Foster Wheeler Ltd v Hanley & Ors (Rev 1)

This appeal requires the court to decide how the Foster Wheeler pension scheme should pay benefits to members in circumstances where, due to developments in European law on pensions equalisation, (1) those members have accrued benefits with two different normal retirement dates (“NRDs”), (2) they choose to retire between those dates, and (3) there is no specific provision in the pension scheme to address this situation. The judge was offered three possible solutions: payment in full of all benefits, payment with a discount for benefits paid early and payment of two separate (or split) pensions. The judge preferred the first solution. Each solution is feasible, and so the court has to decide the criteria for selecting one of the solutions in this situation, and to determine which solution fulfils those criteria.

The developments in the law on pensions equalisation are not in dispute. Pursuant to decisions of the European Court of Justice (“the Court of Justice”) in Barber v Guardian Royal Exchange [1991] QB 344, Coloroll Pension Trustees Ltd v Russell [1995] ICR 179 and Smith v AvdelSystems Ltd [1995] ICR 596, pension benefits are equivalent to “pay” for the purposes of art 119 (now 141) of the EC Treaty. They are, therefore, subject to the requirement for equal treatment contained in that article. This requirement operates with effect only from 17 May 1990. As from this date, where a pension scheme did not comply with art 141, the persons in the disadvantaged class had to be given the same advantages as those enjoyed by persons in the favoured class: this obligation could not be avoided on the ground of cost to the employer. Pension schemes may be amended so that the benefits for both sexes are reduced as the company and trustees think fit, thus giving them a discretion in relation to such amendments. Rights acquired by operation of European law are called “Barber rights”. The period between 17 May 1990 and the date (if any) on which a non-Barber compliant pension scheme is altered so as to comply with the equal treatment rule is called “the Barber window”. Ss 62 to 65 of the Pensions Act 1995 (“the 1995 Act”) now give effect to this case law by making it clear that all occupational pension schemes are deemed to have a term for equal treatment, and any discretion under the scheme is modified so that it could not be exercised in any way less favourable to a woman than to a man (s 62(6)).

The issues on this appeal turn largely on the provisions of the Foster Wheeler pension scheme. This is an occupational pension scheme and it was established in 1956. It is a defined benefit scheme. I need only deal with the principal elements of its history. I refer to the principal employer as “the company”. As of 17 May 1990, benefits for male and female employees in pensionable service with the Foster Wheeler group were accrued by reference to different retirement dates: age 60 for women and age 65 for men. Members of the Foster Wheeler pension scheme accordingly acquired Barber rights as from 17 May 1990 by operation of European law.

By virtue of the jurisprudence of the Court of Justice summarised above, the Foster Wheeler pension scheme was to be treated as automatically eliminating the effect of different retirement ages as from 17 May 1990. Accordingly, from that date, men became entitled to accrue pension benefits at the lower retirement age enjoyed by women and women became entitled to accrue pension benefits until the higher retirement age enjoyed by men.

The company and the trustees took advice as to what to do in the light of Barber. The pension scheme contained a procedure for modifying the scheme by deed but no amendment could affect any accrued right without the member’s consent. On 16 August 1993, the rules of the pension scheme were amended so as to be Barber–compliant for future service: from that date the NRD for all employees, irrespective of sex, was their 65th birthday. In the language of pensions equalisation, the Barber window was then closed.

As to early retirement, prior to August 1993 the scheme imposed a requirement for the consent of the company and it provided for a deduction of 0.5% for each year prior to NRD. In the light of Barber, the company adopted a policy of permitting early retirements by members of either sex after age 60 without the company’s permission and without any reduction. Thus, from 16 August 1993, in practice a member could from age 60 retire with the consent of the company and receive his full pension without any discount for early payment (rule 8(1)). However, from about April 1999, and at all times since, the scheme was in deficit. Consequently, the early retirement rule was altered (with effect only from 30 April 2003) so that on early retirement after age 60 the member would receive only an actuarially reduced pension and would require the consent of the company. As already explained, a rule change could not operate retrospectively to alter the rights of the employees in pensionable service. This meant that any employee who had accrued a right to benefits calculated on the basis of a retirement age of 60 before 30 April 2003 would remain entitled to those benefits even after the 2003 rule change. This is common ground. Finally, when the company (where it is entitled to do so) declines to give its consent under the early retirement provision, and the member leaves, he will on his retirement receive a leaving service benefit and, on the due date for payment, his pension.

It follows from the decision in Barber that there are now a number of employees who have pension entitlements by reference to NRDs of both 65 and 60. These entitlements are referred to as mixed NRDs. Despite the change to the NRD in 1993, the rules of the pension scheme do not deal expressly with the payment of pension to members with mixed NRDs. The rules provide simply for the payment of what appears to be a single pension at age 65.

In these proceedings the company sought the determination of a number of questions about the operation of the scheme, but we are concerned only with the issue already summarised in [1] above. As already indicated, the court was invited to choose one of three options: the relevant question thus asked whether, if a member of the scheme with mixed NRDs wishes to take any pension between 60 and 65 years, he or she would be entitled to:

It is common ground that the company could impose a discount for early retirement in respect of retirement between 60 and 65 years on benefits accrued as from 30 April 2003, but not earlier. Option 1 has thus to be read subject to that rule change with effect from 30 April 2003 so that benefits accrued after that date may be discounted for early payment. This judgment is not concerned with those benefits.

In a lucid and closely-reasoned judgment given on 28 November 2008, Patten J held in favour of option 1. Following Lewison J in Hodgson vToray TextilesEurope Ltd [2006] EWHC 2616 (Ch), the judge held that the single pension required by the Foster Wheeler pension scheme for members with mixed NRDs could be achieved by invoking the early retirement rule and that, since European law underpinned his pension entitlement during the Barber window, the provision that the member could only take early retirement with the company’s consent had to be disapplied. Accordingly, the pension entitlement accrued by reference to a NRD of 65 had to be paid in full even though the member had not achieved the age of 65. It is from this part of the judge’s decision that the company now appeals.

