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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Konica Minolta Business Solutions (UK) v Applegate & Ors [2012] EWHC 3741 (Ch) (21 December 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/3741.html Cite as: [2013] Pens LR 105, [2013] ICR 625, [2012] EWHC 3741 (Ch), [2013] WLR(D) 9

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/12/2012

Mrs Justice Asplin :

Introduction

1. This case is concerned with an occupational pension scheme called the Konica Minolta Business Solutions (UK) Pension Plan ("the Scheme"). It was formerly called the Konica Minolta Business Solutions (UK) Pension & Life Assurance Scheme and I gave permission at the outset of the hearing to amend the Claim Form in order to update the title of the proceedings. The Scheme is a defined benefit, Revenue registered (formerly Inland Revenue exempt approved) occupational pension scheme. It also provides defined contribution benefits, but those are not relevant to the issues in this case.
2. The Claimant Konica Minolta Business Solutions (UK) Limited, ("Konica") is the sponsoring employer of the Scheme. The 1^st to 7^th Defendants are the current trustees ("the Trustees") and the 8^th Defendant, Mr Hughes is a member of the Scheme. In fact, Mr Hughes is a "Category B Member" as defined in the Definitive Deed and Rules of the Scheme dated 23 January 2006 (the "2006 Deed and Rules") to which I shall refer.
3. Konica has commenced these proceedings seeking rectification of the 2006 Deed and Rules. It is intended that Mr Hughes be appointed as a representative defendant to argue against the rectification, albeit no doubt by way of an issue based order. In preparation for his role or indeed as part of it, he has raised the issue that were the proposed application for rectification, successful, the Scheme would not be compliant with statutory preservation requirements for occupational pension schemes, contained in the Pension Schemes Act 1993 and the relevant regulations, ("the Preservation Requirements")
4. Following a Case Management Conference before Master Bowles on 25 April 2012, it was ordered by consent that there be a trial of the questions raised by the Preservation Requirements as a preliminary issue.
5. This is therefore the trial of the agreed preliminary issues concerning the Preservation Requirements and their application to the Scheme. I should add that since the preliminary issues were determined in accordance with Master Bowles' order, the Trustees have requested that a further issue be added by consent. I gave permission for the addition of the further issue by amendment.

Factual Background to the Scheme

The Scheme

6. In 1987, Konica acquired the share capital of Peter Llewellyn (Photocopying) Limited, which had its own defined benefits scheme for its employees, originally known as the Peter Llewellyn (Photocopying) Limited Retirement Benefits Scheme No.2, later known as the Konica Peter Llewellyn Retirement Benefits Scheme, (the "KPL Scheme").
7. The rules applicable to the KPL Scheme are contained in a Deed of Amendment of the Peter Llewellyn (Photocopying) Limited Retirement Benefits Scheme dated 18 October 1982 (the "KPL 1982 Deed and Rules"). For these purposes, nothing turns upon the fact that the KPL 1982 Deed and Rules was a deed of amendment.
8. In 2002, the KPL Scheme was merged into the Scheme by bulk transfer, recorded in a Transfer Deed dated 10 January 2002 "(the 2002 Transfer Deed"). Clause of 3.2, the 2002 Transfer Deed provided that the Scheme would provide the former KPL Scheme members with "the Benefits", which were defined at clause 1.1 as:

"the same benefits and entitlements (subject to the same terms and conditions) as those being or to be provided to and/or in respect of the Transferring Members under the provisions of the [KPL Scheme] in force on [11^th January 2002] immediately prior to the Transfer…"

9. Following the transfer of the KPL Scheme, a new definitive deed and rules of the Scheme were drawn up for the purpose of incorporating the appropriate rules for former KPL Scheme members and generally updating the rules of the Scheme. That new definitive deed and rules is the 2006 Deed and Rules.
10. Konica's contention in these proceedings is that the 2006 Deed was intended to replicate the provisions in place immediately prior to its execution. In particular, it is Konica's contention that it was intended to replicate the KPL Scheme's provisions for former KPL Scheme members. In so far as those provisions were not replicated, Konica says that the 2006 Deed and Rules should be rectified.
11. Under the 2006 Deed and Rules, a member who was previously a member of the KPL Scheme and transferred into the Scheme is termed a "Category B Member". The definition of a "Category B Member" in the 2006 Deed and Rules is:-

"A Member [active, pensioner or deferred] who is entitled to benefits under the Scheme determined on the basis of the benefit structure that was in place under the KPLRBS [Konica Peter Llewellyn Retirement Benefits Scheme] (the KPL Scheme) before its merger with the Scheme on 11 January 2002."

As I have already mentioned, Mr Hughes is a Category B Member.

12. It is not disputed that following the merger of another scheme, the 'Minolta Pension Plan', into the Scheme on around 1 November 2007, former members of the defined benefit sections of the Scheme (which includes Category B Members) and the Minolta Pension Plan were offered a "Fair Value Service Credit" ("FVSC") in respect of their benefits accrued up to 30 November 2007. The members who accepted their FVSC continued to accrue benefits on a defined benefit basis for service from 1 December 2007. The members who did not accept FVSC elected either to accrue future benefits on a money purchase basis under the Scheme for service on or after 1 December 2007 or to leave active membership of the Scheme and to become deferred members. Whether as a result of this exercise or otherwise, there are no longer any active Category B Members of the Scheme.

The KPL 1982 Deed and Rules

13. The definitions for the purposes of the KPL 1982 Deed and Rules are contained in Rule 1. I was referred in particular to the definition of Normal Retirement Date ("NRD") which is expressed to be the 65^th birthday for male members, and 60^th birthday for female members. In fact, there were only ever male members of the KPL Scheme. The definitions of 'Service' and 'Future Service' are also relevant and are set out in Rule 1 in the following form:

"'Service' means permanent employment with any Participating Employer."

"'Future Service' means the period of continuous Service from the first day of the month in which a Member becomes a Member until the last day of the month in which he ceases to be in Service or reaches [NRD] (whichever is earlier)…"

14. Rule 4 is headed "Retirement Pension" and Rule 4(a) is headed "On retirement at Normal Retirement Date". It states to the extent that it is relevant in this case:

"(1) A Member who retires from Service at [NRD] shall be entitled to a pension of such an amount as is necessary to provide an Aggregate Pension of two-thirds of his Final Scheme Salary provided that he has completed at least ten years' Service. A Member who has completed less than ten years' Service when he retires from Service at [NRD] shall be entitled to a pension of such an amount as is necessary to provide an Aggregate Pension in accordance with the following table.

Years of Service to Normal Retirement Date	Aggregate Pension expressed as a fraction of Final Scheme Salary
1-5	1/60 for each year
6	8/60
7	16/60
8	24/60
9	32/60

"(2) . . . . .

"(3) Provided that the Aggregate Pension shall not exceed two-thirds of Final Remuneration or such lesser amount as may be necessary in order not to prejudice Approval of the Scheme."

15. Rule 4(b) is headed "On retirement before Normal Retirement Date" and sub- rules (1) and (2) are in the following form:

"(1) A Member who retires from Service with the Principal Employer's consent at any time before [NRD] owing to Incapacity shall be entitled to an immediate pension calculated in accordance with section (a) of this Rule as if he were retiring at [NRD], but reduced in the ratio of his completed Future Service to his potential Future Service to [NRD]. Provided that the Aggregate Pension shall not exceed two-thirds of Final Remuneration or such lesser amount as may be necessary in order not to prejudice Approval of the Scheme.

