We look at the case of Iggesund Paperboard v Messenger where the court had to decide whether to reverse a scheme rule change which seemed inconsequential at the time, but accidentally "hard wired" RPI-based pension increases into the scheme rules.  

Rectification ordered where words allowing use of alternative to RPI omitted in amendment

In the case of Iggesund Paperboard (Workington) Ltd v Messenger the court has made an order for rectification of a scheme's definitive trust deed and rules where wording which would have allowed an alternative index to RPI for pension increases was omitted from a new definitive trust deed and rules for the scheme.  The effect of omitting the relevant wording was to "hard wire" RPI into the pension increase rule.

A rectification order is the process by which the court amends a document retrospectively where it is satisfied that the wording of the document does not reflect the parties' intentions.  In this case, the scheme's rules in force in 1992 provided for pension increases to be the lesser of (a) 5%, and (b) the percentage increase in RPI "or such other index as the actuary advises to be appropriate".  However, in the replacement definitive trust deed and rules executed in 2004 the wording allowing the use of another index as advised by the scheme actuary was omitted.

Minutes of the meeting that led to the production of the 2004 trust deed and rules showed that, apart from a number of identified changes, what was intended was the production of updated documentation.  A review of the documentation leading to the amended wording showed that an initial internal draft prepared by the scheme's solicitors had included the relevant wording allowing use of an alternative index, but by the time the draft was sent to the client, the wording had been omitted. The sign "^" appeared in the text to indicate that wording had been deleted, but the deleted text was not shown, and a note in relation to that rule did not mention the deletion of the actuarial advice wording.  Detailed notes made at the time by a member-nominated director of the trustee showed that he believed that pension increase rule under the new definitive trust deed and rules was the same as the old rule.

A representative beneficiary was appointed to represent the interests of members in the rectification proceedings.  Having taken the advice of counsel, it was decided not to defend the principal employer and trustee's claim for rectification, a decision described by the judge as "plainly right".  The judge described the case as, "the clearest possible case for rectification of a pension deed based on an omission that was not noted by any of the persons involved".

Our thoughts

This case shows that if a scheme's rules have previously allowed flexibility over which index to use for pension increases, but the relevant wording has been removed as part of a general updating exercise without the change being noticed at the time by the parties to the deed, it may be possible to reinstate the wording.  Whether this will be possible will be very much dependent on the particular facts, and an application to court for rectification would be necessary.

At the time that the 2004 deed was prepared, the omission of the wording allowing use of an alternative index advised by the scheme's actuary probably appeared unimportant, as the use of RPI would in any event have been required for pensions that were subject to statutory increases.  However, this is not a point that is raised in the judgment.