The essential reasoning of the judge was that, consistently with the margin of appreciation which the Court of Justice gave to employers and trustees to formulate the terms of pension schemes, he was bound to follow the terms of the trust deed as closely as possible and to utilise routes which it provided for giving effect to rights accrued in the Barber window. In formulating his approach, he relied on the decision of Neuberger J (as he then was) in Bestrustees v Stuart [2001] PLR 283.He identified the early retirement route for this purpose, and held that European law required the provision for the company's consent to be disapplied because the right to pension accrued in the Barber window at age 60 could not be qualified. However he rejected the submission that this gave those entitled to such pension more than they were entitled to under European law. He preferred option 1 on the basis that pension benefits accrued by reference to age 60 for women in the pre-Barber period would after 1993 be paid under the early retirement route and this provided the model to which the rights of male employees had to conform. He held that a split pension was not justified because Barber rights could be given effect under the scheme. The decision of this court in Trustee Solutions Ltd v Dubery and another [2008] ICR 101 (referred to below as “Cripps”, that being the name of the sole beneficiary on the appeal to this court), which is discussed below, was distinguishable because in that case the Barber window remained open whereas here the company had adopted a new set of rules to close the Barber window on terms that the requirement for a single pension was retained and a full pension would be payable on early retirement.

The judge’s decision has major implications for the administration of pension schemes. The Foster Wheeler pension scheme contained a requirement for the company's consent to early retirement. This was a technique whereby it could control the flow of early retirements and the burden on the pension fund. The company could refuse its consent or give it on terms that the member taking early retirement received an actuarially reduced pension to take account of early payment. The effect of the judge's ruling is that that technique is no longer available to it in the case of members with mixed NRDs. The effect of the judge’s ruling is that, in relation to pension with an NRD of 65, a member will on early retirement receive more than that to which he is entitled under the rules, and in that sense he receives a windfall. It is said that the European jurisprudence does not require the enhancement of a member’s benefits accrued outside the Barber window. Moreover, such benefits have to be borne by the pension fund or paid for by the company, and thus could prejudice the position of members of the scheme who do not have Barber rights.

Mr Brian Green QC, for the company, submits that the judge’s conclusion is wrong in principle, in particular because option 1 gives a member far greater rights than he is entitled to under European law. He further submits that the judge misinterpreted the decisions in domestic law, especially Cripps. He submits that it made no difference in that case that the Barber window remained open. Option 2 should have been adopted. This affords the member his rights under the scheme and European law – no more and no less. It proceeds on the premise that the pension payable at age 65 is actuarially reduced to take account of early payment. The payment of pension is thus on what Mr Green calls a value-neutral basis.

Furthermore, on Mr Green’s submission, option 2 can be achieved under rule 17 of the scheme. This provides that where a person retires early, and he has been in qualifying service for more than two years and does not receive an immediate early retirement pension under rules 7 or 8, he has a right to take a deferred pension that commences at his NRD. Provision is also made for this to be converted at the member’s election and with the agreement of the company into an immediate pension reduced by such amount as the trustees determine, being no more than the actuary certifies to be reasonable to take account of the earlier date on which the pension comes into payment. Where a member with mixed NRDs decides to retire on his 60^th birthday, he will be entitled to a pension in respect of the benefits accrued by reference to an NRD of 60. He will also be entitled to a deferred pension with the company’s agreement in accordance with rule 17 in respect of benefits accrued by reference to an NRD of 65. The requirement for the company’s agreement at this stage is capable of being overridden under European law. Using rule 17 involves less interference with the scheme’s provisions than the use of the early retirement provision. Rule 17 was originally adopted in 1993 and has been repeated in subsequent sets of new rules adopted by the trustees. Rule 17 was not presented to the judge as a basis for option 2.

The judge should on Mr Green’s alternative submission have held in favour of option 3. No radical rewriting of the scheme is required for the purpose of delivering pension benefits to members with mixed NRDs through the mechanism of split pensions. Mr Green submits that there is no objection in revenue law to having two separate pensions, and in any event that if there were European law would override it. There is a "preservation" regime which requires deferred pension entitlement to be increased annually up to normal pension age (“NPA”). However, Mr Green submits that there is no reason why this cannot be done under option 3 because there is an express provision in the scheme rules for revaluation of pensions in deferment up to NRD 65 (and in any event, even if there had not been, European law would as regards the NRD 65 element of the benefit have provided it by way of an overriding split NPA), and pension can in relation to the NRD 65 element of the mixed benefit be increased annually up to then accordingly.

Mr Andrew Spink QC appears for Mr R J Williams, the representative beneficiary. He seeks to uphold the judgment of the judge but reserves the right to argue in a higher court that Cripps was wrongly decided. His primary submission is that the judge was correct to adopt what he (Mr Spink) calls "the narrower approach", that is to say, to follow the provisions adopted by the company when it made the scheme Barber-compliant in 1993: the company took the opportunity at that time to remove the right to require the pension paid to early retirers to be actuarially reduced. The right solution was that which most closely tracked the system for delivering benefits to be found in the pension scheme. Mr Spink further contends that after 1993 benefits accrued by reference to NRD 60 can only be taken under the early retirement provision under the existing structure of the rules. I would reject this argument because the alteration to the provisions of the scheme to increase the retirement age to 65 could not affect benefits already accrued in the Barber window period.

Mr Spink’s alternative submission is that the judge was right to adopt a broad evaluative approach to determine what was the most appropriate method to adapt the rules of the pension scheme to enable benefits to be delivered to holders of mixed NRDs and that he was justified in the conclusion to which he came.

Mr Spink also submits that the judge’s approach to Cripps was correct. He contends that Cripps is distinguishable because it concerned the question of priorities in a winding up. It does not lay down a principle of general application. While Mr Spink suggests that the payment of a split pension would infringe revenue rules and rules on preservation, he has not challenged Mr Green's submissions to the contrary in response.

As to option 3, Mr Spink further submits that the payment of a split pension would be inconsistent with members’ art 141 rights because it would involve paying a pension after age 60 by reference to a salary fixed at that date and subject only to minor increases for late payment. This would be less advantageous than a pension paid by reference to a salary at a later date. In my judgment, this is not a real problem, because if a member chooses to work after age 60 he can elect to have his Barber window pension benefits accrued by reference to a later date.

Mr Spink argues that there is no requirement for a split pension to be paid because the scheme is Barber-compliant because of the early retirement provision. This can be used so as to form a single pension of the two pensions payable by reference to different NRDs.