(2) A Member who retires from Service with the Principal Employer's consent on or after his 50^th birthday other than owing to Incapacity shall be entitled to an immediate pension equal to the pension to which he would be entitled if he were retiring owing to Incapacity, reduced by one-half per cent for each month by which the first payment of pension precedes the date on which the first payment would be made if he retired on Normal Retirement Date. Provided that the Aggregate Pension shall not exceed one-sixtieth of Final Remuneration for each year of Service (with a maximum of 40 years) or such larger amount as will not prejudice Approval of the Scheme."

16. Rule 13 is headed "Withdrawal from Service." It is Rule 13(4) which is directly relevant to the Preliminary Issues. It is in the following form:

"If a Member leaves Service, otherwise than by retirement or death, and the provisions of the previous paragraph for discharging or reducing the liability of the Scheme in respect of him do not apply, he shall be entitled to a pension at [NRD] of an annual amount equal to the immediate pension to which he would be entitled if at the time of his leaving Service he were retiring from the Scheme owing to Incapacity... Provided always that the Trustee shall be reasonably satisfied that the value of the pension for each Member exceeds or compares reasonably with any contribution which he has made towards its costs. Provided always that his pension shall be not less than the amount required by Rule 20 and that the Aggregate Pension shall not exceed one-sixtieth of Final Remuneration for each year of Service (with a maximum of 40 years) or such larger amount as will not prejudice the Approval of the Scheme."

This Rule was subsequently amended in minor respects by a Trustees' Resolution dated 1 October 1985. The amendments are irrelevant for the purposes of the Preliminary Issues.

17. Also relevant to the calculation of deferred benefits under the KPL 1982 Deed and Rules is Rule 11, headed 'Over-all limitation' which provides:-

"If the amount of any benefit which would otherwise be provided under any Rule is such that, when aggregated with all benefits provided under all Related Schemes, it would prejudice Approval of the Scheme, that amount shall be reduced to the maximum amount which can be provided under the Scheme without so prejudicing Approval of the Scheme. When first there is an expectation that any such reduction may be necessary in respect of any Member, the Trustee shall reduce all subsequent contributions in respect of that Member as appropriate so that, as far as possible, the reduction will be spread evenly over the remaining potential Service of the Member to [NRD]."

18. It is not disputed that for KPL Scheme members who joined after 17 March 1987, additional restrictions on the accrual rate in respect of benefits were imposed: the pension accrual rate could not exceed 1/30^th of relevant annual remuneration for each year of service up to a maximum of 20 years as a result of Schedule 23, paragraph 2 of the Income and Corporation Taxes Act 1988. This provision applied notwithstanding anything to the contrary in the rules of the KPL Scheme.
19. This was reflected in the Scheme Handbook which records that:

"If you joined the Scheme prior to 17 March 1987:

"You will be entitled to an annual pension of two-thirds of your Final Scheme Salary provided you have been in the Scheme as a participating employee for more than 10 years.

"All Pensions under the Scheme must not be greater than the limit allowed by the Inland Revenue. Normally this means that the benefits from all your pension arrangements (excluding the State pensions) must not be more than two-thirds of your Final Scheme Salary."

"If you joined the Scheme after 17 March 1987:

"Your pension will be calculated in the same way as Members who joined before 17 March 1987 but may be subject to additional restrictions under Inland Revenue rules.

"Your pension must not exceed 1/30^th of your Final Scheme Salary for each year (plus a proportionate amount for any extra complete months) that you have been in the Scheme as a participating employee up to a maximum of 20 years service."

The 2006 Deed and Rules

20. There is no dispute but that the 2006 Deed and Rules were adopted for the purpose of consolidating the rules and other provisions of the Scheme in force immediately prior to the 2006 Deed and Rules. Clause 1.2 expressly stated that the Scheme was designed for Exempt Approval and clause 1.3 provided that "the benefits and contributions payable under the Scheme must be limited to the amounts described in Schedule 2 (Inland Revenue Requirements) which shall override the provisions of this Deed. . .". Those requirements were set out in full at Schedule 3 of the 2006 Deed and Rules. Clause 1.4 also made clear that Category B Members were in contracted out employment by reference to the Scheme in accordance with Section 9(2B) Pension Schemes Act 1993.
21. Clause 2.3 provided that the benefit entitlement of any Deferred Pensioners or Pensioners as at the date of the 2006 Deed were to be calculated in accordance with the relevant provisions of the "Preceding Documents". There is no definition of that term but it is tolerably clear that in relation to the Category B Members, it was intended to make reference to the KPL 1982 Deed and Rules. In any event, this is not in dispute.
22. The definitions are contained in Schedule 1 to the 2006 Deed and Rules. As I have already mentioned, "Category B Member" is defined as follows:

"Category B Member: A Member who is entitled to benefits under the Scheme determined on the basis of the benefit structure that was in place under the [KPL Scheme] before its merger with the Scheme on 11 January 2002."

The other relevant definitions for the purposes of the Preliminary Issues are:

""Deferred Pensioner"

A former Active Member, (or any other person for whom benefits have been granted under rule 25 (bulk transfers in) or rule 24 (individual transfers in )) who is entitled to a deferred pension under the Scheme, but who has not yet become a Pensioner or otherwise retired with benefits becoming payable."

and

"Normal Pension Date"

The date of the Member's 65^th birthday, except in the case of a Director for whom it is his 60^th birthday."("NPD")

23. The Rules are contained in Schedule 2 to the 2006 Deed and Rules. Rule 9.1 is concerned with the payment of pension on "Normal Retirement". It sets out the basis of the pension that an Active Member who retires at NPD will receive. For Category B Members it states:

"Category B Member:

2/3rds of his Final Pensionable Salary for a Member who became an Active Member before 17 March 1987 and has completed 10 years Pensionable Service as a Category B Member (except that in the case of a Director the benefit will be ½ of his Final Pensionable Salary).

In respect of a Category B Member who became an Active Member before 17 March 1987 and has not completed 10 years Pensionable Service as a Category B Member in accordance with the following table:

Years of Service to normal retirement date Maximum pension expressed as a fraction of final remuneration

1-5 1/60^th for each years

6 8/60

7 16/60

8 24/60

9 32/60

10 or more 40/60

Fractions of a year will be interpolated into the scale set out above.

In respect of a Category B Member who became an Active Member on or after 17 March 1987, 1/30^th of his Final Pensionable Salary for each complete year of Pensionable Service plus 1/360^th for each additional complete month of Pensionable Service up to a maximum of 20 years Pensionable Service."

24. Rule 12 of the 2006 Deed and Rules is headed "WITHDRAWAL" and contains the provisions relating to a member's entitlement to a deferred pension on withdrawal from the Scheme. Rule 12.3 sets out the provisions for the payment and calculation of benefits for deferred members in the following way:

"The deferred pension will be payable for life from Normal Pension Date ["NPD"]

and:

For a Category A and a Category C Member will be calculated at the date of leaving as described in rule 9 (normal retirement), and then increased before payment by the percentage required by the Revaluation Laws;

For a Category B Member will be the higher of:

(a) a deferred pension calculated at the date of leaving as described in rule 9 (normal retirement) and then increased before payment by the percentage required by the Regulation Laws; and

(b) a deferred pension calculated at the date of leaving as described in rule 9 (normal retirement) but using the Final Pensionable Salary at the date of leaving Pensionable Service and the Pensionable Service he would have received had he retired at Normal Pension Date multiplied by

CPS

PPS

where:

CPS = is the Pensionable Service the Category B Member completed at the date of leaving; and

PPS = is the Pensionable Service he would have received had he retired at Normal Pension Date."

