PI Consulting (Trustee Services) Ltd v The Pensions Regulator & Ors

This judgment concerns the status of 9 schemes or arrangements which create, or purport to create, pension schemes. The essential question is whether (assuming that the documents which create the schemes or arrangements are not shams) each of the schemes is an “occupational pension scheme” within section 1 of the Pension Schemes Act 1993 (“PSA 1993”). It is clear that if a scheme is an occupational pension scheme then it cannot come within the definition of “personal pension scheme” in section 1 of PSA 1993. It is agreed, on the facts of this case, that if any one of the schemes is not an occupational pension scheme it is also not a personal pension scheme as there are other reasons why it is not within the definition of personal pension scheme in section 1 of PSA 1993.

There are two claims before the court. The first claim is brought by Pi Consulting (Trustee Services) Ltd (“Pi”) who is the current trustee of a scheme called the 5G Futures Pension Scheme. Pi seeks a declaration that this scheme is an occupational pension scheme within section 1 of PSA 1993. The second claim is brought by Dalriada Trustees Ltd (“Dalriada”) who is the current trustee in relation to 8 separate schemes (the names of which are specified later in this judgment). Dalriada seeks a determination as to whether each of the 8 schemes is an occupational pension scheme within section 1 of PSA 1993. Although the circumstances relating to these 8 schemes are not identical, it has been agreed that it is possible to take one of these 8 schemes as representative of all 8 schemes. The representative scheme was created by Ironstream Ltd, and I will refer to it as “the Ironstream Scheme”.

In June 2008, 5G Futures Ltd, Mr Williams, Ms Huxley and Tudor Capital Management Ltd signed a written agreement, described as a “Deed”, which stated that the document established the 5G Futures Pension Scheme. 5G Futures Ltd was described as “the Provider” and Mr Williams, Ms Huxley and Tudor Capital Management Ltd were described as “the Trustees”, with the last of these three being described as “the Managing Trustee”. The written agreement stated that there were Rules for the Scheme. There is room for argument as to the date on which the written agreement was entered into. Further, it seems that not all parties executed the agreement as a deed. However, for the purposes of these proceedings, it is accepted that the parties did enter into a binding written agreement and nothing turns on the fact that execution of the document did not in all respects comply with the requirements for the execution of a deed. For the sake of simplicity, I will refer to this written agreement as if it were a duly executed deed. There is also room for argument as to where to find the rules of the scheme. For the purpose of these proceedings, it is agreed that the rules of the scheme are set out in a document which is headed “Model Rules for Tudor Capital Management SIPPS”.

In 2010, Tudor Capital Management Ltd was suspended by the Pensions Regulator from acting as a pension scheme trustee. On 4^th May 2010, Tudor Capital Management Ltd resigned as a trustee (and in particular as the managing trustee) of the 5G Futures Pension Scheme. On 29^th August 2012, 5G Wealth Management Ltd became the scheme administrator. On 8^th May 2013, the Pensions Regulator suspended Mr Williams and Ms Huxley as trustees of the scheme (and of trust schemes in general) and appointed Pi as an independent trustee of the scheme. These actions by the Pensions Regulator were taken in reliance on section 4 and sections 7 to 9 of the Pensions Act 1995 (“PA 1995”), on the basis that the scheme was an occupational pension scheme. In view of doubts which were then raised as to whether the scheme was an occupational pension scheme, an application was made by Pi for an order appointing it as a trustee pursuant to section 41 of the Trustee Act 1925 and/or the inherent jurisdiction of the court. On 28^th May 2013, David Richards J appointed Pi as trustee of the 5G Futures Pensions Scheme pursuant to the inherent jurisdiction of the court and conferred on Pi exclusive power to act as trustee.

As already described, Dalriada’s claim relates to 8 schemes and it has been agreed that one of these schemes, the Ironstream Scheme, can be taken as representative of all 8 schemes. I will therefore refer in more detail to the Ironstream Scheme but I will also identify the relevant parties and the dates of the deeds establishing the 7 other schemes.

By a Deed dated 10^th December 2012, made between Ironstream Ltd as “the Provider” and Nidd Vale Trustees Ltd as “the Trustees”, the Provider established the Ironstream Retirement Benefits Scheme on the terms of the Deed and the Rules of the Ironstream Retirement Benefits Scheme. Brief details of the other 7 schemes are as follows:

On 8^th May 2013, the Pensions Regulator appointed Dalriada as an independent trustee of these 8 schemes. These actions by the Pensions Regulator were taken in reliance on sections 7 to 9 of PA 1995, on the basis that the schemes were occupational pension schemes. In view of doubts which were then raised as to whether the schemes were occupational pension schemes, an application was made by Dalriada for an order appointing it as a trustee pursuant to the inherent jurisdiction of the court. On 7^th June 2013, Newey J appointed Dalriada as trustee of the 8 schemes pursuant to the inherent jurisdiction of the court and conferred on Dalriada exclusive power to act as trustee.

By a Part 8 claim form, Pi claims a declaration that the 5G Futures Pension Scheme is an occupational pension scheme within section 1 of PSA 1993.

By a Part 8 claim form, Dalriada claims a determination as to whether on the true construction of the documents relating to the 8 schemes and in the circumstances which have happened, each of the 8 schemes is, or is not, an occupational pension scheme within section 1 of PSA 1993. On 5^th July 2013, Roth J made a representation order whereby Dalriada was appointed to represent all persons who may be or become entitled to an interest in the assets of the 8 schemes and in whose interest it may be to argue that each of the schemes was an occupational pension scheme (within section 1 of PSA 1993) and whereby the Pensions Regulator was appointed to represent all persons (other than those represented by Dalriada) who are or may be entitled to an interest in the assets of the 8 schemes.

PSA 1993 contains a large number of provisions dealing with pension schemes. PSA 1993 refers in many of its sections in various ways to occupational pension schemes and to personal pension schemes. For the purpose of PSA 1993, it is vital to know whether a particular scheme is an occupational pension scheme or a personal pension scheme, or neither.