In the course of his written submissions, Mr Green threw down the gauntlet by asserting that there was nothing that would prevent any competent pension scheme drafter from making the necessary alterations to the rules of the Foster Wheeler pension scheme to produce a split pension result. We are grateful to Mr Andrew Simmonds QC, for the trustees, who took up this challenge and addressed it with luminous skill and admirable economy of expression. It is reassuring to the court to have the trustees’ counsel perform this task, and the trustees have the best incentive of all the parties to see whether there are any insuperable hurdles in implementing any of the options. Mr Simmonds points out, among other matters, that a split pension would be less advantageous to a scheme member if he had non-uniform accrual provisions but this disadvantage could be avoided by electing to treat Barber window service as NRD 65 service. Mr Simmonds submits that the adoption of each of the options would necessitate some redrafting of the rules of the Foster Wheeler pension scheme. He points out that there are different concepts of split pensions and some choice in how the options might be implemented. He further observes that some anomalies could arise with regard to split pensions and that there could be some difficulties in practice. There would be administrative difficulties in administering split pensions under certain rules since benefits may count twice over. But at the end of the day, the trustees, advised by Mr Simmonds, take the view that any of the three options can be accommodated.

The best guidance we have in answer to this question is the decision of this court in Cripps. In that case, the pension scheme provided for men to have a NRD of 65 and women to have a NRD of 60. Barber therefore applied with the consequences explained above. The Barber window had not been closed in that case, and the scheme had gone into deficit and had to be wound up. A question arose as to the priority to be accorded under the statutory scheme for winding up pension funds set out in s 73 of the 1995 Act (as originally enacted, though now relevantly amended) to the entitlement of the members with mixed NRDs who had attained the age of 60 but who had not retired at the relevant date. Under that statutory scheme, an entitlement to pension benefits had priority over a future right to receive benefits. Lewison J held that a member had an absolute right at age 60 to his pension earned during the (still open) Barber window. However, he went on to hold that, on the true interpretation of the rules, there had to be a single pension. Accordingly, the pension accrued at NRD 65 had to be taken, if the member had retired aged 60, under the early retirement rule. That rule provided for the pension to be reduced for early receipt. The judge therefore held that both sets of benefits had priority under s 73 of the 1995 Act. The early retirement rule provided that the company had to consent to an early retirement, but the judge held that this requirement had to be overridden in order to give effect to European law.

In this court, Sir Peter Gibson, with whom Ward and Tuckey LJJ agreed, held that the judge had applied too narrow a view to the interpretation of the rules. The developments in European law on pensions equalisation had occurred subsequently to the adoption of the rules and they had to yield to those developments. Moreover, revenue requirements were no longer inconsistent with the payment of a split pension. In addition, s 73 of the 1995 Act recognised that there could be different tranches of pension to which different priorities applied. This court concluded that the priority conferred by s 73 applied, when a member with mixed NRDs retired between the two dates, only to pension and other benefits whose payment could then be demanded. That meant that priority was limited to benefits accrued within the Barber window. Sir Peter Gibson noted that it would be extraordinary if the mere fact that the NRD had arrived in relation to some benefit would result in all pension benefit to which the individual would be entitled being accelerated. The benefits accrued in the Barber window might be quite small in relation to the benefits accrued outside that period.

Thus Cripps is authority for the proposition that split pensions are a possible solution in the context of priorities in a scheme winding-up. The result turns on a combination of the interpretation of the rules and interpretation of the 1995 Act. However, that does not mean that Cripps is of no assistance in this case. It demonstrates that the benefits provided for by a pension scheme under European law can be treated separately from those not so affected. But whether it should be done must depend on the context. Likewise, the fact that a separate stream of benefit is identified does not necessarily mean that there must be split pensions in the sense given above ([8]).

There is a further point demonstrated by Cripps. The court concluded that it was appropriate to limit the priority of pension benefits to Barber-window benefits on the basis that to give priority to all the member’s pension benefits would be contrary to the enactment in question because it would result in a windfall to the member.

I thus reject Mr Spink’s argument that the reasoning in Cripps is of no significance beyond priority in winding up. Such a limitation would in any event be unattractive, because the priorities in a winding up may ordinarily be expected to reflect any distinction that can be drawn in the entitlement of members before winding up.

In Toray Textiles, Lewison J applied his earlier reasoning at first instance in Cripps, which had not then been considered by this court. He concluded that a male scheme member retiring at age 60 prior to his NRD could draw that pension immediately. He further concluded that, while there was nothing in current revenue law or practice to prevent pension being taken in tranches, nonetheless the scheme should be interpreted in the light of revenue law and practice at the date the scheme was set up. Pension which had accrued outside the Barber window by reference to a NRD of 65 would therefore become payable at the same time under the early retirement rule. Under that rule it would be reduced for early payment, but there was no requirement for the consent of the company. He therefore held that there would be a single pension but that part which was accelerated was reduced for early payment. It is clear that the judge's conclusion that there had to be a single pension cannot stand in the light of Cripps. But that does not necessarily mean that the correct solution to the delivery of benefits to members with mixed NRDs in that case had to be by way of split pension. It is unnecessary to express a view on whether the judge was right on that point or not.

The judge in the present case distinguished Cripps on the basis that the Barber window had not closed in that case. In my judgment, that was not a sound basis for distinguishing Cripps. The reasoning in Cripps is not expressed to turn on the point that the Barber window remained open, and there would be no logic in reading the decision as distinguishable on that ground. However, while the judge’s judgment was criticised by Mr Green for distinguishing Cripps in this way, the judge’s real reason in my view for distinguishing Cripps was that, since the Barber window had not been closed, the company and the pension scheme trustees had not opted to make the scheme Barber-compliant in any particular way. He reasoned that, if they had, the court would so far as possible have followed the solution that it then adopted. That brings me to the question of how the court should choose how benefits should be delivered in the case of mixed NRDs.

The judge held, following Bestrustees, the right approach to the delivery of benefits in the circumstances described in the first paragraph of this judgment was to find the way of delivering pension benefits which involved the least interference with the modifications to the scheme for which the company and trustees had opted when the Barber-window was closed.

Bestrustees was a case where the amendments which had been made to the pension scheme to make it comply with Barber had potentially achieved compliance with European law but needed to be adapted to give full effect thereto. This was because the amendment requiring adaptation continued to maintain a distinction between the NRDs of men and women in terms of the need for company consent for early retirement. The judge did not hold that the amendment was invalid. He upheld the amendment by reading the reference to the NRD for men as the lower NRD applying to women so that both sexes had the benefit of the same requirements for early retirement. As to the approach of the court, Neuberger J held:

“57.

