Irish Pensions Magazine Spring 2015
16
Expert Opinion
Some questions without answers
1. Can trustees validly demand deferred annuity
buy-out funding on wind-up?
The case did not focus on the basis of the deficit
demand made. Rather, as the demand was made in
accordance with the contribution rule and the decision
to seek funding at the level it was sought was one
which could have been made by a reasonable body of
trustees, the Court did not interfere with the trustees’
decision. It seems that a demand could have been
valid, irrespective of the basis it was calculated upon,
so long as it was within the realm of what a reasonable
body of trustees might demand in the circumstances.
The question for trustees and employers to consider
then becomes whether deferred annuity funding is
within the realm of what a reasonable body of trustees
might demand. With an undeveloped Irish market in
deferred annuities and the fact that deferred annuities
may not represent value for money, it remains to
be seen whether trustees can insist upon deferred
annuity funding on winding up.
2. Can trustees validly make a lump sum deficit
demand where the scheme remains ongoing?
While the Omega Pharma case was decided in the
context of a scheme imminently about to wind-
up, there is nothing in the case to suggest that, in
appropriate circumstances, trustees couldn’t make a
valid lump sum deficit demand even where wind-up is
not contemplated based on a contribution rule such
as that in the Omega Pharma case.
3. Can contribution liability be terminated by
immediate notice to trustees?
While not explicit in the judgments of the Courts, it
does appear that one of the reasons the trustees’
demand was valid was that it was made prior to the
expiry of the notice terminating contribution liability.
The corollary being that if the demand was made after
the expiry of that notice (or if the notice had been
immediately effective), the employers may have had
no legal liability to pay the contributions demanded.
It remains unclear whether a Court would recognise
as effective a notice which purported to take effect
immediately thus defeating any deficit demand
trustees might make after the notice was given.
However, the Commercial Court judgment did include
a reference to a UK case – Curtis v. Capital Cranfield
Trustees Limited – where (though the comments
did not form part of the judgment) one judge said
that it would always be necessary to recognise some
period of reasonable notice even where the trust
deed did not provide for it; otherwise the scheme
would become virtually unworkable. There must be
at least a fair probability that an Irish Court would, if
faced with that question in a subsequent case, imply
a reasonable notice period.
4. What is the role of the actuary in scheme
funding?
A lotofweightwasattachedtothe fact that thedemand
made by the trustees was made having taken advice
from the scheme actuary. Given that the actuary is
perhaps the person best placed to determine how
the trustees can best provide members’ benefits
and the cost of doing so on a wind-up, the advice
of the actuary is key in trustee decision-making on
wind-up. The actuary’s advice in the Omega Pharma
case was that the best way of providing member
benefits was through purchasing annuities for all
members. The trustees had regard to this advice but
determined, instead, that a transfer value basis (albeit
a conservative one) for non-pensioner members was
a more appropriate means of securing benefits.
A difficult question persists as to what would the
position be if, under the contribution rule, the actuary
alone set the contribution rate.
What next?
Some key questions remain unanswered. It may be
that another case will come before the Courts over
the next few years which will provide clarity on some
of the remaining issues. However, it might now be
a brave employer (or set of members) who would
challenge pension scheme trustees after the Element
Six and Omega Pharma judgments. What is perhaps
more likely is that employers will seek to avoid scheme
wind-ups and the risk of large deficit demands.
1
[2014] IEHC 383
2
[2014] IEHC 38
Article Authors
Chris Comerford
A&L Goodbody
David Francis
A&L Goodbody