Section 1 of PSA 1993 as originally enacted was headed “Categories of pension schemes” and defined “occupational pension scheme” and “personal pension scheme” for the purposes of PSA 1993. Section 1 of PSA 1993 was significantly amended by section 239 of Pensions Act 2004 (“PA 2004”). There were two factors in particular which led to this amendment. The position was summarised by Warren J in PNPF Trust Company Ltd v Taylor [2010] Pens. LR 261 at [356], as follows:

“The definition of an ‘occupational pension scheme’ in the PSA 1993 was amended by section 239 PA 2004. This amendment, which came into force on 22 September 2005, was made as a result of two factors. First, the ‘simplification’ of the tax regime meant that it might be more difficult than in the past to know whether a scheme was to be categorised as an occupational pension scheme or as a personal pension scheme (with their different regulatory regimes). Secondly, changes were necessary to comply with the EU Directive 2003/41/EC of June 2003 on The Activities and Supervision of Institutions for Occupational Provision (‘the IORP Directive’).”

EU Directive 2003/41/EC was adopted by the European Parliament and the Council on 3^rd June 2003. The Directive used the phrase “institution for occupational retirement provision” which was defined by Article 6(a) in these terms:

“ 'institution for occupational retirement provision', or 'institution', means an institution, irrespective of its legal form, operating on a funded basis, established separately from any sponsoring undertaking or trade for the purpose of providing retirement benefits in the context of an occupational activity on the basis of an agreement or a contract agreed:

- individually or collectively between the employer(s) and the employee(s) or their respective representatives, or

- with self-employed persons, in compliance with the legislation of the home and host Member States,

and which carries out activities directly arising therefrom”

Warren J also referred to the simplification of the tax regime. In summary, the position in this respect was as follows. At the time of PSA 1993, the tax status of pension schemes was determined under the Income and Corporation Taxes Act 1988 (“ICTA”). The tax benefits available to pension schemes resulted from the approval of such schemes by the Inland Revenue under Part XIV of ICTA. Any approval granted would indicate whether the pension scheme was an occupational pension scheme or a personal pension scheme. The Finance Act 2004 brought about a major restructuring and simplification of the taxation of pension schemes. Under this Act, pension schemes now obtain tax benefits by reason of registration. The approval process is no longer available. With the loss of the approval process, the statutory definition in section 1 of PSA 1993 became more important in order to distinguish between an occupational pension scheme and a personal pension scheme.

Section 1 of PSA 1993 as amended by PA 2004 is now in the following terms:

“1 Categories of pension schemes

(1)

In this Act, unless the context otherwise requires—

“occupational pension scheme” means a pension scheme—

(a)

that—

(i)

for the purpose of providing benefits to, or in respect of, people with service in employments of a description, or

(ii)

for that purpose and also for the purpose of providing benefits to, or in respect of, other people,

is established by, or by persons who include, a person to whom subsection (2) applies when the scheme is established or (as the case may be) to whom that subsection would have applied when the scheme was established had that subsection then been in force, and

(b)

that has its main administration in the United Kingdom or outside the EEA states,

or a pension scheme that is prescribed or is of a prescribed description;

“personal pension scheme” means a pension scheme that—

(a)

is not an occupational pension scheme, and

(b)

is established by a person within . . . section 154(1) of the Finance Act 2004;

“public service pension scheme” means an occupational pension scheme established by or under an enactment or the Royal prerogative or a Royal charter, being a scheme—

(a)

all the particulars of which are set out in, or in a legislative instrument made under, an enactment, Royal warrant or charter, or

(b)

which cannot come into force, or be amended, without the scheme or amendment being approved by a Minister of the Crown or government department or by the Scottish Ministers,

and includes any occupational pension scheme established, with the concurrence of the Treasury, by or with the approval of any Minister of the Crown or established by or with the approval of the Scottish Ministers and any occupational pension scheme prescribed by regulations made by the Secretary of State and the Treasury jointly as being a scheme which ought in their opinion to be treated as a public service pension scheme for the purposes of this Act.

(2)

This subsection applies—

(a)

where people in employments of the description concerned are employed by someone, to a person who employs such people,

(b)

to a person in an employment of that description, and

(c)

to a person representing interests of a description framed so as to include—

(i)

interests of persons who employ people in employments of the description mentioned in paragraph (a), or

(ii)

interests of people in employments of that description.

(3)

For the purposes of subsection (2), if a person is in an employment of the description concerned by reason of holding an office (including an elective office) and is entitled to remuneration for holding it, the person responsible for paying the remuneration shall be taken to employ the office-holder.

(4)

In the definition in subsection (1) of “occupational pension scheme”, the reference to a description includes a description framed by reference to an employment being of any of two or more kinds.

(5)

In subsection (1) “pension scheme” (except in the phrases “occupational pension scheme”, “personal pension scheme” and “public service pension scheme”) means a scheme or other arrangements, comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people—

(a)

on retirement,

(b)

on having reached a particular age, or

(c)

on termination of service in an employment.

(6)

The power of the Treasury under section 154(4) of the Finance Act 2004 (power to amend sections 154 and 155) includes power consequentially to amend—

(a)

paragraph (a) of the definition in subsection (1) of “personal pension scheme”, and

(b)

any provision in force in Northern Ireland corresponding to that paragraph.”

The above definition of occupational pension scheme includes a pension scheme which is prescribed or is of a prescribed description. The Pension Schemes (Categories) Regulations 2005 were made pursuant to this power to prescribe and those Regulations prescribed, amongst other things, that certain schemes which provided for a participating employer to be a contributor to the scheme were to be occupational pension schemes. However, in the present case it was not argued that those Regulations applied to the schemes now under consideration.

Section 181 of PSA 1993 is a general interpretation provision which contains the following relevant provisions:

“(1)

In this Act, unless the context otherwise requires –

…

“earner” and “earnings” shall be construed in accordance with sections 3, 4 and 112 of the Social Security Contributions and Benefits Act 1992;

“earnings factors” shall be construed in accordance with sections 22 and 23 of the Social Security Contributions and Benefits Act 1992;

[“employed earner” and “self-employed earner” have the meanings given by section 2 of the Social Security Contributions and Benefits Act 1992;]

“employee” means a person gainfully employed in Great Britain either under a contract of service or in an office (including an elective office) with [general earnings (as defined by section 7 of the Income Tax (Earnings and Pensions) Act 2003)];

“employer” means—

(a)

in the case of an employed earner employed under a contract of service, his employer;

(b)

in the case of an employed earner employed in an office with emoluments—

(i)

such person as may be prescribed in relation to that office; or

(ii)

if no person is prescribed, the government department, public authority or body of persons responsible for paying the emoluments of the office;

“employment” includes any trade, business, profession, office or vocation and “employed” shall be construed accordingly except in the expression “employed earner”;

…

“occupational pension scheme” has the meaning given in section 1;

…

“personal pension scheme” has the meaning given in section 1;

… ”

Sub-sections (2) and (3) of section 181 of PSA 1993 which, in some cases, extend the references to “employers” in PSA 1993 are not material in the present case.