Accordingly, I think that, where there is a variation in the terms of the Scheme which do not quite achieve compliance with Barber but which potentially achieve it, both common sense and principle suggest that one should give as full effect to the variation as permitted by Barber, and to the extent that it is not permissible, the disadvantaged class should be accorded the same rights as the advantaged class. First of all, that conclusion appears to me sensible in that it gives as much effect as possible to changes which were carefully considered and implemented by the principal employer and the trustees. Secondly, I think that the result is more consistent with the approach of the ECJ in Barber and Coloroll. Thirdly, it would be a little odd if the ECJ's ruling required different results where a change was effected after publication of the Advocate-General's decision in Barber, and where the change was made after publication of the decision of the ECJ itself. Fourthly, it appears to me that if my analysis is correct, there would be less uncertainty for members who have been informed of the amendments. Naturally, in so far as those amendments do not comply with law, the courts must step in, but it seems to me that minimum interference by the courts is desirable, because the expectations and understanding of the members who have been told of the changes should require minimum interference with what they have been told.”

Neuberger J therefore identified four reasons for adopting a solution which so far as possible tracked the amendments which the company and the trustees had sought to make to close the Barber window. (The third reason related to timing of the amendment in that case and in the discussion which follows I have treated it as one that does not apply on other facts.) The approach of Neuberger J accords maximum respect to the wishes of those concerned in the scheme. It gives them autonomy so far as that course is consistent with European law. That approach is consistent with the fact that, while Barber rights have been superimposed on the provisions of the pension scheme, the precise manner of that superimposition is not prescribed. The Barber jurisprudence is itself consistent with party autonomy. The trustees and employer have a discretion. Their choices and preferences can best be seen from the terms of the pension scheme.

European jurisprudence is not directly relevant to the choice of option because it is for domestic law to determine how the rights conferred by European jurisprudence are to be made effective. There is, however, no rule in domestic law binding on this court which provides how Barber rights are to be made effective in the absence of a suitable scheme provision. Where a pension scheme contains a rule which is partly effective, as in Bestrustees, to implement Barber rights, the approach of minimum modification to the scheme is clearly preferable. Conceptually, however, the position is different here. Either new machinery has to be inserted into the pension scheme, or the existing rules have to be used in a manner not previously contemplated. It could be said that the court should determine how Barber rights are to be made effective by reference to some other benchmark than that of minimum modification and that the court should, for instance, seek to find a solution that is the most practical from the point of view of administration by the trustees or produces the most convenient or financially attractive result for pension scheme members. But counsel have not in fact seriously argued against the approach adopted in Bestrustees.

In my judgment, the approach in Bestrustees represents in general the principled approach for reasons which Neuberger J gives, and provides the guiding principles in this situation. Accordingly, the court should, where possible, give effect to Barber rights by adhering to the provisions of the relevant scheme where it is possible to do so in preference to some other approach. If some departure is required, it should in general, so far as practicable, represent the minimum interference with the scheme provisions. This approach is not limited to the situation where members have been led to believe that a provision will be used in a certain way or a stated aim of a provision has been only imperfectly achieved (as in Bestrustees itself). As the judge in this case recognised, it is a principle of more general application.

However, in determining what “minimum interference” is, regard must in my judgment be had to substance as well as form. Accordingly the court should consider not just the extent of any textual amendment required to the rules of the scheme to enable effect to be given to Barber rights, but also the substantive effect of the amendment so adopted. In this case, the implementation of the rights of members with mixed NRDs on the judge’s approach involved taking away the company’s right to give or withhold its consent to early retirement, or to give its consent on terms. Likewise his solution ended up giving those entitled to Barber rights far more than they were entitled to under European law: they acquired the right to non-reduced benefits on early retirement in respect of pension entitlement accrued outside the Barber window. Those factors cannot be ignored. The only effect of European law on benefits is to impose a NRD of 60 for pension entitlements accrued during the Barber window. The scheme should in general only be treated as amended to the extent necessary to make those rights effective. This principle of minimum interference with the scheme's provisions should be applied on the basis that minimum interference takes account of the substance and not simply the form of any notional amendment to the rules.

It follows from the approach of minimum interference that the court has to compare possible options and consider in relation to any particular option whether the Barber rights can be given effect in some other way involving less interference with the rights of any party, again determining the substance and not just the form of the interference. Whether a particular solution is appropriate in any given case will depend on the circumstances of the pension scheme in question.

I now turn to apply the foregoing principles to this case. The judge's solution involves using the early retirement route to enable the pension accrued by reference to a NRD of 65 to be accelerated and dispensing with the company’s right to give its consent on terms as to actuarial reduction of the accelerated non-Barber benefits. I can see how he came to the view that, with respect to the latter pension, the member was retiring early and therefore the early retirement rule was applicable. But the judge’s decision to prefer the early retirement route meant that the provision in the early retirement rule for the consent of the company had to be disapplied. The judge assumed that the early retirement rule without that requirement was not materially different from the early retirement rule with that requirement. In my judgment this was an error. In substance it was very different because it gave the member an uncovenanted benefit and imposed on the company and the trustees the burden of providing it. The judge considered that he was following Toray Textiles, but he was going beyond what was decided in that case as Lewison J did not disapply that part of the early retirement rule providing for reduction on the ground of early receipt, which is the effect of the judge’s conclusion in this case. By conferring a windfall on members with mixed NRDs, the judge’s solution did not satisfy the principles which I have identified. It is unfair to the company and potentially unfair to other members of the scheme. I am reinforced in this view by the fact that Mr Spink’s submissions did not give any reasons to justify the windfall element as such of the judge’s solution. In my judgment, the windfall element constituted a fatal flaw.

Leaving aside rule 17, this is a case in my judgment where, because of the windfall element involved in option 1, option 3 was a preferable solution to option 1. Option 3 was for the reasons given above a possible solution. It is correct to say that it is a novel solution. Any novel solution involves risks but I would not be impressed by any argument against option 3 based on that risk, given the clear submissions we have had from Mr Simmonds or the rules on preservation. In addition, there would appear to be no objection to option 3 in revenue law. In any event such requirements as to payment or preservation of pension benefits could not displace the rights flowing from the application of European law.

