers supportive of the petitioner’s analysis of the questions for the court.

The petition was considered by Lord Malcolm, Lord Doherty, and Lord Tyre. Mure KC and D Welsh, advocate, appeared for the petitioner and Roxburgh, advocate, for the respondents.

Resulting trust

The pension scheme of which the petitioner was trustee was established in 1937 for the purpose of paying pensions to retired employees of the Standard Life Assurance Company. Since the demutualisation of Standard Life in 2006, the principal employer responsible for the scheme has been Aberdeen Corporate Services Ltd.

In 2016 the scheme was amended to cease to offer further accrual of defined benefits in favour of providing the petitioner with a power to grant certain additional increases to defined benefit pensions without the agreement of the principal employer. The value of the available scheme assets later began to exceed the actuarial estimate of the assets required to secure the member benefits. This was viewed by the petitioner and the respondents as an opportunity to “de-risk” the scheme benefits and transform the discretionary increases into a guaranteed one.

A question arose as to what was to be done with any remaining surplus assets after all accrued defined benefits had been secured, the scheme rules having made no provision for this. The petitioner’s view was that the remaining assets would be subject to a resulting trust in favour of the participating employers. It therefore sought directions from the court asking whether it was entitled to enter into such an arrangement, and whether a resulting trust would arise as a matter of law.

By interlocutor dated 16 May 2023, the court remitted the petitioner to Robert Howie KC to consider and report upon the facts and circumstances of the petition. He took the view that entry into the arrangement was an action permitted by the trust deed, and that it could not be reasonably concluded that doing so would be a breach of fiduciary duty. Counsel for the petitioner urged the court to adopt the findings of the reporter.

Benefits members as a whole

Lord Tyre, delivering the opinion of the court, said of the first question: “It is not open to trustees to surrender to the court a discretion that has been vested in them by the trust deed. That is not however what the petitioner seeks to do: it asks rather whether it is entitled to enter into the proposed arrangement. We agree with the reporter’s reasons for concluding that it is so entitled. Entry into the buy-in stage of the arrangement, in terms of which an annual payment will be made to the petitioner by an insurer of a sum which matches the liability of the trustees to members of the scheme, falls within the scope of the petitioner’s duty under clause 1 of the trust deed to hold and administer the fund.”

He continued: “The arrangement as a whole benefits the members by removing the risk that at some future date the fund might come to be insufficient to meet the full cost of their pensions. The enhanced benefits secured for members have been the subject of lengthy negotiation in which the trustee has acted in the members’ interests. In all the circumstances we are satisfied that entering into the proposed transaction is a decision that a pension trustee acting reasonably could make.”

On what to do with any surplus arising from the change, Lord Tyre said: “The essence of the emergence of a resulting trust is that the purpose of the trust has been fulfilled, leaving a surplus of funds in the hands of the trustee which is not required for the trust purposes. In those circumstances the truster becomes entitled to have the unused funds returned to him. On the basis of the facts set out in the petition and confirmed by the reporter, that is the position in relation to any surplus remaining in the hands of the petitioner after provision has been made for all of its liabilities to members and others, and for the expenses of completing the winding up of the fund.”

He concluded: “It was not the purpose of the employers’ contributions to produce the surplus that has now arisen as a consequence of the investment policies adopted by the petitioner. The employers have not abandoned their entitlement as a matter of law to any such surplus. It is therefore the employers alone in whose favour the resulting trust operates.”

All questions of the petition were therefore answered in the affirmative.