I referred earlier to the action taken by the Pensions Regulator in May 2013 purportedly pursuant to section 4 and sections 7 to 9 of PA 1995. Those sections apply in the case of a “trust scheme”, which is defined by section 124(1) of PA 1995 to be “an occupational pension scheme established under a trust” and by section 176 of PA 1995 “occupational pension scheme” in PA 1995 has the same meaning as in section 1 of PSA 1993. Thus, if the schemes being considered in this case were not occupational pension schemes within section 1 of PSA 1993 (as the Pensions Regulator now contends), then the Pensions Regulator did not have the power in May 2013 to make the determinations and orders which it then purported to make.

The essential question is the same in both the claim brought by Pi and the claim brought by Dalriada. In both cases, the essential question is whether the schemes in question are occupational pension schemes within the definition of that term in section 1 of PSA 1993. In order that the court should have the benefit of adversarial argument on this question, the parties agreed that Pi and Dalriada should present the arguments in favour of the schemes being occupational pension schemes and that the Pensions Regulator should present the arguments to the contrary effect.

The skeleton argument which was served by counsel for the Pensions Regulator put forward a number of reasons why the various schemes did not come within the definition of occupational pension scheme. That skeleton argument referred in detail to the circumstances in which the schemes were entered into and the way in which they were operated after they had been set up. The skeleton argument repeatedly put forward contentions that the schemes were not “genuine”, or not “legitimate” or were “facades” and other similar contentions. These submissions were apparently in support of the case that on the true construction of the legislation and on the true construction of the deeds and rules which created the schemes, the schemes did not come within the statutory definition of occupational pension scheme. However, the Pensions Regulator also wished to submit that the deeds and rules in question were shams and should not be given effect in accordance with their terms.

The Pensions Regulator’s submissions as to the genuineness of the formal documents creating the schemes led to responsive submissions from counsel for Pi and Dalriada. It was submitted that the circumstances or alleged circumstances relied upon by the Pensions Regulator were not admissible (for various different reasons) for the purpose of applying the appropriate construction of the legislation to the deeds and rules relating to the various schemes. It was also said that the issue of whether the deeds and rules were shams had not been raised for decision in these proceedings and it was procedurally inappropriate for the court to investigate and determine a question of that kind on the material currently before the court. This led to an agreement between counsel for the Pensions Regulator and for Pi and Dalriada to the effect that the court would not be asked at this stage to resolve the question whether the deeds and rules (or any of them) were shams. Accordingly, it was agreed by the Pensions Regulator and by Pi and Dalriada that the court should resolve the issues between the parties on the basis that the various schemes were created by the deeds and rules relating to them and that those deeds and rule were genuine and represented the relevant “scheme or other arrangements” as that phrase is used in the definition of “pension scheme” in section 1 of PSA 1993. Those parties agreed that it would remain open to the Pensions Regulator to consider its position as to the argument that the schemes (or some of them) were a sham and that it should remain open to the Pensions Regulator so to contend in due course, if so advised. I considered that it was appropriate for the court to act upon the agreement which had been reached between these parties. There was some discussion as to whether the appropriate procedural course was for the court to determine a suitably defined preliminary issue or to decide whether to grant or refuse the relief sought by Pi and Dalriada, albeit on the basis of assumed facts (as to the genuineness of the deeds and rules in question). The Pensions Regulator and Pi and Dalriada all favoured the latter approach and I considered that it was appropriate for the court to proceed in that way. I will therefore assume that the deeds and regulations in the case of each scheme were genuine and represented the scheme or other arrangements relating to each scheme. I will not consider in this judgment whether the deeds or rules are shams as I am assuming that they are not. It will be open to the Pensions Regulator, if so advised, to contend at a later time that the deeds and rules are not genuine and are not the relevant scheme or other arrangements in relation to whatever transaction was effected in each case.

I have already stated that the essential question in the case of each scheme is whether that scheme is an occupational pension scheme. This question raises two main issues, as follows:

The first main issue was described as “the purpose issue” and the second main issue was described as “the founder issue”. This second main issue gave rise to two sub-issues as follows:

Although the terms of the 5G Futures Pension Scheme and the Ironstream Scheme are similar, they are not identical. Further, it is suggested that there are circumstances in the background to these schemes which bear on the purpose issue. It is therefore appropriate for me to consider separately the purpose issue in relation to the 5G Futures Pension Scheme and the Ironstream Scheme. I will therefore first consider the 5G Futures Pension Scheme.

In the course of argument, most if not all of the terms of the Deed and Rules in relation to the 5G Futures Pension Scheme were analysed and were the subject of the rival submissions. I do not think that it is necessary to set out the entirety of the Deed and of the Rules in this judgment, although I have considered all their provisions. It will suffice to refer to the more important provisions in the Deed and Rules.

Recitals A and B of the Deed in the case of the 5G Futures Pensions Schemes state:

“WHEREAS

A.

The Provider has determined to establish the 5G Futures Pension (“the Scheme”) with effect from this present date for the sole purpose of providing pensions and lump sum benefits under personal pension arrangements made by individuals in accordance with the Tudor Capital Management Model Rules 2006 (“The Rules”) as specified in the Schedule to this Deed and as may be amended from time to time.

B.

The Provider has determined that the individuals with a right to membership of the Scheme shall include all past, present or future officers and employees of the Provider and their immediate family members.”

Clauses 5 and 13 of this Deed provide:

“5.

The Provider and the Trustees shall execute such documents, give such undertakings or take whatever other action as may from time to time be required in order to establish and maintain the status of the Scheme as a Registered Scheme under Part 4 of the Finance Act 2004 and, if applicable, registration under section 2 of the Welfare Reform and Pensions Act 1999 with the Occupational Pensions Regulatory Authority.

…

13.