However, option 3 would involve, both quantitatively and qualitatively, a more substantial interference with the provisions of the scheme than that provided by option 2, using rule 17. Split pensions are undoubtedly more complex than single pensions. The payment of a single pension in this case more closely tracks the rules of the pension scheme than a split pension. There has been no evidence as to the wishes of members or the trustees but, as I have explained, the fact that split pensions might be more convenient to trustees, or more financially attractive to members, is not a determinative consideration.

On its face, rule 17 is intended to apply to the whole of the member's pension. However, there is no substantial change in reading it as applying only to that part of the member's pension accrued by reference to an NRD not yet reached. Rule 17 provides for the possibility of an actuarial reduction of that part of the pension and thus more closely tracks the way in which the early retirement rule would in practice have been operated than option 1. It avoids the windfall element in the judge's solution, that is, the consequence that members with mixed NRDs can retire early and take accelerated benefits without actuarial reduction to which they would not have been entitled under the early retirement rule.

In my judgment, for all these reasons, option 2, using rule 17, represents both in form and substance the least interference with the provisions of the Foster Wheeler pension scheme. It thus also constitutes the principled solution to the question how benefits should be paid to members in the circumstances described in the first sentence of this judgment.

In summary, where a member with mixed NRDs decides to retire on his 60th birthday, he will be entitled to a pension in respect of the benefits accrued by reference to an NRD of 60. For the reasons given above, he will also be entitled to a deferred pension with the company's agreement in accordance with rule 17 in respect of benefits accrued by reference to an NRD of 65. As part of the process of giving effect to the benefits accrued during the Barber window in a manner which most closely tracks, in form and substance, the pension scheme rules, the requirement for the company's agreement can be disapplied, though there is in fact no reason to think that the company would not agree, given that if it gave its agreement the pension would be actuarially reduced to take account of early payment. To all intents and purposes, through the operation of rule 17, the member would obtain a single pension, comprising the benefits accrued with an NRD of 60 and with reduced benefits accrued with an NRD of 65.

For the reasons given above, I would allow this appeal.

I agree with Arden LJ that this appeal should be allowed and that the right answer to the puzzle posed in this case is that if a male member with mixed NRDs wishes to retire between the ages of 60 and 65, he can do so, and can take his pension at once, but with an actuarial reduction of that part of the pension for which the NRD is 65, by way of early retirement. I add some comments of my own because of the interest and importance of the point, which was very well presented to us by Counsel for all parties in their respective written and oral submissions.

The employer and the trustees of the Foster Wheeler scheme responded to the Barber decision in a way which must be very similar to that adopted in very many other schemes which had unequal NRDs for men and for women. They set a new equalised NRD of 65 for all members. They may well have realised that this would only have effect as regards future service, and they may not have taken a view as to the effect that would arise for members with service before, during and after the Barber window, which they closed by the amendment. The consequences of the Barber decision for UK pension schemes, taking effect as they do by way of trust, were difficult to foresee, and not until the ECJ had dealt with a comprehensive set of test questions, posed by the reference in Coloroll, did some of the consequences of these actions become somewhat clarified.

With the benefit of that decision, we know that male members whose NRD had been 65 have a complicated pattern of pension benefits. For pre-Barber service the NRD is still 65, because of the temporal limitation in the Barber decision itself. For service during the Barber window, their NRD is 60. For later service it is again 65. So far as female members are concerned, they had an NRD of 60, which they retained until the end of the Barber window. The effect of Barber, from their point of view, was that, if they chose to continue in service beyond 60 during the Barber window period, they could continue to accrue pension benefits as if their NRD was 65. What came to an end for them (as regards future service) when NRDs were equalised up to 65 was the ability, in practice, to choose whether to go at 60 on a pension based on service up to that date, and not reduced for early payment, instead of continuing in service in order to get a larger pension with further years of pensionable service.

The effect of the judge’s decision as regards the male members with mixed NRDs is that they can take retirement before 65 which, so far as service within the Barber window is concerned is not, but as for all their other service is, early retirement, but they do not have to submit to an actuarial reduction in respect of their pre-Barber service. That negates the effect of the temporal limitation in the Barber decision itself, and gives these members a greater benefit than is directly attributable to the effect of the Barber decision.

In Coloroll the European Court of Justice answered a variety of referred questions concerned with the manner in which the direct effect of article 141 (then 119) should be implemented in relation to UK pension funds constituted by way of a trust. Those which are most relevant to the present appeal are questions 1(2) and 1(3). As to the first, the court said at paragraphs 28, 29 and 31:

“28.

Insofar as the relevant rules of national law prohibit them from acting beyond the scope of their powers or in disregard of the provisions of the trust deed, employers and trustees are bound, in order to ensure compliance with the principle of equal treatment, to use all the means available under domestic law, such as recourse to the national courts, especially where, as seems to be the case in this instance, involvement of the national courts is necessary to amend the provisions of the pension scheme or of the trust deed.

29.

Furthermore, the Court has consistently held that national courts are bound to provide the legal protection which individuals derive from the direct effect of provisions of the Treaty (see the judgment of 19 June 1990 in R v Secretary of State for Transport ex parte Factortame Ltd and others, C-213/89 [1990] ECR I-2433, paragraph 19). They are therefore bound, particularly in the context of Article 119, to the full extent of their discretion under national law, to interpret and apply the relevant domestic provisions in conformity with the requirements of Community law and, where this is not possible, to disapply any incompatible domestic provisions (see the judgment of 4 February 1988 in Murphy and others v Bord Telecom Eireann C-157/86 [1988] ECR 673, paragraph 11).

…

31.

Moreover, in paragraphs 18 to 20 of its judgment of 7 February 1991 in Nimz v Freie und Hansestadt Hamburg C-184/89 [1991] ECR I-297 the Court held that the national court must set aside any discriminatory provision of national law, without having to request or await its prior removal by collective bargaining or by any other constitutional procedure, and to apply to members of the disadvantaged group the same arrangements as those enjoyed by the other employees, arrangements which, failing correct implementation of Article 119 in national law, remain the only valid point of reference.”

As to question 1(3) the court said this at paragraphs 38-9:

“38.

Although Article 119 imposes on employers an obligation of result whereby men and women must receive the same pay for the same work, neither that Article nor any other provision of Community law regulates the way in which that obligation is to be implemented by employers or by the trustees of an occupational pension scheme acting within the limits of their powers.

39.

