High Court rules that employer not required to provide buy-out level funding

13 March 2008

The High Court has recently delivered its judgment on the meaning of words designed to protect members' benefits in an ongoing pension scheme

In the Alitalia Italian Airlines Pension and Assurance Scheme, the contributions rule provided for employers to contribute to the fund "... to secure the benefits under the scheme".

The trustees argued the word "secure" meant the scheme's assets had to be able to meet its liabilities by buying annuities.  The employer disagreed.  It argued the word "secure" meant "to provide" and did not require the scheme to be funded on any particular basis. 

The High Court held that "to secure" did not mean the scheme must be able to meet its liabilities by buying annuities.  The Court noted the scheme rules gave the trustees the power to review the employer contribution rate "from time to time" and the trustees could demand immediate contribution payments if circumstances changed.  The funding objective was to safeguard or protect the members' benefits by adopting whatever funding method is best suited to the changing circumstances of the scheme.

This decision will be welcome news for employers of ongoing arrangements where they are not required to agree to funding levels.  It will now be more difficult for trustees to argue for funding on a buy-out basis where there are no concerns over the employer's covenant.

Alitalia-Linee Aeree Italiane SPA v Rotunno and Others (2008)

Contacts

If you would like further information on this subject please get in touch with your usual contact or:

Karen Prince,
Senior professional support lawyer, Pensions T: +44 (0)20 7246 7471

 


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