The Trustees shall ensure that, in relation to each Arrangement of a Member, all contributions and other amounts paid by or in respect of the Member to the Scheme as permitted by the Rules are applied in accordance with the Arrangement and that, in the case of each andevery Self Invested Personal Pension Arrangement (within the meaning of the Self Invested Personal Pension Schemes Regulations and Rule 3.5 of the Rules), a separate and clearly designated account is maintained in respect of each Members Fund under the Scheme.

…”

Rule 1 of the Rules relating to the 5G Futures Pension Scheme provides:

“1 INTRODUCTION

The scheme is a Personal Pension Scheme. Its only purpose is to provide income withdrawals, annuities and lump sums as described in the scheme documents (including these rules).

The scheme is also an Occupational Pension Scheme. It is established by a UK registered limited company (the Provider).

1.1

Status Of Rules

These rules set out the requirements for tax registration which override any inconsistent provisions in the other scheme documents.

These rules do not override the law. If any provision conflicts with the law, the law will apply.

References to any legislation or any provision includes references to any previous legislation or provision relating to the same subject matter and to any modification or re-enactment for the time being in force.

1.2

Form of Scheme

The scheme is set up under irrevocable trust.

Under normal circumstances the scheme will take the form of a single trust, with benefits for each member under the scheme held in separate arrangements in a form acceptable to HM Revenue & Customs.

If the scheme is to take the form of individual irrevocable trusts for each member, the benefits for each member under the scheme will be held under a trust to be established by the scheme administrator for the benefit of that member in a form acceptable to HM Revenue & Customs.

The reference to member in this rule should be taken to include a substitute member.

1.3

Contracting Out

It is not possible to contract out of the state second pension through this scheme.”

Rule 2 of these Rules defines Registered Personal Pension Scheme and Occupational Pension Scheme.

Rule 3 of these Rules provides

“3.

MEMBERS AND ARRANGEMENTS

3.1

Becoming a member

A person who wishes to become a member (or the legal guardian acting for a person under the age of 16, or in England, Wales and Northern Ireland 18 if not in employment, who is to be a member) or substitute member must go through an application procedure, as required by the scheme administrator. The application procedure must include the following declarations:

(1)

The member (or a legal guardian acting for the member) or substitute member agrees to be bound by these rules.

(2)

The scheme administrator agrees, on behalf of the provider, to administer the scheme as required by these rules.

A person can become a member or substitute member only if he or she is under age 75 (except as permitted by rule 3.5) and if the scheme administrator agrees.

Where the legal guardian is representing a prospective member under the age of 16 (or in England, Wales and Northern Ireland 18 if not in employment), the legal guardian must give an undertaking that he or she understands that any payments to the scheme can only be used to provide benefits to the member under the rules, and will not be repaid except as permitted by the rules.

3.2

Employer or Affinity Group Provider

The scheme has been established by an employer as an occupational scheme. Membership of the scheme is therefore limited to officers and employees of the employer provider and associated companies, and to family members of such officers and employees.

3.3

Ex-Spouse

Subject to the agreement of the scheme administrator an ex-spouse may become a member of the scheme. An ex-spouse becoming a member of the scheme through this rule may do so after he or she has attained age 75, but must draw benefits immediately (see rule 5.4).

… ”

Rule 11 of these Rules contains the following provisions:

“11 GENERAL PROVISIONS ABOUT SCHEME ETC

11.1

Rights Under The Scheme

A person’s rights under the scheme are only those given under the scheme documents or by any insurance or pension contract bought with the member’s fund (or substitute member’s fund, where relevant). The scheme must provide money purchase benefits within section 181 of the Pension Schemes Act.

11.2

Provider

The name of the provider is set out in the schedule to the rules. The provider is a person permitted by section 154 of the 2004 Act to establish a registered pension. If the provider ceases to be such a person, the scheme administrator must immediately inform HM Revenue & Customs.

As the scheme is established by an employer or affinity group, the scheme is established under trust. Membership of the scheme is limited in accordance with rules 3.2 and 3.3.

… ”

Rule 13.1 contains the words:

“The scheme being an occupational pension scheme, it must comply with the restrictions on employer related investments imposed through section 40 of the Pensions Act 1995.”

Rule 13.2 contemplates that a member of the scheme may have a say in relation to the choice of investments made by the scheme administrator. Rule 13.5 states that: “For the avoidance of doubt, the scheme is an “investment regulated” schemes as defined in Part 1 of Schedule 29A to the 2004 Act.”

It will be noted that Rule 11.2 stated that the Provider was “permitted by section 154 of the 2004 Act [i.e the Finance Act 2004] to establish a registered pension.” If that statement was intended to mean that the Provider was permitted under the Financial Services and Markets Act 2000 to establish a personal pension scheme or stakeholder pension scheme, then that statement was false.

I have earlier set out the definition of “occupational pension scheme” in section 1 of PSA 1993. Section 1(1) refers to a “pension scheme” which phrase is itself defined in section 1(5) of PSA 1993. Section 1(5) refers to a scheme: “having or capable of having effect so as to provide benefits …”. Section 1(1) uses the phrases: “for the purpose of …” and “for that purpose and also for the purpose of …”.

Counsel for Pi and Dalriada submitted that the relevant “purpose” in section 1(1) of PSA 1993 was the purpose of the scheme and not the purpose of one, or even all, of the parties to the documents which established the scheme. They further submitted that the relevant purpose was an objective matter, which turned upon the meaning and effect of the scheme so that it did not turn upon subjective matters such as the motives or the intentions or the beliefs of one or even all of the parties to the documents which established the scheme. It was stressed that it was important for everyone involved with a pension scheme, possibly over a long period of time, to be able to say with confidence whether a scheme was an occupational pension scheme or a personal pension scheme or neither of these. The persons who might need to know the status of the scheme would include successors in title to the original participants in the scheme, new members, HM Revenue & Customs, regulators and those administering other pension schemes when asked to transfer funds to the relevant scheme.

The skeleton argument of counsel of the Pensions Regulator appeared to take a different approach to the meaning of “purpose” in section 1(1) of PSA 1993. Counsel referred to a number of facts, or alleged facts, relating to the position of the parties to the documents which established the scheme and their alleged motives and intentions. Counsel also referred to a number of facts, or alleged facts, as to the way in which the scheme had been administered after it had been established.