It follows that the national court, whose duty it is to ensure ultimate performance of the obligation of result, may, in order to do so, make use of all means available to it under domestic law. … ”

We were also shown a passage from paragraph 60 of the opinion of Advocate-General van Gerven relating to Coloroll and the other three cases that were heard by the ECJ at the same time (see [1995] ICR 74 at page 129). Referring to the proposition that Community law did not preclude a reduction of benefits for the future, so long as they were set at the same level for men and for women, he said:

“To take any other view would entail undesirable Community interference in a policy area which, in the present state of Community law, belongs to the sphere of competence of the member states, which as the court has repeatedly emphasised, “enjoy a reasonable margin of discretion as regards both the protective measures and the detailed arrangements for their implementation”.”

Domestic legislation has been introduced to cover the point, but it does not circumscribe any more narrowly the range of choice open to the employer and the trustees in making the necessary modifications. Accordingly it is fair to regard the employer and the trustees as having a reasonable margin of discretion in this respect.

The relevant legislation is the Pensions Act 1995, sections 62 to 65, in force from 1 January 1996, but with retrospective effect so as to relate to pensionable service on or after 17 May 1990: see section 63(6). The sections require an occupational pension scheme which does not contain an equal treatment rule to be treated as including one. An equal treatment rule has the effect that (among other things) if any of the terms of the rules as to treatment of members are or become less favourable to a woman than they are to a man, “the term shall be treated as so modified as not to be less favourable”: section 62(3). By section 65, if the trustees of an occupational pension scheme do not otherwise have power to make such alterations to the scheme as may be required to secure conformity with an equal treatment rule, or they have the power but the procedure is liable to be unduly complex or protracted or involves getting consents which cannot (or cannot readily) be obtained, the trustees may make such alterations to the scheme by resolution, and the alterations may relate to a period before the date on which they are made.

Thus, employers and trustees, on the one hand, and the court, on the other, are obliged to use all available means to give to the disadvantaged employees the same benefits as are enjoyed by the other employees, though only to the extent required by the Barber judgment as explained in Coloroll. The 1995 Act provided assistance to trustees towards making the necessary changes. It would be unfortunate, to say the least, if the pessimistic assumption made by the ECJ, that recourse to the courts would be necessary in all cases (see paragraph 28 quoted above), proved to be correct. Of course, the court, in its jurisdiction relating to the administration of trusts, has ample powers to resolve problems encountered in this area, and to assist trustees in that way, but it must be much more satisfactory, from every point of view, if the task of ensuring compliance with Community law can be accomplished in the case of most schemes without recourse to the court. In my judgment, although it has been necessary in a number of cases, including the present, parties should not normally need to come to the court, once the relevant principles have been established.

Article 141, as interpreted and applied by Barber, has direct effect, so any scheme member who is affected is entitled to argue that his or her benefits must be regarded as having been altered so as to comply with the requirements of the article even without any action on the part of the employer or the trustees. It remained open to the employer and the trustees to alter the position for the future by eliminating the discrimination, as happened in the present case in 1993, but the position pending any such change must, in principle, have been ascertainable at once, albeit not without difficulty until the Coloroll decision, and not necessarily easily even after that decision. I would therefore reject the argument (accepted by the judge at his paragraph 128) that Cripps is distinguishable because in that case the Barber window had not been closed. I can see that, in practice, a court considering how article 141 should be taken to have affected a scheme which had not been equalised at all might come to a different result as compared with a situation in which there had been equalisation for the future, but the principle behind the court’s approach would be the same.

How the imbalance is to be redressed, or is to be regarded as having been redressed, in any given case may depend on the particular rules of the scheme. However, in principle, it seems to me that Neuberger J’s approach in Bestrustees that “minimum interference by the courts is desirable” is undoubtedly correct (see the passage quoted by Arden LJ at paragraph [30] above), and minimum effect, here, refers to the extent of the substantive effect rather than to the extent of the drafting exercise. The corrective effect of article 141, as applied in Barber and Coloroll, is to ensure equality of benefits as between male and female employees and scheme members, to the extent required by the two cases, but not anything more than that. Minimum change might require extensive amendments to the drafting of the rules, whereas fewer textual changes might result in a greater substantive alteration. I agree with Arden LJ that the minimum alteration required should start with the modifications made already by way of equalisation for the future, in 1993, and should proceed from there but making no greater additional alteration to the scheme than is necessary to achieve full conformity with Community law as declared in article 141, Barber and Coloroll.

Arden LJ has summarised the three possible courses under consideration: (a) the judge’s answer, which involves no reduction of a male member’s pre-Barber NRD65 benefits despite early payment, (b) a single pension which gives full NRD60 benefits but actuarially reduced NRD65 benefits, and (c) a split pension provision, with a full NRD60 pension taken (on retirement) at 60, and a full NRD65 pension payable from 65 or, if it is to be taken early, then subject to actuarial reduction under the rules. The challenge presented by the issue of how to give correct effect to Barber and Coloroll in this case is illustrated by the fact that the basis for actuarial reduction ultimately preferred by Mr Green Q.C. for the company, using rule 17(5)(a), did not feature in argument below, nor in his skeleton arguments on the appeal, where he had focussed on rule 8(1) instead.

The correct analysis of the position resulting from Barber as explained in Coloroll, with or without later equalisation for the future, is not straightforward, especially given the complexity of a typical UK pension scheme. However, it seems to me that, in a case where members have mixed NRD rights, it is best (so far as possible) to analyse the member’s rights as if he or she had two separate pension entitlements – whether or not they are to be given effect by way of a split pension. That accords with the reasoning in Cripps, and it also seems to me to make it easier to avoid unnecessary confusion as regards the member’s rights.

Thus, a member who has NRD60 rights is entitled, as it seems to me, to retire at or after 60 (even though before 65) as of right, as regards the NRD60 part of his or her pensionable service. The fact that, after equalisation, the member’s rights appear to be based on a normal retirement age of 65 obscures the fact that for some of the past service the NRD was 60, and the right to take the pension attributable to that service at or after 60 cannot be overridden by any rule of the scheme. I would therefore respectfully differ from the judge’s analysis at paragraph 122. I am also unable to agree with him in what he said at paragraph 123 about female employees’ scheme rights dictating the form and scale of the modification of the scheme. After 17 May 1990 female employees have both rights which do not depend on Barber and additional rights by virtue of Barber; after equalisation they still have the same rights, as regards service before Barber and during the Barber window, and they are entitled to exercise those rights without qualification. If a female member who reaches the age of 60 after equalisation wishes to retire at that age, she is entitled to do so as of right, for all her service before equalisation. Only as regards later service would any question of early retirement arise. A male member attaining the age of 60 after equalisation and wishing to retire at that age could do so as of right, but only so as to take his pension attributable to service during the Barber window. For his service before and after the Barber window, he would have to rely on early retirement provisions.