25. The maximum benefits permitted under the 2006 Deed and Rules were altered as a result of the Deed of Amendment (Finance Act 2004) dated 16 May 2006. This Deed of Amendment was an interim measure to ensure that the Scheme complied with the new tax approval requirements under the Finance Act 2004 with effect from 6 April 2006 ("A-Day"). These new tax approval requirements replaced the Inland Revenue limits at the end of the transitional period under the Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 (S.I. 2006/364) (the "Modification Regulations"). In short, the Deed of Amendment disapplied the Modification Regulations (and the Inland Revenue limits) and applied the new tax regime. Under Clause 2.9 of that Deed, it was expressly stated that:

"the accrual of all benefits in respect of deferred Members under the Scheme shall be calculated by reference to the Scheme's provisions as they were from time to time before 6 April 2006. The drawing and payment of those benefits after 5 April 2006 shall be as provided in this deed."

26. I should mention that five of the Category B members fall within the definition of "Directors" in the 2006 Deed and Rules. Miss Seaman on behalf of the Trustees confirmed that they all became members when they were under the age of 50 and therefore would have had the potential for ten or more years of service prior to NPD. The NPD in respect of Directors was defined in Schedule 1 of the 2006 Deed and Rules as his 60^th birthday.

Konica's reasons for seeking rectification

27. Konica contends that the mistake in the 2006 Deed and Rules is that rule 12.3 of those Rules unintentionally increased deferred pensions for Category B Members from:

i) A deferred pension calculated using Final Pensionable Salary as at the date of leaving Pensionable Service but reduced in the ratio of his completed future service to his potential future service to NRD in accordance with Clause 13(4) and Clause 4(b)(1) of the KPL 1982 Deed and Rules;

ii) To the higher of:

a) A deferred pension calculated at the date of leaving service calculated in accordance with the payment of pension for active members who retire at NPD, increased before payment by the percentage required by revaluation statutes; and

b) A deferred pension calculated using (i) Final Pensionable Salary as at the date of leaving Pensionable Service, and (ii) the Pensionable Service he would have had at NRD multiplied by (actual pensionable service / total pensionable service he would have had at NRD).

28. The result of Rule 12.3 is that certain Category B Members will receive more under the first alternative '(a)' than the second alternative '(b)', and as a result, thereby increase the amount of their deferred pension to which they would otherwise be entitled. Accordingly, certain Category B Members will receive a more advantageous benefit under the 2006 Deed and Rules than would have been received under the 1982 Deed and Rules for the KPL Scheme.
29. Konica states that its intention and that of the trustees at the time of the 2006 Deed and Rules was to grant Category B Members the same benefits under the Scheme that had applied to them under the KPL Scheme before the merger. They say that it was not their intention to modify the subsisting benefits of any class of members. For that reason, Konica seeks rectification of Rule 12.3 to remove the alternative '(a)', which it claims is a drafting error, so that the only calculation in respect of deferred Category B Members' benefits is undertaken by virtue of Rule 12.3(b).

The Preliminary Issues

30. The agreed preliminary issues are set out in the Schedule to the Amended Claim Form in the following form:-

"2. In relation to Category B Members only:-

(1) Would the removal by means of an order for rectification of a 'Basis (a) underpin' (the method of calculation set out in Rule 12.3(a) of the 2006 Deed and Rules for a Category B Member) cause the Scheme method for the calculation of pension benefits for or in respect of early leavers to contravene the requirements of section 74 of the Pension Schemes Act 1993 ('section 74')?

(2) If the answer to (1) is yes, is it necessary to retain the full Basis (a) underpin in relation to all members in order to secure compliance with section 74?

(3) If the answer to (2) is no:

(a) What form of underpin is necessary in order to secure compliance with section 74, and

(b) In respect of which members should that underpin apply?

(4) Does the Court have power to make an order for rectification on terms that a more limited underpin of the type contemplated in (3) is introduced into the Scheme?

(5) Are there any members for whom Basis (a) and Basis (b) (the method of calculation set out in Rule 12.3(b) of the 2006 Deed and Rules for a Category B Member) produce the same amount in the events which have happened (so that the order for rectification sought would make no difference to the calculation of pension benefits for or in respect of them) and if so which ?

(6) Is the method for calculation of pension benefits for or in respect of early leavers in the previous rules, i.e. the 1982 Deed and Rules (in particular, Rule 13(4) and Rule 4(b)(1) of those Rules) in contravention of the requirements of section 74?

In answering questions (2), (3), (5) above, the following categories of person should be separately considered:-

i) Category B Members who became an Active Member on or after 17 March 1987 and before 1 June 1989. This category subdivides as follows:

a) Persons who became an Active Member under the age of 45; and

b) Persons who became an Active Member at or after the age of 45.

ii) Category B Members who became an Active Member before 17 March 1987. This category subdivides as follows:-

a) Persons who became an Active Member under the age of 55; and

b) Persons who became an Active Member at or after the age of 55."

31. I should also mention that it was also pointed out by Miss Seaman for the Trustees that the issues raised in the preliminary issue hearing may not just affect deferred Category B Members but may also have an indirect bearing on the calculation of pensions for Category B early leavers. For example, under rule 11.3 of the 2006 Rules, a Category B Member who takes early retirement under rule 11.1(a) (after the age of 50 with the consent of the Participating Employer) or 11.1(b) (at any age on the grounds of Incapacity by election in writing to the Trustees) of those Rules, receives a pension calculated in accordance with rule 12, albeit reduced until NPD by such amount as the trustees (acting on actuarial advice) consider appropriate.
32. In fact, the wording of the body of rule 11.3 refers to rule 11.1(a) or 11.1(c) – the reference to 11.1(c) must be a mistake because 11.1(c) applies to Category A female members who were in Pensionable Service on 16 May 1990 on and after the age of 60 without the consent of the Participating Employer, and rule 11.3 focuses on determining a pension for an early retiring Category B member.
33. Thus, the calculation under Rule 12.3 is also used as a basis for calculating the pension of early retiring Category B Members, although in this context, the Trustees have discretion acting on actuarial advice to reduce the amount of the pension.
34. I should also mention at this stage that in fact, preliminary issue (5) has been found to be otiose and is not pursued.

Representation

35. In relation to the Preliminary Issues in essence, it is intended that Mr Hughes represent members (and those claiming through them) in whose interest it is to argue that rectification in the manner sought by Konica would contravene the Preservation Requirements and in all the other circumstances, that maximum protection be afforded to Category B Members. In fact, I have made an issue based representation order in respect of Mr Hughes and a mirrored provision to enable Konica to argue on behalf of those in whose interests the opposite answers would be given. Mr Hughes is appointed pursuant to CPR 19.7(2) to represent all persons in whose interests it may be to argue in favour of:

(a) Question 2(1) being answered in the positive;

(b) Question 2(2) being answered in the positive;

(c) In the event that Question 2(1) is answered in the positive and Question 2(2) is answered in the negative, Question 2(3) being answered so that the form of underpin which is necessary is as extensive as possible.

(d) Question 2(4) being answered in the negative;

and

(e) Question 2(6) being answered in the positive.

36. As I have already mentioned, Konica is appointed to represent all those under the Scheme in whose interests it is to argue the opposite in relation to each issue.