As described earlier, one of the arguments which counsel for the Pensions Regulator wished to advance was that the scheme documents were a sham. In relation to that argument, the court would, of course, not be confined to the language used in the documents themselves. The court would look more widely and could look at evidence of events after the documents were executed. However, as explained, it was agreed that the court should assume for present purposes that the documents were not shams but that the relevant scheme or arrangement was genuinely recorded in those documents.

When counsel for the Pensions Regulator came to make his oral submissions as to the purpose of the scheme, assuming that the documents creating the scheme were not shams, he appeared to accept in broad terms the submissions for Pi and for Dalriada that one was concerned with the purpose of the scheme, considered objectively. At any rate, even if he did not accept those submissions, I consider that they are correct. Nonetheless, counsel for the Pensions Regulator submitted that if there were an issue as to the true construction of the documents which created the scheme, the court was not confined to the language of those documents but could have regard to the relevant background to those documents for the purposes of interpreting that language. No one doubted that the documents were to be construed against the admissible background facts. However, when it came to it, I did not find that the matters which counsel wished to rely upon were for the purpose of explaining the background to the documents in order to assist with the interpretation of the language of the documents. Rather, the material which was relied upon was intended to show that the parties who executed the documents did not genuinely intend to operate the scheme in accordance with its terms or was intended to show that those parties did not in fact thereafter operate the scheme in accordance with its terms.

All counsel took me through the relevant Deed and Rules pointing out provisions which pointed in favour of, or away from, the scheme coming within the statutory definition of an occupational pension scheme. In considering those submissions, I have found it helpful to remind myself that the question is whether the purpose of the scheme came within the purpose or purposes identified in section 1(1) of PSA 1993. The question is not whether the parties called the scheme an occupational pension scheme or a personal pension scheme or something else. Further, the question is not: what do the documents show as to the belief of the parties as to whether the scheme was an occupational pension scheme?

Section 1(1) of PSA 1993 refers to the purpose of the scheme being to provide benefits for certain people. Thus, the court needs to identify the people who can take benefits under the scheme. So far as the express language of the scheme is concerned, these people are identified by Recital B in the Deed and Rule 3 of the Rules. If this language is taken at face value, then the purpose of the scheme is to provide benefits to people with service in employments of a description and also for the purpose of providing benefits to or in respect of other people, i.e. the scheme comes within section 1(1)(a)(ii) of PSA 1993.

Reference was made to the provisions in the Deed and Rules which referred to the scheme being an occupational pension scheme. Those references are little more than a label used to describe the scheme. The real question is whether the scheme satisfies the statutory definition. If the scheme did not satisfy the statutory definition, then the label would not bring the scheme within the definition. Conversely, if the scheme satisfied the statutory definition, then the scheme would be an occupational pension scheme even if the parties had thought otherwise and had used an inappropriate label describing the scheme in a different way. In any event, it is obvious in the present case that the labels used must be disregarded or given very little weight. The Rules state that the scheme is a Personal Pension Scheme and that it is also an Occupational Pension Scheme. If those labels are intended to refer to the terms defined in section 1 of PSA 1993, then at least one of the labels is wrong.

Reference was also made to provisions of the Deed or Rules which would, or might in some circumstances, be overridden by statutory provisions if the scheme were an occupational pension scheme. Whilst those provisions are not wholly irrelevant, they may be indicative of the beliefs (sometimes erroneous) of the parties as to the legal consequences of creating the scheme but are not directly helpful as to whether the scheme satisfies the purpose test in section 1(1) of PSA 1993.

Reference was also made to the language used in the Deed and Rules and it was suggested that some of the language was more typical of a personal pension scheme than an occupational pension scheme. Whilst those considerations are not irrelevant, I did not find them of any real help in determining whether the scheme satisfied the purpose test in section 1(1) of PSA 1993.

In the end, I have concluded that the purpose of the scheme as expressed in the language of the scheme, on the true construction of that language, does come within section 1(1)(a)(ii) of PSA 1993. In other words, this scheme satisfies the purpose test in the definition of occupational pension scheme.

Counsel for the Pensions Regulator had an alternative submission that the Deed and Rules did not create a single scheme but instead created two schemes. It was said that one scheme was an occupational pension scheme but the other scheme was not. On this submission, the persons who were employees were members of an occupational pension scheme and the persons who were not employees were members of the other scheme. I am not able to accept this submission. The Deed and Rules create one scheme only. The definition of occupational pension scheme expressly includes a scheme which is established for the purpose of providing benefits to employees and for the purpose of providing benefits to other people. The fact that the scheme has two purposes in this way does not convert it into two schemes. It remains a single scheme which is an occupational pension scheme within section 1(1)(a)(ii).

I will adopt the same approach in relation to the Ironstream Scheme and the 7 other schemes as I adopted in relation to the 5G Futures Pensions Scheme. I will not set out all of the terms of the Deed and Rules in relation to the Ironstream Scheme (which is representative of all 8 schemes in relation to which Dalriada was appointed as trustee) but I will refer to the more important terms.

Recitals A and B of the Deed in the case of the Ironstream Scheme state:

“WHEREAS

A.

The Provider has determined to establish the Ironstream Retirement Benefits Scheme (“the Scheme”) with effect from this present date for the sole purpose of providing pensions and lump sum benefits under personal pension arrangements made by individuals in accordance with the Pension Scheme Model Rules 2006 (“The Rules”) as specified in the Schedule to this Deed and as may be amended from time to time.

B.

The Provider has determined that the individuals with a right to membership of the Scheme shall include all past, present or future officers and employees of the Provider and their immediate family members. However, other persons may also become permitted members if permitted by the trustees.”

Clauses 3 and 11 of this Deed provide:

“3.

The scheme is a Personal Pension Scheme. Its only purpose is to provide income withdrawals, annuities and lump sums as described in the scheme documents. The scheme is also an Occupational Pension Scheme. It is established by a UK registered limited Company (“the Provider”) whose past, present or future officers and their immediate family members have an automatic right to membership although other persons may become members if permitted by the Trustees.

3.1

The Provider and the Trustees shall execute such documents, give such undertakings or take whatever other action as may from time to time be required in order to establish and maintain the status of the Scheme as a Registered Scheme under Part 4 of the Finance Act 2004 and, if applicable, registration under section 2 of the Welfare Reform and Pensions Act 1999 with the Occupational Pensions Regulatory Authority.