Although the impact of article 141 and of Barber is towards equalisation, the fact is that the point of the temporal limitation on Barber was that, for pre-Barber service, equalisation should not be, and is not, necessary. Thus, while it is correct to say that the employer and the trustees must modify the scheme so as to ensure compliance with the article and with the ECJ decisions, it does not mean that they have to produce rights for men and women which are equal in all respects. They do not have to be equal as regards pre-Barber service. Therefore, it would be misleading to say that, because women have NRD60 rights up to the end of the Barber window, men must have the same. Men only have NRD60 rights for service during the Barber window.

On the footing that the correct analysis is that members with mixed NRDs really have two distinct pension entitlements, one can see the logic of saying that they should be entitled to take two pensions: on retiring at any given age between 60 and 65, they can take their NRD60 pension at once and in full, but they either wait until 65 to receive their NRD65 pension, or they take it early as a deferred pension which is accelerated but is subject to actuarial reduction. That is the preferred solution advocated by Mr Green, and is said to follow from Cripps.

If, however, it is considered that there must be only one single pension, Mr Green submits that it should be calculated to approximate as closely as possible to the aggregate of the two separate rights which I have identified. That involves treating the NRD65 pension as subject to reduction for early payment, or considering whether it can be subjected to such a requirement.

Because of the submissions made to him, the judge considered this issue by reference to rule 8, but Mr Green now submits that rule 17 provides a better solution.

The contrast between proceeding by reference to one rule rather than the other provides a useful illustration of the ways in which the effect of article 141 can be implemented with greater or with less extensive effect. Rule 8(1), as introduced by the amendments made in 1993 (when equalising NRDs up to 65) was as follows:

“If a Member is not entitled to a pension under sub-Rule 7(1), he may, with the consent of the Company before Normal Retirement Date and after his 50th birthday, elect to retire from Service and to receive an immediate pension of an annual amount calculated as in sub-Rule 17(3)(a) but then reduced by 0.5% for each complete month in the period from the Member’s date of retirement to the Member’s 60th birthday (Normal Retirement Date prior to 1st April 1990) or on such other basis as the Actuary certifies to the Trustees as being reasonable or the Trustees may from time to time introduce.”

Thus, the rule required the company’s consent for early retirement, but in express terms it only required a reduction for early payment if the retirement was to take effect before the age of 60, and only for the period up to that age. In practice, however, the company could impose a requirement of reduction for early payment in respect of the period up to 65 as a condition of giving its consent under the rule. What is said to be the effect of Barber, in relation to a rule such as this, is that the company’s consent cannot be withheld, because to prevent a male member taking his mixed NRD pension on retirement between 60 and 65 is incompatible with giving proper effect to his NRD60 rights. If the company cannot withhold its consent, it is said to follow that it cannot impose a condition that it would, or could, have imposed in return for giving its consent.

Rule 17(5)(a) is as follows:

“A Member entitled to a deferred pension under sub-Rules 17(2) or 17 (3) may with the agreement of the Company, at any time before reaching his Normal Retirement Date on account of Disability or after his 50^th birthday and before Normal Retirement Date in other circumstances, elect that, instead of that deferred pension, he shall be paid an immediate pension equal in amount to the deferred pension reduced by such amount (if any) as the Trustees shall determine being no more than the Actuary certifies to be reasonable to take into account of the earlier date on which the pension comes into payment.”

In the case of that rule, therefore, the possibility of reduction for early payment is written into the rule as such, and even if the requirement of the company’s consent had to be disregarded, that would not override the provision under which the trustees could require an actuarial reduction.

On the basis that, between the ages of 60 and 65, an active member with mixed NRDs is, in principle, already entitled to take on retirement an NRD60 pension in respect of his or her NRD60 pensionable service, but only a deferred NRD65 pension in respect of NRD65 pensionable service, then rule 17(5)(a) appears to fit the case neatly, and more so than rule 8(1), because, although the requirement of the company’s consent under rule 17(5)(a) can be overridden so as not to prevent the member retiring and taking his or her whole pension all at once (as it could also under rule 8), this does not have the disproportionate and excessive effect that (arguably) proceeding under rule 8 does, because it does not eliminate the element of actuarial reduction, which is needed in order not to give the modification a greater effect than is required or justified by Barber.

That said, Mr Simmonds Q.C. for the trustees made the point that rule 17(5)(a) does not require an actuarial reduction, but rather permits one at the discretion of the trustees. He submitted that, from the trustees’ point of view, it would be preferable, in one sense at least, if the modified scheme did not leave such a discretion to the trustees, but rather made it either mandatory or something which the company could require if it wished. In practice it seems highly likely that, if the fund is actuarially insufficient (as most final salary schemes are at present), the trustees would not, and indeed could not properly, fail to require a reduction to the extent advised by the actuary, since otherwise the member in question would be getting better treatment than he or she is entitled to expect, and would be doing so at the expense of other members, unless the company were prepared to fund the added benefit. However, if the trustees prefer not to have a discretion in the matter, in the modified scheme, then it may be fair for the modification to eliminate this element as well.

It seems to me that there is much to be said for the proposition that the rule 17(5)(a) route to the appropriate modification is the more appropriate in the present case, with or without a further modification so as to eliminate any discretion on the part of the trustees not to require actuarial reduction. I do not need to consider whether rule 8 could be modified in a way which dispensed with the requirement of the company’s consent, but not with the incidental effect of that, namely to enable the company to require a reduction of the pension for early payment. Mr Green had an argument in favour of that based on an implied term, not on normal contractual principles but by way of the necessary modifications. I am not sure that it would need to be an implied term, since the modification could (if appropriate) add an express term to the provisions of the rules, just as it could eliminate non-compliant aspects of the existing rules. I would not rule that approach out as impossible, but it is unnecessary, and therefore undesirable, to say more about it in the present instance.