The Preservation Requirements

37. The preservation legislation was originally contained in s.63 of the Social Security Act 1973 and Schedule 16 (and regulations made under Schedule 16) of the Social Security Act 1973. This legislation was consolidated in Pt IV, Chapter I, Pension Schemes Act 1993. Detailed preservation requirements are also set out in the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (SI 1991/167) as amended. There have been further minor changes under the Pensions Act 2004 (for example, to increase the latest age at which short service benefits must be payable).
38. There is no question that the Preservation Requirements are relevant to the issues in this case. They apply to all occupational pension schemes where the scheme was in force on or after 6 April 1975 (when the relevant legislation came into force: Social Security Act 1973 (Commencement No. 2) Order 1973/1433, regulation 3(2)(b)).
39. However, as a result of section 131 Pension Schemes Act 1993, although scheme rules must comply with the Preservation Requirements, they are not overriding where the rules of a scheme are inconsistent with them. Section 132 Pension Schemes Act 1993 (as amended) makes clear that it is for the trustees and managers of a scheme 'to take such steps as are open to them for bringing the rules of the scheme into conformity with those requirements'.
40. The recent decision of Warren J in Re IBM Pension Plan [2012] Pens. LR 469 sets out a helpful detailed background to the Preservation Requirements, at paragraphs [29] – [49]. In particular, paragraphs [29-33, 35-37 and 39-44] are relevant in this case:

"The Preservation Requirements

[29] There has for many years been provision in the legislation governing occupational pensions schemes designed to protect the benefits of members of a pension scheme who cease to be active members before reaching the age at which they can draw their pension, typically when they leave employment to take a job with an unconnected employer. The requirements (known as "the Preservation Requirements") were originally contained in section 63 and Schedule 16 Social Security Act 1973 and have been repeated, with modification, in successor legislation ever since.

[30] For the purposes of the present litigation, I need to set out some of the provisions of the Pension Schemes Act 1993. Section 70 is a definitions section. The definition of "long service benefit" is relevant. It means, in effect, the benefits which would become payable as a matter of legal obligation to a member on the assumption that he remains in pensionable employment "until he attains normal pension age".

[31] The definition of "normal pension age" was, and remains, to be found in section 180. In the context of the Main Plan, it means "the earliest age at which the member is entitled to receive benefits (other than a guaranteed minimum pension) on his retirement from [employment with IBM]"; but any scheme rule making special provision as to early retirement on grounds of ill health or otherwise is to be disregarded. It is generally accepted and is in my view correct, although this has never been the subject of direct judicial authority, that a rule which allows for early retirement but only with the consent of the employer is such a rule.

[32] Sections 71, 72 and 74, so far as material, provided as follows (as originally enacted):

"71 Basic principle as to short service benefit

(1) A scheme must make such provision that where a member's pensionable service is terminated before normal pension age and—

(a) he has at least 2 years' qualifying service, or

(b) a transfer payment in respect of his rights under a personal pension scheme has been made to the scheme,

he is entitled to benefit consisting of or comprising benefit of any description which would have been payable under the scheme as long service benefit, whether for himself or others, and calculated in accordance with this Chapter.

(2) The benefit to which a member is entitled under subsection (1) is referred to in this Act as "short service benefit".

(3) Subject to subsection (4), short service benefit must be made payable as from normal pension age or, if in the member's case that age is earlier than 60, then from the age of 60……"

"72 No discrimination between short service and long service beneficiaries

(1) A scheme must not contain any rule which results, or can result, in a member being treated less favourably for any purpose relating to short service benefit than he is, or is entitled to be, treated for the corresponding purpose relating to long service benefit……."

"74 Computation of short service benefit

(1) Subject to the provisions of this section, a scheme must provide for short service benefit to be computed on the same basis as long service benefit

……

(7) Where long service benefit is related to a member's earnings at, or in a specified period before, the time when he attains normal pension age, short service benefit must be related, in a corresponding manner, to his earnings at, or in the same period before, the time when his pensionable service is terminated."

[33] To put it shortly, the Preservation Requirements required a scheme to provide a member by way of "short service benefit" a pension calculated on the same basis as his ordinary retirement pension. The short service benefit was thus, broadly speaking, a pension based on the period of service to, and the pensionable remuneration payable at, the date of leaving service. This pension was not payable immediately. Instead, it was deferred pension which only became payable at the member's "normal retirement age" which would commonly have been the age at which the ordinary retirement pension would have become payable.

…………………

[35] As I have just mentioned the Preservation Requirements were originally given effect by section 63(1) and (2) and Schedule 16 Social Security Act 1973. Section 63(1) introduced Schedule 16, Part I of which contained the Preservation Requirements; and section 63(2) provided that "this section" was to have effect for securing that occupational pension schemes conform with the Preservation Requirements. Although paragraph 6 Schedule 16 stated that a scheme "must provide" the relevant benefits for an early leaver, the Preservation Requirements were not overriding requirements: it was declared in section 63(3) that nothing in sections 63(1) or (2) or in Schedule 16 was to be taken to apply with direct effect to a scheme, or to the rights or liabilities of any person in, under or by virtue of a scheme.

[36] This does not mean that the Preservation Requirements had no teeth. Section 63(4) provided that it was the "responsibility of the trustees and managers of the scheme……to take such steps as are open to them for bringing the scheme into conformity … with" the Preservation Requirements. And section 63(7) provided that, if the Occupational Pensions Board ("the OPB") determined that a scheme did not conform with the Preservation Requirements, they were empowered to order the trustees or managers to exercise such powers as they possessed for modifying the scheme with a view for bringing it into conformity; and in the absence of such powers to modify the scheme as required by the OPB, the OPB could confer the necessary power on any person or themselves modify the scheme.

[37] The Preservation Requirements were continued, without any modification of substance which is relevant to the present proceedings, up to and including the Pension Schemes Act 1993. In particular, section 71(1) provided that a scheme "must make such provision" as would ensure compliance, section 131 contained a declaration that nothing in Chapter 1 of Part IV (ie the Chapter containing the Preservation Requirements) applied "with direct effect to any scheme or to the rights or liabilities of any persons in, under or by virtue of a scheme", section 132 continued the obligations of the trustees and managers to ensure conformity and section 133 continued the powers of the OPB.

……………

[39] The Pensions Act 1995 established the Occupational Pensions Regulatory Authority ("OPRA") and abolished the OPB with effect 6 April 1997. The functions and powers which the OPB had in relation to preservation (sections 133-140 Pension Schemes Act 1993) were repealed but without replacement: those functions and powers did not transfer to OPRA.

[40] I note for completeness (although nothing I think turns on it) the submission made on behalf of the Trust Company (based on what was said in the course of Parliamentary debates on what became the Pensions Act 1995) that it appears that the reason why the powers of the OPB in relation to securing compliance with the Preservation Requirements were not transferred to OPRA when the OPB was abolished by the Pensions Act 1995 was, over-optimistically, that since the Preservation Requirements had been in force for so long, all schemes would have already achieved conformity, such that the OPB's powers in this respect were no longer needed.

[41] Significant amendments and changes were made, including changes to the Preservation Requirements, by the Pensions Act 2004.

[42] First, the Act created the Pensions Regulator ("tPR") and dissolved OPRA. Among the many powers given to tPR are the powers to issue an improvement notice under section 13 and to issue a third party notice under section 14. The Trust Company's submission is that these provisions enable tPR to bring about compliance with the Preservation Requirements. I am far from clear that that is right in all cases since these notices can only be given to a person who is in contravention of one or more provisions of the pensions legislation. No obligation is, however, imposed on an employer under the Preservation Regulations to bring a scheme into conformity, so it is not easy to see how the sections are engaged by a failure of an employer to consent to an amendment which the trustees or managers wish to make pursuant to their own statutory duty. This is subject to the separate issue, dealt with later, whether an employer can, in a particular case, be said to be within the meaning of "trustees and managers" of a scheme.

[43] In any event, even if the sections are engaged, the contravention must, in my view, be a contravention of the pensions legislation (which includes Pensions Schemes Act 1993) as it subsists at the time when the notice is given. I do not consider that tPR has power to impose on a person a requirement to bring a scheme into compliance with the Preservation Requirements as they stood at some time in the past.

[44] The position today, therefore, is that the trustees and managers of a scheme which does not conform with the Preservation Requirements must exercise their powers, insofar as they are able, so that it does conform with those Requirements as they currently provide. But there is no power vested in tPR (or any other body) to compel any person who is neither a trustee nor a manager, to exercise powers which he has to bring about conformity, and no power for tPR (or any other body) itself to effect any necessary modifications. Nonetheless, cash equivalents are still calculated on the footing that the applicable scheme rules were compliant with the Preservation Requirements so that there could be a disconnection between the benefits to which a deferred member is entitled and the benefits by reference to which his cash equivalent is to be calculated.