3.2.

The scheme has been established by an employer as an occupational pension scheme. Automatic eligibility for membership of the scheme is therefore limited to officers and employees of the employer provider and associated companies, and to family members of such officers and employees. Others who outside the above the above definition may only join the scheme with the consent of the Trustees.

…

11.

The Trustees shall ensure that, in relation to each Arrangement of a Member, all contributions and other amounts paid by or in respect of the Member to the Scheme as permitted by the Rules are applied in accordance with the Arrangement and that, in the case of each andevery Self Invested Personal Pension Arrangement (within the meaning of the Self Invested

Personal Pension Schemes Regulations and Rule 3.5 of the Rules), a separate and clearly designated account is maintained in respect of each Members Fund under the Scheme.

… ”

Rule 1 of the Rules relating to the Ironstream Scheme provides:

“1 INTRODUCTION

The scheme is an Occupational Pension Scheme. It is established by a UK registered limited company (the Provider) whose officers and employees are automatically eligible to become members, although others may also become members if permitted by the Trustees.

Its only purpose is to provide income withdrawals, annuities and lump sums as described in the scheme documents (including these rules).

1.1

Status Of Rules

These rules set out the requirements for tax registration which override any inconsistent provisions in the other scheme documents.

These rules do not override the law. If any provision conflicts with the law, the law will apply.

References to any legislation or any provision includes references to any previous legislation or provision relating to the same subject matter and to any modification or re-enactment for the time being in force.

1.2

Form of Scheme

The scheme is set up under irrevocable trust.

Under normal circumstances the scheme will take the form of a single trust, with benefits for each member under the scheme held in separate arrangements in a form acceptable to HM Revenue & Customs.

If the scheme is to take the form of individual irrevocable trusts for each member, the benefits for each member under the scheme will be held under a trust to be established by the scheme administrator for the benefit of that member in a form acceptable to HM Revenue & Customs.

The reference to member in this rule should be taken to include a substitute member.

1.3

Contracting Out

It is not possible to contract out of the state second pension through this scheme.”

Rule 2 of these Rules defines Registered Pension Scheme (by reference to a personal pension scheme) and Occupational Pension Scheme.

Rule 3 of these Rules provides:

“3.

MEMBERS AND ARRANGEMENTS

3.1

Becoming a member

A person who wishes to become a member (or the legal guardian acting for a person under the age of 16, or in England, Wales and Northern Ireland 18 if not in employment, who is to be a member) or substitute member must go through an application procedure, as required by the scheme administrator. The application procedure must include the following declarations:

(1)

The member (or a legal guardian acting for the member) or substitute member agrees to be bound by these rules.

(2)

The scheme administrator agrees, on behalf of the provider, to administer the scheme as required by these rules.

A person can become a member or substitute member only if he or she is under age 75 (except as permitted by rule 3.5) and if the scheme administrator agrees.

Where the legal guardian is representing a prospective member under the age of 16 (or in England, Wales and Northern Ireland 18 if not in employment), the legal guardian must give an undertaking that he or she understands that any payments to the scheme can only be used to provide benefits to the member under the rules, and will not be repaid except as permitted by the rules.

3.2

Employer or Affinity Group Provider

The scheme has been established by an employer as an occupational scheme. Automatic eligibility for membership of the scheme is therefore limited to officers and employees of the employer provider and associated companies, and to family members of such officers and employees. Others who fall outside the above definition may only join the scheme with the consent of the scheme administrator.

3.3

Ex-Spouse

Subject to the agreement of the scheme administrator an ex-spouse may become a member of the scheme. An ex-spouse becoming a member of the scheme through this rule may do so after he or she has attained age 75, but must draw benefits immediately (see rule 5.4).

…”

Rule 11 of these Rules contains the following provisions:

“11 GENERAL PROVISIONS ABOUT SCHEME ETC

11.1

Rights Under The Scheme

A person’s rights under the scheme are only those given under the scheme documents or by any insurance or pension contract bought with the member’s fund (or substitute member’s fund, where relevant). The scheme must provide money purchase benefits within section 181 of the Pension Schemes Act.

11.2

Provider

The name of the provider is set out in the schedule to the rules. The provider is a person permitted by section 154 of the 2004 Act to establish a registered pension. If the provider ceases to be such a person, the scheme administrator must immediately inform HM Revenue & Customs.

As the scheme is established by an employer or affinity group, the scheme is established under trust. Membership of the scheme is limited in accordance with rules 3.2 and 3.3.

…”

Rule 13.1 contains the words:

“The scheme being an occupational pension scheme, it must comply with the restrictions on employer related investments imposed through section 40 of the Pensions Act 1995.”

Rule 13.2 contemplates that a member of the scheme may have a say in relation to the choice of investments made by the scheme administrator. Rule 13.5 states that: “For the avoidance of doubt, the scheme is an “investment regulated” scheme as defined in Part 1 of Schedule 29A to the 2004 Act.”

It will be noted that Rule 11.2 stated that the Provider was “permitted by section 154 of the 2004 Act [i.e the Finance Act 2004] to establish a registered pension.” If that statement was intended to mean that the Provider was permitted under the Financial Services and Markets Act 2000 to establish a personal pension scheme or stakeholder pension scheme, than that statement was false.

Section 1(1) of PSA 1993 refers to the purpose of the scheme being to provide benefits for certain people. Thus, the court needs to identify the people who can take benefits under the scheme. So far as the express language of the scheme is concerned, these people are identified by Recital B and clause 3 of the Deed and Rules 1 and 3 of the Rules. If this language is taken at face value, then the purpose of the scheme is to provide benefits to people with service in employments of a description and also for the purpose of providing benefits to or in respect of other people, i.e. the scheme comes within section 1(1)(a)(ii) of PSA 1993.

My earlier reasoning in relation to the 5G Futures Pension Scheme as regards the labels used in the documents, the suggested inconsistent or inappropriate language in the documents and the suggested relevant background circumstances applies to these schemes also. In the end, I have concluded that the purpose of the schemes as expressed in the language of the schemes, on the true construction of that language, does come within section 1(1)(a)(ii) of PSA 1993. In other words, these schemes satisfy the purpose test in the definition of occupational pension scheme.