That leaves the question whether the right approach to the task of modification is option (b) or (c), the latter being entirely novel in terms of UK pension schemes, not least because until April 2006 it would not have been consistent with the requirements imposed by the Inland Revenue as a condition for exempt approval of the scheme for tax purposes. That, in itself, might be said to be relevant, since the modification ought to be regarded as taking effect on 17 May 1990, albeit with the benefit of hindsight, at least as regards that provided by Coloroll; certainly whatever modifications are put in place have to have retrospective effect back to 17 May 1990. In practice, however, the question has to be addressed when it arises, and it did not arise in the Foster Wheeler scheme until recently, because of the company’s attitude to the problem and the fact that, until the late 1990’s, the financial position of the fund meant that a more generous attitude was taken than was adopted in about 2002 and has been maintained since then. Nor does the problem have to be resolved until now, as a result of the proceedings. Addressing that task now, it seems to me that the employer, the trustees and the court can and should do so by reference to current circumstances, including relevant law and regulation as it now stands.

As Arden LJ has mentioned, the court had the great benefit not only of having Mr Simmonds’ submissions on behalf of the trustees, but also of a drafting exercise carried out by him with his instructing solicitors, to see what would be involved in giving effect to each of the three different solutions advanced before the court by the other parties. Methods (a) and (b) present no particular problem of principle, but method (c) involves venturing into uncharted waters, undertaking a task which, so far as is known, no-one has attempted before in relation to a UK occupational pension scheme.

He did not submit that method (c) was not feasible, as a matter of drafting, but he did ask the court to bear in mind that there were some provisions of the scheme in relation to which a split pension approach would have anomalous effects. One of these is that the benefits of certain members are based on non-uniform rates of accrual, under which for the first five years of service the member accrues one sixtieth each year, but thereafter the rate accelerates so that after 6 years the member has eight 60ths, after 7, sixteen 60ths, after 8 twenty-four 60ths, after nine thirty-two 60ths and after ten, the full maximum 40 60ths. If a continuous period of service has to be divided between NRD60 and NRD65 pensionable service, then the whole, before division, may well be more than the sum of the two separate parts, so that the split pension route would, or at least might, result in the member getting less than he or she would otherwise have received. That would be capable of resolution by the company agreeing to a more generous provision, and providing the necessary funding for it. There are also some other more minor issues which are not readily resolved under the application of a split pension approach. He accepted that any of the issues could be sorted out by an agreed amendment, though he sounded the warning note that care would be needed to ensure that the amendment did not have an adverse effect on any accrued rights. Even reliance on section 65 would not necessarily avoid that problem, despite section 65(2), because that would apply only to an amendment which went no further than was necessary to ensure conformity with the equal treatment rule.

Mr Simmonds invited the court to consider whether method (b) might not be just as good as method (c) in terms of achieving equalisation (if the court took the view that method (a) was not correct, as to which he was properly neutral). Under the law as to priority in winding-up which was at issue in Cripps, method (b) had a significant adverse effect in a winding-up if the funds are inadequate. However he pointed out that the law has now changed, and the same disadvantage does not arise in relation to a winding-up commencing after 6 April 2005. He therefore submitted that this was no longer a reason for avoiding solution (b). More generally, as he put it from the trustees’ point of view in administering the scheme, wishing for as readily practicable a regime as possible, he invited the court to regard solution (b) as preferable, because it did not differ in any substantial way as regards the nature of the rights or the burden of the obligations generally, as compared with solution (c), and it avoided some known problems and anomalies, as well as the risk of other unforeseen problems, arising from the novelty of solution (c) and the fact that no-one has ever tried to devise, still less run, a scheme providing for two separate pensions in respect of different periods of pensionable service of the same member. Although a number of issues and problems have been identified, there may well be unforeseen issues yet to be discovered, and he suggested that all of this posed a degree of risk that would be better avoided.

It seems to me that Mr Simmonds is justified in his submissions as to solution (b) being preferable in itself, and as to it being a satisfactory method of implementing Barber and Coloroll and section 62, as regards ensuring the necessary degree of equalisation. On the point on which he was neutral, I agree with Arden LJ that solution (a) is not the correct approach, because it is not limited to the minimum equalising effect.

On the footing that the employer and the trustees have a range of options open to them in order to achieve equalisation, I would reject the argument that they can only do what follows strictly from the effect of Barber, as explained in Coloroll, without reference to later legislative changes. In my judgment they should make the modifications which best meet the requirements of European law in the light of domestic law and regulation as it stands when they address the point. They should be guided by Cripps, but it does not seem to me that they are bound by that decision to adopt the split pension approach. The subsequent change of domestic statute law, as a result of which solution (b) no longer suffers the disadvantage which Cripps exposed under the law as it then stood, leaves this solution open to them without the downside to which it would have been subject at that time.

Accordingly, in order to fulfil the obligation of equalisation imposed on them by European law, the parties (principally the trustees) need to formulate amendments to the scheme which provide properly for delivery of the mixed NRD rights which resulted from the Barber decision and from the upward equalisation in 1993. That equalisation does not have to allow male members with mixed NRDs to take a pension in respect of their NRD65 service before the age of 65 without a reduction for early payment. The task of devising the appropriate modifications to the scheme is one in the course of which a number of choices will need to be made, as regards the best and most sensible and practical way of achieving the necessary equalisation. The guiding approach should be that of making the least substantive alteration to the provisions of the scheme that is compatible with the required equalisation. Apart from that principle, the parties must exercise their judgment in choosing between different options in terms of how to equalise and what incidental provisions to adopt.

Of the particular provisions which have been debated before us, it seems to me that rule 17(5)(a) provides a better means towards the provision of equalised benefits than rule 8(1) does, but I would regard it as proper for the trustees, if they wish, to subject the modified rule to a requirement of reduction for early payment if so advised by the actuary, or (if the company prefers) a provision whereby such a reduction is to be imposed if the company requires it to be, rather than leaving it to their own discretion as the rule does as it stands.

In principle the necessary modifications ought to be agreed between the trustees and the employer and given effect by an amendment under the power in the Trust Deed, though clearly section 65 gives the trustees a reserve power to act on their own if the agreement of the employer cannot be obtained. If problems arise that cannot be resolved otherwise, then clearly the trustees, the employer or one or more beneficiaries can apply to the court, as in the present case. I hope that this will be necessary only in rare cases.

In the present case, it seems to me that the appeal should be allowed, and question 3 answered in sense (b), and the case should be remitted to the Chancery Division so that the implications of that result both generally and in relation to the other questions posed to the court can be considered in due course.

For the reasons given in the judgments of Arden and Lloyd LJJ, I agree that this appeal should be allowed.