EUROPE - The first occupational pensions case to be considered by the Supreme Court, Bridge Trustees v Yates, will begin today.
The two day hearing at Britain's highest court will define what "money purchase" benefits legally mean.
The judges' decision could leave the government in breach of its European legal obligations, forcing it amend the law on pension protection after sponsor insolvency.
The controversial 2006 KPMG case - which also concerned the definition of money purchase - was refused leave to appeal to the House of Lords. However, the Department for Work and Pensions pressed successfully for Bridge Trustees v Yates to be reviewed by the Supreme Court.
Bridge Trustees chairman Giles Orton (pictured) explained: "As the Supreme Court is not bound by the decisions of the lower courts, this means that the whole issue of what is or is not ‘money purchase', including all that was said in KPMG, will now be revisited. The Supreme Court will define the law in this area.
"The DWP is pressing the case because it says that unless ‘money purchase' is defined to mean ‘there cannot be a deficit', the UK government will be in breach of its European law obligations to protect all pensions on employer insolvency."
Orton said this was because to date the DWP has assumed all money purchase schemes cannot have deficits - so has left them out of protection schemes such as the Pension Protection Fund and scheme specific funding.
He added: "The counter-argument is that the DWP is trying to read into its own definition of "money purchase" words that simply are not there, and that its new definition would cause chaos in other areas where statute uses this definition. The trial judge and the Court of Appeal both agreed with this. If the Supreme Court follows suit the DWP may need to pass new law.
"The members of this scheme are frustrated at how long this court case has dragged on. It is all down to the courts having to pick up the job of sorting out unnecessarily complex legislation."
The case - originally brought by independent trustee firm Bridge Trustees and now being paid for by the DWP - concerned the wind up of the hybrid £130m Imperial Home Décor Pension Scheme that had a £40m deficit.
Imperial scheme rules offered members money purchase accounts, but then added certain underpins and guaranteed returns. Orton said the DWP wanted to establish that, if schemes do offer guarantees - such that deficits can arise in honouring the commitments - then the full pensions protection legislation should apply.
In March, 2010, the Court of Appeal confirmed benefits were DC benefits even where certain guarantees existed, or where the pensions are paid directly out of scheme assets (PP, March 4 2010).
The DWP then took over the costs of the case and took it to the Supreme Court for a final ruling.
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