The computation of short service benefit in Defined Benefit schemes

41. As Miss Campbell on behalf of Mr Hughes explained, the computation of short service benefit is governed by s.70, 71, 72 and 74 of the Pension Schemes Act 1993. Essentially, short service benefit (SSB) should be calculated on a consistent basis with long service benefit (LSB) as defined in s.70 PSA 1993. LSB is the benefit payable under the scheme to members on the assumption that they remain in pensionable service until they "attain[s] normal pension age" and continue to qualify for benefit for the full period of pensionable service. As Warren J pointed out, the definition of normal pension age is to be found in section 180 Pension Schemes Act 1993. In the context of the Scheme it is the earliest age at which the member is entitled to receive benefits (other than a guaranteed minimum pension) on his retirement from employment with [Konica]; but any scheme rule making special provision as to early retirement on grounds of ill health or otherwise is to be disregarded.
42. Section 74 of Pension Schemes Act 1993 sets out the requirements for the computation of short service benefit. It states:

"(1) Subject to the provisions of this section, a scheme must provide for short service benefit to be computed on the same basis as long service benefit.

(2) For that purpose, no account is to be taken of any rule making it (directly or indirectly) a condition of entitlement to benefit that pensionable service shall have been of any minimum duration.

(3) Subsection (1) does not apply to so much of any benefit as accrues at a higher rate, or otherwise more favourably, in the case-

(a) of members with a period of pensionable service of some specified minimum length, or

(b) of members remaining in pensionable service up to some specified minimum age.

(4) Subsection (1) does not apply to so much of any benefit as is of an amount or at a rate unrelated to length of pensionable service or to the number or amount of contributions paid by or for the member.

(5) Regulations may provide that subsection (1) shall not apply to any category of schemes or members, or description of benefit.

(6) So far as any short service benefit is not required to be computed in accordance with subsection (1), it must be computed on the basis of uniform accrual, so that at the time when pensionable service is terminated, it bears the same proportion to long service benefit as the period of that service bears to the period from the beginning of that service to the time when the member would attain normal pension age or such lower age as may be prescribed.

(7) Where long service benefit is related to a member's earnings at, or in a specific period before, the time when he attains normal pension age, short service benefit must be related, in a corresponding manner, to his earnings at, or in the same period before, the time when his pensionable service is terminated.

(8) A scheme must comply with any regulations relating to the basis of computation of short service benefit, including regulations providing for the avoidance of fractionable amounts and otherwise to facilitate computation."

43. Thus, a scheme must provide for SSB to be computed on the same basis as LSB. Where sub-section 74(3) or (4) applies, by virtue of s.74(6) Pension Schemes Act 1993, SSB must be computed on the basis of 'uniform accrual'. This method assumes that the benefits accrue uniformly over the entire period of pensionable service of the member. In such circumstances, on a termination of pensionable service before NRD, the member's SSB will be determined by applying the fraction: 'completed pensionable service/total pensionable service capable of completion to NRD' to the maximum benefit to which the member would have been entitled at NRD as of right.
44. In this case, the central question in relation to the preliminary issues is whether s.74(3)(a) or s 73(4) PSA 1993 applies to the benefit provisions for deferred Category B Members.

Submissions on behalf of Mr Hughes

45. First, Miss Campbell made clear that there is a specific provision in the 2006 Deed and Rules which relates to those members who joined the KPL Scheme between 1987 and 1989 who were still active members in 2006. Those whom Mr Hughes represents and with whom she is concerned either joined the KPL Scheme before 1987 or before 1989 but were deferreds in 2006. In the case of those who were deferred in 2006, it is necessary to look back to the 1982 Rules.
46. Miss Campbell divided her submissions into two parts. First she dealt with those like Mr Hughes who were pre 1989 joiners or to put it another way, post 1987 joiners (Pre '89 Joiners) and then turns to those who were pre 1987 joiners (Pre '87 Joiners).
47. However, in summary with regard to both categories of member, she says that what she describes as the exception to the normal preservation requirement which is set out in s74(3) Pension Schemes Act 1993 does not apply in this case, that the general rule in s74(1) is applicable and as a result that the Scheme would not be compliant with the Preservation Regulations were Rule 12.3 rectified by the removal of Rule 12.3(a).
48. I should mention that it is accepted that Rule 12.3(a) is compliant with the general rule in section 74(1) Pension Schemes Act 1993 and that Rule 12.3(b) is equivalent to uniform accrual. Rule 12.3 gives the member the better of (a) or (b) which is not required by the Preservation Requirements.

Pre '89 Joiners

49. With regard to Pre '89 Joiners like Mr Hughes, Miss Campbell says that the position is clear. The provisions relating to his LSB are contained in the final paragraph of Rule 9.1 of the 2006 Deed and Rules. To be clear, that paragraph is in the following form:

"In respect of a Category B Member who became an Active Member on or after 17 March 1987, 1/30^th of his Final Pensionable Salary for each complete year of Pensionable Service plus 1/360^th for each additional complete month of Pensionable Service up to a maximum of 20 years Pensionable Service."

As I mentioned at paragraphs 18 and 19, the change in relation to such members was effected for the purposes of the 1982 Deed and Rules by means of the overriding effect of Schedule 23, paragraph 2 of the Income and Corporation Taxes Act 1988 and was reflected in the explanation set out in the Scheme Handbook.

50. First, with regard to Pre '89 Joiners, Miss Campbell says that the accrual rate is what she describes as "truncated accrual". By that she means that such a member accrues 1/30ths for each year of service until he has been in service for 20 years and after that the accrual stops and the pension which he has accrued remain unchanged after that date, the only effect on his pension thereafter being the application of final salary as at NRD. She says therefore, that his accrual rate in effect, does not change: it remains at 1/30ths.
51. As a result she says that the exception from s74(1) contained in section 74(3)(a) Pension Schemes Act 1993 does not apply. That sub-sub-section creates an exception in relation to "so much of any benefit as accrues at a higher rate . . . ". Miss Campbell's first submission is that there is only a single rate of accrual in respect of Mr Hughes and pre '89 Joiners. She says there is no "higher rate" and therefore, the provision does not apply. If she is wrong about that she says no part of Mr Hughes' benefit accrues at a higher rate but if anything after twenty years it accrues at a lower rate being nil.
52. Miss Campbell also points out by way of illustration that if Konica is right and the exception does apply, the effect upon Mr Hughes would be extremely stark. He had completed twenty years service before he became a deferred member and accordingly, she says, had accrued his full pension at a single rate of accrual. However, if Konica is right and section 74(3)(a) applies, the effect of uniform accrual applied by virtue of section 74(6) would be to halve the pension to which he would have been entitled, a result which she says cannot be right and is contrary to the policy behind the Preservation Regulations which is the protection of the member.
53. It is not disputed that as Miss Campbell pointed out the content of the Rule 9 which applies to pre '89 Joiners arose as a result of the provisions of Schedule 3 paragraph 19 Finance Act (No2) 1987 and the need to maintain tax approval. For the purposes of continued approval of a scheme for tax purposes, in respect of members who joined after 17 March 1987, it provided:

"(2) Notwithstanding anything to the contrary in the rules of the scheme, they shall have effect as if they did not allow the provision for the employee of a pension exceeding one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20."

