Are your scheme's pension increase provisions being implemented correctly? A recent case shows another potential route to deal with this issue

The BCA Pension Plan was established with rules providing for increases to pensions in payment of, broadly, the lower of the increase in the retail prices index and 5% for pension attributable to service post-5 April 1997, and 3% fixed for pension attributable to all other service. A consolidation of the trust deed and rules in 2011 left out a paragraph of the pension increase rule which specified the tranches of service that the different scheme pension increase provisions should be applied to. This presented a considerable difficulty when it was later discovered – the rules simply did not work – it was impossible to say with certainty from the drafting how the pension increase provisions should be applied.

There had been no intention to amend the pension increase provisions when the consolidation was done, and the missing wording was clearly left out by mistake. Rather than pursue rectification proceedings, the trustee of the scheme applied to the High Court under section 48 of the Administration of Justice Act 1985. This section allows trustees to apply to the High Court for an order authorising them to take certain steps where a question of construction has arisen out of the terms of a trust. To make the application, the trustees needed a written legal opinion from a person with a ten-year High Court qualification, which was duly obtained.

The judge accepted that it was self-evident that there had been a mistake in the drafting, and found that the pension increase rule did not make sense with the deleted wording. He found that it was clear what had been omitted in error, and wording to correct the error should be construed into the relevant rule.

This route will not be suitable in all cases where a purported mistake is discovered in the scheme rules. In this case the mistake was clear and obvious, and the rules as they stood with the mistake were nonsensical and impossible to operate. Other situations may not be so clear cut. An order under section 48 also protects the trustees from any complaint that they have wrongly administered the scheme, but does not bind members or potential beneficiaries, who could contend that a different construction should apply. Careful consideration needs to be given to the appropriate course of action when a mistake or some lack of clarity is discovered in a scheme trust deed and rules.

(Re BCA Pension Plan [2015] EWHC 3492 (Ch))