I also do not accept the submission for the Pensions Regulator that the Ironstream Scheme Deed and Rules created two schemes, and only one of the two schemes was an occupational pension scheme. In my judgment, the Ironstream Scheme Deed and Rules created a single scheme which was an occupational pension scheme. The same applies to the other 7 schemes. My reasoning is the same as my reasoning in relation to the 5G Futures Pension Scheme.

At paragraph 23 above, I set out the two sub-issues in relation to the founder issue. Whilst it would be logical to address the sub-issues in the order in which I have set them out, I find it more straightforward to address the second sub-issue first. If I hold in relation to the second sub-issue, that (in the case of each scheme) the founder did employ a person of the relevant description at the time when the scheme was established, then it will strictly not be necessary to reach a conclusion on the first sub-issue. As will be seen, I have concluded in relation to the second sub-issue (in relation to each scheme) that the founder did employ a person of the relevant description at the time when the scheme was established. It is therefore not necessary to reach a conclusion on the first sub-issue. Accordingly, in the remainder of this judgment, I will first of all address the second sub-issue and then say something about the first sub-issue.

Section 1(2)(a) refers to “people in employments of the description concerned” being “employed “ by someone and to “a person who employs such people”. These various references to “employ” and its cognates, take one to section 181 of PSA 1993 which contains definitions for the purposes of PSA 1993 of “employee”, “employer”, “employment” and “employed”.

Before seeking to apply section 181, and then section 1, of PSA 1993 to the facts of these cases, it is necessary to state some further facts. It is common ground that in the case of all 9 schemes with which these proceedings are concerned the founder had a director at the point in time of the establishment of each scheme. There is no evidence before me as to the terms on which such a director was appointed and held office. In particular, there is no evidence which would allow me to make a positive finding that the director was entitled to be paid or to receive other emoluments.

There is some common ground as to how the various definitions in section 181, dealing with the question of employment, would apply to the director in each case. The definition of “employment” in section 181 refers to “any … office”. Counsel for Pi and Dalriada submit, and counsel for the Pensions Regulator agrees, that a director holds an “office” within this definition. It is not said that, in this context, an “office” is confined to some public office. It follows that the director in each case is “in employment”. I consider that the same definition shows that the director in each case is “employed”. It was suggested that I could not reach that conclusion by reason of some remarks made by Warren J in in PNPF Trust Company Ltd v Taylor [2010] Pens. LR 261 at [326] where he was dealing with the position of a self-employed person, rather than an office holder. I do not consider that those remarks about that different type of case should lead me to disregard the statutory wording in section 181(1) which points clearly to an office holder being “employed”.

It was not submitted that the definition of “employer” as set out in section 181 applied in the case of the directors in these cases. This was because the definition of “employer” in section 181 refers to an “employed earner” or “an employed earner employed in an office with emoluments” and on the state of the evidence in the present case, it was not said that the directors were “earners” or were in an office “with emoluments”. It was also submitted by counsel for the Pensions Regulator that the definition of “employer” was irrelevant to section 1(2)(a) and it is correct that the word “employer” is not used in section 1(2)(a).

The relevant part of section 1(2)(a) is in these terms:

“… where people in employments of the description concerned are employed by someone, to a person who employs such people, …”

In the present case, in view of the common ground as to the application of the definition of “employment” in section 181 of PSA 1993, the directors in question are in “employment”. There is no issue on the wording of the schemes as to whether the employments are “of the description concerned”. I also consider by reason of the definition of “employed” in section 181 of PSA 1993, the directors are “employed”. The issue therefore is: are the directors “employed by someone”? If they are employed by someone, then the question becomes: who is that someone and (for the purposes of section 1(1)) is that someone the founder of the scheme?

If the definition of “employer” in section 181 is not directly relevant (and the Pensions Regulator submitted that it was not) then there is no direct help in section 1(2) itself as to the right answer where the relevant person who is employed is a director of a company. My preliminary reaction is that in the case of a director of a company who is considered by PSA 1993 to be “in employment” and to be “employed”, the obvious person who employs the director is the company. Conversely, I do not regard it as easy to hold in this context that the director is employed by no-one or that he employs himself.

Whether that preliminary reaction is right or wrong, counsel for the Pensions Regulator submits that it cannot stand with section 1(3) of PSA 1993 which provides:

“(3)

For the purposes of subsection (2), if a person is in an employment of the description concerned by reason of holding an office (including an elective office) and is entitled to remuneration for holding it, the person responsible for paying the remuneration shall be taken to employ the office-holder.”

Section 1(3) deals only with the case of an office holder who is entitled to remuneration for holding the office. On the evidence in this case, I am not able to hold that the directors were entitled to remuneration for holding the office of director. Therefore, section 1(3) does not apply in this case. In particular, I am not able to apply section 1(3) to identify the person who is responsible for paying the director and then to hold that such person employs the director. The purpose of section 1(3) is to identify the person who employs the office holder where the office holder is remunerated. In such a case, the person responsible for paying the office holder is “taken” to employ the office holder. Even if a more general approach, absent section 1(3), might have led to the conclusion that some other person employed the office holder, that general approach is overridden by the terms of section 1(3) where it applies.

Counsel for the Pensions Regulator submitted that with an office holder, absent section 1(3), it would not be possible to identify any person as employing the office holder (for the purposes of section 1(2)(a)). That gap is filled by section 1(3) but only in a case where the office holder is remunerated and that filling of the gap does not apply in the present case. Thus, it is submitted, the gap remains unfilled and it remains the position that one is not able to identify any person as employing an office holder who is not remunerated. It was submitted that this result ought not to be surprising because it would be very unusual in any case to have an unremunerated director of a company who is entitled to be a member of an occupational pension scheme.

Although there is force in these submissions for the Pensions Regulator, I am not in the end persuaded by them. I do not accept the premise that with an office holder, absent section 1(3), it is not possible to identify anyone as the person who employs the office holder. In the case of a company director, it seems relatively straightforward to hold that if the company director is for the purposes of this legislation to be regarded as “employed” then it is the company who employs him. If such a case, absent section 1(3), does not involve a gap for the purpose of identifying the person who employs the office holder, then the argument that section 1(3) only fills the gap in some cases and not other cases loses its force. Further, I do not think that any real help in construing the section is gained by speculating as to how many cases there are, or might be expected to be, of unremunerated directors who are members of a pension scheme linked to their position as director.