54. Miss Campbell also took me to the Occupational Pension Schemes Practice Notes on the Approval of Occupational Pension Schemes (IR12 (2001)) which applied in relation to the tax approval of schemes pre the A-Day regime but did not and do not have statutory force. If the trust documentation of a scheme reflected the IR guidance, the status of exempt approval would be granted or maintained, bringing a range of tax reliefs.
55. IR 12 (2001) gave guidance on the maximum SSB. In particular, paragraphs 7.40 and 7.41 of IR 12(2001) expressed the following guidance:-

"7.40 For members with pre 17 March 1987 continued rights, benefits greater than 1/60^th of final remuneration for each year of service may be given on retirement at normal retirement date in accordance with the table set out below provided that the aggregate of the benefits (including any pension debits where appropriate (see paragraph 7.2)) in respect of service with the current employer together with any retained benefits does not exceed 2/3^rds of final remuneration…"

The table in 7.40 is identical to the table in rule 9 of the 2006 Deed and Rules. Paragraph 7.41 is in the following form:

"For members with pre 1 June 1989 continued rights, benefits greater than 1/60^th of final remuneration for each year of service may be given on retirement at normal retirement date. The maximum is 1/30^th of final remuneration for each year of service (up to 20 years) provided that the aggregate of benefits (including any pension debits where appropriate (see paragraph 7.2)) in respect of service with the current employer together with any retained benefits does not exceed 2/3^rds of final remuneration…"

56. Miss Campbell also referred to Part 10 of IR12(2001). It sets out guidance on the topic of 'leaving pensionable service', which includes the preservation of occupational pension rights. Paragraph 10.4 of IR12(2001) states:

"The principal requirement of preservation is that a member must, on leaving pensionable service with 2 years' qualifying service, be entitled to [SSB]. This should normally be calculated on the same basis as the benefits to which the member would have become entitled had he or she remained in pensionable service until [NPA] (in most circumstances this term equates to [NRD]). Where the calculation produces a [SSB] (before statutory revaluation is appropriate) greater than the maximum leaving service benefit that the Inland Revenue would normally allow, the SSB will take precedence (but see paragraph 10.13 [which relates to the maximum benefits an approved money purchase scheme may provide])"

57. In the final alternative, in response to the analysis put forward by Mr Moeran on behalf of Konica in which he contends that the rate of accrual is in fact, 1/60ths followed by 1/30ths (something to which I shall return) she says that section 74(3)(a) would require the uniform accrual to be applied only to that part of the pension which would accrue at the higher rate and not to the pension as a whole. In other words it would only apply to the part referable to an accrual rate of 1/30ths. This is based on the wording "so much of any benefit . . .".
58. In any event, Miss Campbell says that s 74(3)(a) is clear and unambiguous. However, if she is wrong she referred me to the statutory history of sub-sections 74(3) and (4) which is to be found in paragraph 10 and 11 of Schedule 16 of the Social Security Act 1973 and the Social Security Bill. In the Bill, the exception to the general rule was set out in the following way:

"this paragraph does not apply where the scheme provides – (a) for benefit to accrue at a higher rate, or otherwise more favourably, in the case of members with a period of pensionable service of some specified minimum length . ."

59. It was subsequently amended to take the form in which it now appears in sections 74(3) and (4). In this regard, Miss Campbell drew my attention to the explanation of the amendment by the Earl of Gowrie in the House of Lords debate on the Bill on 18 June 1973 in Hansard HL at volume 343, page 1078. The extract reads:

" . . These are technical Amendments designed to restrict the method of computation set out in paragraph 11 to those benefits or parts of benefits described in paragraph 10(3). As drafted the paragraphs would apply, inappropriately to the whole of the benefits provided by a scheme even where only some of them fell within the description in paragraph 10(3). All short service benefits which do not come within the scope of paragraph 11 must be calculated in accordance with paragraph 10(1), that is to say, on the same basis and under the same rules as the long service benefit. These Amendments will therefore mean that a scheme's members will be protected by whichever is the more appropriate of paragraph 10(1) and 11 in relation to each of the benefits provided. . ."

60. Miss Campbell says that the extract makes clear that the exception to the general preservation rule is to be used to protect members rather than cut down their rights, which would be the effect in this case, and that the exception now in s74(3) and (4) is not intended to emasculate the general rule. She also says that the extract supports her contention that section 74(3) only applies to the part of a pension which was accruing at the higher rate.
61. I was also taken to the Occupational Pensions Board Memorandum 78 which was concerned with the preservation of occupational pension rights but has long since lapsed. At paragraph 1 the main purpose behind the preservation legislation is described as "for members who leave their employer's service (more recently their employer's pension scheme) before their normal pension age (NPA) to be entitled to a proportionate share of the benefits to which they would have become entitled had they taken normal retirement." Reference is also made at paragraph 120 to the fact that the preservation requirements "are concerned to ensure not only that early leavers are entitled to SSB . . .but also that their benefits represent an equitable proportion of the benefits that would have been payable at or after NPA . .". The incidence of uniform accrual is described in paragraphs 125 and 126 in the following way:

"125. Normally a schemes rules for calculating benefits on retirement at NPA can be used to calculate SSB. Some schemes, however, are framed in such a way that to apply the normal rules to any early leaver would either not be practicable or would not produce an equitable proportion of the benefit he/she would have received if he/she had stayed until NPA. SSB must therefore be calculated on the basis of uniform accrual (see paragraph 126) in such schemes. The schemes concerned are those where

a. service counts at a higher rate or benefit otherwise accrue more favourable after a specified age or minimum length of pensionable service

or

b. the retirement benefit (or possibly another benefit such as that for a child dependant) is fixed at a particular rate or amount regardless of either length of service or the number of amount of contributions paid, so that the scheme's own rules would not show how much benefit had accrued at any particular time.

126. SI 1991/167 reg 17(1) & (5)> The uniform accrual method of calculation assumes that benefits accrue uniformly over the member's entire pensionable service (but see paragraph 153 for waiting periods). Thus, when the members leaves before NPA, a fraction representing the period of pensionable service completed as a proportion of the potential pensionable service to NPA must be applied to his/her prospective benefit at NPA. Where periods of pensionable service are rounded for the purpose of calculating benefit at NPA, they should be rounded in the same way in calculating SSB. In other cases, both the periods involved in the calculation (but not one of them only) may also be rounded to the nearest, next highest or next lowest whole month. . . . . "

62. Lastly, a worked example in the following form appears at paragraph 134:

134. [ SI 1991/167, reg 16(2)> In a scheme with higher accrual rates either after a specified minimum period of service or after attainment of special age, the early leaver's entitlement must be calculated on the basis of uniform accrual. A fraction (actual pensionable service divided by potential pensionable service to NPA) should be applied to the total benefits the member would have earned if he/she had stayed on to NPA. Pensionable earnings in the period prior to leaving pensionable service should be used for this calculation (see paragraph 130), and this level of earnings must be assumed to remain constant over the period up to NPA. Scheme administrators wishing to adopt a different basis for establishing pensionable earnings should submit details to the OPB.

Example

A scheme with an NPA of 60 provides:

a. for each of the first 20 years of membership 1/80^th of final pensionable earnings and

b. for each subsequent year of pensionable service 1/60^th of final pensionable earnings.

A member joins at 35 having 25 years prospective pensionable service. If he/she left pensionable service after 15 years and final pensionable earnings were £10,000 he/she would be entitled to a preserved pension of:

15 X (20 + 5) X £10,000 = £2,000"

25 (80 60)

Miss Campbell also provided me with two worked example which mirrored the circumstances of this case.

63. She also submits that the reference in paragraph 134 to a fraction of total benefits is wrong and is not borne out by the legislation itself. She also points out that the paragraphs themselves and the example are not directed to what she calls truncated accrual of the kind which applies to pre '89 Joiners. As I have already mentioned she says that if there is a higher and a lower rate of accrual, uniform accrual only applies to the benefit accrued at the higher rate. In this regard, she provided an example and submitted that rather than the approach of stripping out the first five years of accrual at 1/60ths advocated by Mr Moeran on behalf of Konica, in fact, it would be necessary to strip out all accrual at the standard rate throughout the period of accrual and that uniform accrual could only apply to the rest.
64. In this regard, she took me to the decision in Shucksmith v OPB [1989] PLR 63. It is contrary to this approach and Miss Campbell says it is wrong or at least, that I should distinguish it on the basis that it deals with different factual circumstances. It was an appeal from a decision on review by the Occupational Pension Board (the OPB) under the Social Security Act 1973 (the 1973 Act). The appeal was brought by a trustee and actuary of the scheme in question. The trustee claimed to be a person aggrieved by the decision of the OPB that the provisions of the scheme relating to the benefits payable to persons leaving pensionable employment before reaching normal retirement age did comply with section 63 and Schedule 16 of the 1973 Act. As I have already mentioned, these provisions are the forerunners of those contained in the 1993 Act and in particular, section 74.
65. Sir Nicholas Browne Wilkinson VC was therefore faced with the rather unusual position of a trustee contending that his own scheme conflicted with the preservation requirements in circumstances in which the OPB had determined otherwise. The relevant parts of the judgment are as follows:

2. Rule 11(1)(a) provides that the pension at normal retirement age shall be for an amount equal to the lesser of (a) the pension that can be provided by contributions paid on his behalf up to his normal pension age, such pension to be determined by the Trustees on the advice of the actuary, and (b) a pension calculated in accordance with a table, interpolating where appropriate. There then follows a table setting out the amount of pension payable, dependant on the length of service. Down to ten years the amount of pension expressed as a fraction of salary is less than 40/60ths, after ten years or more service the pension amounts to 40/60ths of the final pension salary. Accordingly, that rule provides for a pension ascertainable as being the lesser of the two sums; (1) the amount of pension that can be purchased with contributions, (2) a pension of defined amount equal after ten years to 40/60ths of pensionable salary.

. . . . . . .

4. . . . As I understand the Act, the function of the Board is, first to see what are the long service benefits which a member enjoys and to which he is entitled under the rules of the scheme in question. The Board then has to discover whether the benefits secured by the rules, in the event of premature leaving of the employment, comply with the requirements of Schedule 16. . . . .The question in each case is to discover, according to the ordinary rule of construction, what rights are the rights of the members of the scheme to long service benefits, and then see if those benefits are properly reflected in the short service benefits provided by the scheme, so as to secure the rights given to members under paragraphs 10 to 12 of the 16^th Schedule. As it seems to me, the basic principle is set out in paragraph 8 of the 16th Schedule, which provides that "the Scheme must not contain any rule which results or can result in a member being treated less favourably for any purpose relating to short service benefit than he is or is entitled to be treated for the corresponding purpose relating to long service benefit."

. . . . . . . .

6. . . . . . the next matter the Board had to turn to was to consider the impact of the 16^th Schedule in determining whether the short service benefits procured by the scheme did or did not comply with the provisions of that schedule. Under paragraph 10 the approach is that the scheme must provide for short service benefit, computed on the same basis as long service benefit. However, paragraph 10(3) provides that "this paragraph does not apply to so much of any benefit as (a) accrues at a higher rate, or otherwise more favourably, in the case of members with a period of pensionable service of some specified minimum length" – and I need not read any more.

7. The view taken by the Board was that the pension dealt with under rule 11(1)(a), that is to say the money purchase pension fell to be computed under rule 11(1)(b), being a pension providing for unequal pension rights dependent on the period during which the member had been employed, was excluded from the formula set out in paragraph 10 and fell to be computed under paragraph 11. Under paragraph 11 the requirement is that the short service benefit requires one to compute the entitlement of a member on the basis of uniform accrual. That is to say, that he has earned a proportion of his pension corresponding directly to the number of years he has been actually employed, as compared with those down to his estimated date of normal retirement.

8. Mr Shucksmith submits the approach by the Board was wrong. He says that the phrase "This paragraph does not apply to so much of any benefit as" – and there follow certain requirements – cannot be applied to a case such as this where there is a single benefit being ascertained according to a formula, in the light of facts known at a future time. He says that the words "so much of any benefit" can only apply to a case where there is a separate benefit, a whole or freestanding entity, separate from another one, and in that context he relies on paragraph 2 of the Schedule which will be payable under a scheme in accordance with legal obligations. I am unable to accept that proposition either.

9. It seems to me, though the wording is not entirely happy, that what is sought to be done by paragraph 10(3) is to look at the sum of the pension benefits and to see if the whole or any part of those benefits are to be taken as accruing by reference to an unequal formula which does not attribute a share in the pension on the basis of year by year accrual. So much of the benefit as has to be computed according to the scheme on the basis of unequal accrual is taken out of paragraph 10 and has to be dealt with on the base of uniform accrual under paragraph 11."

66. Miss Campbell submits that the Vice Chancellor was wrong and that the exception to s74(1) as it now is, applies only where the accrual rate changes after a certain period of service. As I have mentioned, if not, she at least urges me to distinguish the decision on the basis that the context was entirely different.

Pre '87 Joiners

67. With regard to Pre '87 Joiners, Rule 4(a)(1) of the KPL 1982 Deed and Rules applies. It is set out at paragraph 14. It is replicated in respect of Category B members at Rule 9 of the 2006 Deed and Rules which is set out at paragraph 23 above. Miss Campbell also characterises the accrual of that benefit as truncated in the sense that she says that the accrual is at the same annual rate until it stops altogether. Mr Moeran on behalf of Konica on the other hand describes it as an accelerating accrual formula which ceases at the ten year mark.
68. Miss Campbell says that the second sentence in the rule and the table at the end of the rule relate to those with less than ten years' service when they retire and accordingly, could only apply to those who joined the scheme aged 55 or over. In fact, everyone with whom she is concerned joined before that age and therefore, she says that the table is irrelevant. Accordingly, she says that if one focuses on the first sentence of Rule 4(a)(1) in order for SSB to accord with the calculation of LSB, having completed ten years service before leaving, the member must receive the full 2/3rds pension.
69. In this regard, she also says that there is no acceleration of accrual involved and therefore, section 74(3) PSA cannot apply. In addition, she says that even if it did, it could only apply to that part of the benefit which accrued at a higher rate and not the whole.
70. She says that the form of Rule 9 of the 2006 Deed and Rules is very similar and the points she has made apply to it in just the same way. There is no scope for the application of s74(3) because there is no "higher rate" or more favourable basis of accrual after the member has been in service for a minimum period.
71. Lastly, she dealt with Mr Moeran's alternative argument in relation to the application of section 74(4) PSA. Suffice it to say at this stage that she submitted that it would be most surprising were section 74(4) to apply. She says that the Scheme and the KPL Scheme were contracted out by reference to a reference scheme and therefore, it cannot be said that the benefit to which the members are entitled was not a product of pensionable service. In this regard, she also referred me back to IR12(2001) at paragraph 7.39 where reference is made to Continued Rights being based on length of service. She says that "related to" is very wide and accordingly section 74(4) has no application here.
72. In summary, therefore, in relation to the Issues, Miss Campbell submits that the answer to both questions (1) and (2) is "yes", but that if she is wrong about that for the purposes of (3) the underpin should be as wide as possible.