Accordingly, I hold that in the case of each of the 9 schemes being considered in this case, by reason of the fact that the founder was a limited company which had a director at the point in time when the relevant scheme was established and, in the case of each scheme, the director was in an employment of the description concerned, then the founder test in section 1(2)(a) of PSA 1993 was satisfied. This is so even if counsel for the Pensions Regulator is right that the founder must have a relevant employee at the point in time of the establishment of the scheme.

The above conclusion means that it is not necessary in the present case to reach any conclusion as to the first sub-issue as to the founder test. However, I will make a brief comment on the issue although in the end I will not express any conclusion on it. The first sub-issue turns on the meaning of section 1(1) and 1(2)(a) of PSA 1993. However, it seems to me it may be relevant to consider also the operation of section 1(2)(b) and 1(2)(c).

If one were to write out the relevant requirement as contained in section 1(1) and section 1(2)(a) of PSA 1993, the requirement would be seen to be a requirement that when the scheme is established, it is established by, or by persons who include, (where people in employments of the description concerned are employed by someone) a person who employs such people.

If one were to write out the relevant requirement as contained in section 1(1) and section 1(2)(b) of PSA 1993, the requirement would be seen to be a requirement that when the scheme is established, it is established by, or by persons who include, a person in an employment of that description.

If one were to write out the relevant requirement as contained in section 1(1) and section 1(2)(c) of PSA 1993, the requirement would be seen to be a requirement that when the scheme is established, it is established by, or by persons who include, a person representing interests of a description framed so as to include the interests of persons who are further defined.

All counsel accepted that the paragraph of section 1(2) which is relevant in the present case is paragraph (a). Counsel for the Pensions Regulator submitted that section 1(1) clearly refers to the point in time when the scheme is established. He submitted that section 1(2)(a) clearly requires that, at that point in time, the founder of the scheme must employ people in employments of the description concerned. It was submitted that section 1(2)(a) was not satisfied in a case where the founder did not, at the time of establishing the scheme, employ people in employments of the description concerned, even where the founder fully intended to employ such people thereafter and later did so.

The above submission by counsel for the Pensions Regulator was inconsistent with the position taken in a witness statement of Ms Brain of the Pensions Regulator. In that witness statement, Ms Brain had agreed with certain comments made on behalf of Dalriada to the effect that there could be pension schemes which would be occupational pension schemes even though the founder of the scheme did not have any employees of the relevant description at the date of establishing the scheme. The example was given of a scheme which was established where there were no relevant employees at the point of establishment but where the intention was to admit employees at a future date after a relevant corporate transaction. Notwithstanding those statements, counsel for the Pensions Regulator submitted that the statutory language was too clear to admit of the relaxed approach advocated by the Pensions Regulator itself. It was instead submitted that the sequence of events as between the establishment of the scheme and the employment of relevant persons was of the essence. Any suggested difficulty could be accommodated by making sure that the founder had at least one employee of the description concerned before the scheme was formally established. The relevant documents could be prepared in draft in advance and then given effect in the appropriate sequence.

Counsel for Pi and Dalriada accepted that in the case of section 1(2)(b) and 1(2)(c), the statutory language did require that the founder was a person who qualified under those paragraphs at the point in time when the scheme was established. However, it was submitted, section 1(2)(a) did not require that the founder was an employer of a person in an employment of the description concerned at the point in time when the scheme was established. Instead, it was said that section 1(2)(a) was satisfied in a case where the founder was a person who in due course employed the people who at that later time were in employments of the description concerned. On that basis, it was not necessary to inquire into whether the founder of each scheme did at the point in time of establishment of the scheme employ a person or persons in employments of the description concerned.

I consider that the more natural reading of section 1(1) and 1(2)(a) is that the founder of the scheme must employ one or more persons in employments of the description concerned at the point in time when the scheme is established. However, before finally determining the right construction of the statutory provisions it must be right to consider the purpose of the statutory language and to consider which construction is more in keeping with that perceived purpose. The statutory language plainly requires an employment link of some sort. Indeed, as was acknowledged in the course of argument, the reference to an “occupational” pension scheme would suggest that the employment link would be a significant one. Against that background, it is somewhat surprising to find that the employment link required by the statutory definition is relatively weak and insignificant. Whatever is the answer to the present conundrum, it is clear from the purpose test that the definition of occupational pension scheme is satisfied where the purpose is to benefit one employee and many others who are not employees. If counsel for the Pensions Regulator is right that the founder must employ one or more relevant employee at the point in time when the scheme is established, what purpose is served by that requirement when counsel for the Pensions Regulator accepts that after the scheme is established there is no continuing requirement that the founder continues to employ one or more relevant employee?

Having decided the second sub-issue in relation to the founder question in favour of Pi and Dalriada and in view of the fact that it is not necessary for Pi and Dalriada also to succeed on the first sub-issue, it is not necessary for me to decide that first sub-issue. In this case, I would prefer to leave it undecided particularly in view of the fact that the submission of counsel for the Pensions Regulators contradicts the Pension Regulator’s own interpretation of the provisions.

I conclude that the 5G Futures Pension Scheme is an occupational pension scheme within section 1 of PSA 1993.

I also conclude that the 8 pension schemes of which Dalriada is the current trustee is an occupational pension scheme within section 1 of PSA 1993.

For the purposes of these claims, I was provided with 10 lever arch files of evidence. It will be seen that in this judgment, I have referred to a limited amount of material only. I have not referred to the material which was relied upon as showing the alleged motives and intentions of the parties who established the various schemes. Nor have I referred to the material relied upon as showing the alleged ways in which the schemes have been administered. I have deliberately not attempted to summarise that material. I have not found it necessary to do so in order to reach my conclusions and to explain my reasons. Some of that material might have been relevant if the court had been asked to determine whether the schemes were shams, but as explained, I have not been asked to determine that question. Further, the material relied upon might be material in relation to various civil and criminal proceedings that might ensue. I consider that it would be inappropriate for me to make findings of fact on the basis of material which might be incomplete, and which has not been tested, when it is not necessary for me to do so for present purposes and those findings of fact might complicate or confuse other proceedings where the facts of the case might be material.