Mr Moeran's submissions on behalf of Konica

73. First Mr Moeran characterises the accrual rate for pre 1987 joiners pursuant to Rule 4(a)(1) as an accelerating accrual basis capped at 2/3rds of final salary after ten years of service. He points out that if such a member retired by reason of Incapacity, under Rule 4(b)(1) they would have been entitled to an immediate pension which was a proportion of the pension they would have received at NRD being the ratio of completed Future Service to his potential Future Service to NRD which he describes as an "averaged straight line accrual rate" and is uniform accrual.
74. He also points out that if such a member left Service with consent without taking an immediate pension, under Rule 4(b)(2) then at NRD he would have received the same pension he would have received had he retired as a result of Incapacity subject to reduction for early receipt. This too he says is uniform accrual.
75. He says that it is absurd to suggest that benefit does not accrue at a higher rate for those with service of specified minimum length and referred to the table in Rule 4(a)(1) of the 1982 Deed and Rules which provides for a higher rate of accrual after five years service. He says that Miss Campbell's argument is based upon a snapshot at the time of receipt of pension and that the answer cannot depend upon the end of the telescope from which the matter is viewed.
76. He reminded me that part of the relevant background when construing the rules of a pension scheme are the provisions of the scheme as a whole and the relevant Inland Revenue material and in that regard referred me to IR 12 (1979) at paragraph 6.18 which is mirrored very closely by Rule 4(a)(1). He also referred to paragraph 6.18A which provides:

"Late entrants who join the scheme on or after 17 March 1987 must not be provided with a pension of 2/3rds of final remuneration unless they complete at least 20 years service to normal retirement date. For shorter periods the maximum approvable is 1/30^th of final remuneration for each year of service. References to 'uplifted 60ths' include this scale in respect of the members affected. Paragraph 19 of Schedule 3 Finance (No2) Act 1987 gives effect to this new scale for schemes approved before 23 July 1987. For other schemes the appropriate restriction is a condition of approval. . . "

77. For pre 89 Joiners therefore, Mr Moeran says that as a result of the effects of the Finance Act (No 2) 1987, they accrue benefits on the same accelerating basis as pre 87 Joiners albeit that their benefits have to be capped off to avoid loss of Revenue approval. He says that this accords with the way in which the benefits were described in the November 1999 Handbook to the KPL Scheme to which I referred at paragraph 19. As I have already mentioned, it contained the following explanation:

"If you joined the Scheme after 17 March 1987

Your pension will be calculated in the same way as a member who joined before 17 March 1987 but may be subject to additional restrictions under Inland Revenue rules.

Your pension must not exceed 1/30^th of your Final Scheme Salary for each year . . . . that you have been in the scheme as a participating employee up to a maximum of 20 years service."

78. Mr Moeran says that this is also reflected in Rule 12.3 of the 2006 Deed and Rules. He says that the last paragraph of that rule imposes the cap required for the purposes of approval of the Scheme but does not reflect how the benefits were accrued. He describes it as a snapshot only which does not tell you how the member arrived in such a position. In fact, he says that accrual takes place in the following manner:

Years of Service to NRD	Pre-1987 Member	Pre – 1989 Member
1	1/60 or 0.0166	1/60 or 0.0166
2	2/60 or 0.033	2/60 or 0.033
3	3/60 or 0.05	3/60 or 0.05
4	4/60 or 0.066	4/60 or 0.066
5	5/60 or 0.0833	5/60 or 0.0833
6	8/60 or 0.133	8/60 or 0.133
7	16/60 or 0.266	7/30 or 0.233
8	24/60 or 0.4	8/30 or 0.266
9	32/60 or 0.533	9/30 or 0.3
10	2/3 or 0.66	10/30 or 0.333
15	2/3 or 0.66	15/30 or 0.5
20	2/3 or 0.66	20/30, i.e. 2/3

79. In this regard, Miss Campbell's response is that Mr Moeran's approach in relation to accrual appears to be different for pre 87 and pre 89 Joiners. In relation to pre 87 Joiners he seeks to suggest that the accrual is annualised subject to a maximum cap and in relation to pre 89 Joiners that it is a once and for all cap.
80. She also disputes his table showing annual accrual and his assertion that it is consistent with para 6.18 of IR 12(1979). Although she accepts that it contains the same 'uplifted 60ths' she draws attention to the fact that it refers to "years of service to normal retirement age". She says that this cannot be used to support the accelerating accrual rate argument. On the contrary, she says that the Revenue are making clear that if a member only has the capacity for a shorter period of service to NRD, his maximum approved benefits are also reduced. In fact, this is consistent she says, with Mr Moeran's argument in relation to pre 89 Joiners, namely that the cap is applied at the end. She says that both Rule 4(a)(1) of the 1982 Deed and Rules and Rule 9 of the 2006 Deed and Rules are consistent with this.
81. Mr Moeran also drew attention to the use of "benefit" in the singular in section 74 Pension Schemes Act 1993. Section 74(3) provides that sub-section (1) does not apply to "so much of any benefit . . . " (emphasis added). In this regard, the definition of LSB in section 70 which is itself in the singular, is stated to mean "the benefits which will be payable under the scheme . . .". Equally, SSB is described and defined in sub-sections 71(1) and (2) in the singular. In particular, the relevant parts of section 71(1) provide:

"A scheme must make such provision that where a member's pensionable service is terminated before normal pension age and –

…..

he is entitled to benefit consisting of or comprising benefit of any description which would be payable under the scheme as long service benefit . . . "

82. Mr Moeran submits therefore, that "benefit" in section 74(3) is all the benefit to which a member is entitled which in itself may comprise for example, pension, lump sum and death benefits. He says that as a result, section 74(3) should be construed as a reference to any component part of any benefit which accrues at a higher rate. Miss Campbell rejects this and says that it places too much of a burden on the use of the plural or the singular and in any event, reminded me of the effect of the Interpretation Act 1978 in this regard. She says that Mr Moeran's construction does not give the words their ordinary meaning and that the reference is to "any benefit" and that those are wide words.
83. To return to Mr Moeran submissions, he also sought to rely upon regulation 8 Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (SI 1991/167) in this regard but as Miss Campbell pointed out, it sheds relatively little light on the matter given that the legislation pre-dates the regulations. Nevertheless, I should record that regulation 8(1) states that the scheme may provide "benefits" in the plural which are different from those required to constitute short service benefit but must include a "benefit" in the singular payable to the member.
84. He says that this is consistent with the approach taken by the OPB, that of Earl of Gowrie and that of the Vice Chancellor in Shucksmith v OPB (supra). With regard to Memorandum 78 he says that it is particularly persuasive because pursuant to s63(7) Social Security Act 1973, the OPB could determine whether the provisions of a scheme were compliant with the Preservation Requirements and if not were empowered to order the trustees and managers to exercise their powers to modify the scheme's provisions to achieve conformity.
85. He draws attention to the fact that Memorandum 78 is phrased in relation to a scheme as a whole rather than the benefits of individual members who may have joined at particular times or at particular ages and he says that this ties in with s74(1). He also says that the reference to "total benefits" in paragraph 134 of the Memorandum is consistent with the proper construction of section 74(3).
86. With regard to Shucksmith v OPB (supra) Mr Moeran points out first that the OPB had found that uniform accrual applied to the kind of provisions with which this case is concerned, at least as to pre 87 Joiners. Miss Campbell contends that this is pure speculation. He also submitted that the Vice Chancellor's approach to the benefit/benefits issue was entirely correct.
87. With regard to the extract from Hansard containing the Earl of Gowrie's explanation of the amendment to the Social Security Bill, Mr Moeran's primary position is that there is no ambiguity in section 74(3) which render the extract admissible under the Rules in Pepper v Hart. However, if that is not the case, he says that the statement is clearly in Konica's favour. The amendment as described was seeking to divide between benefits and prevent one component from contaminating another. It was not seeking to carve down parts of that separate component into separate fractions.
88. Accordingly, Mr Moeran says that the reference to "so much of any benefit" in section 74(3) should be construed to refer to any particular component of the whole benefit rather than a part of it as Miss Campbell suggests. He also emphasises that the test should be applied scheme wide in the light of all relevant rules and if it were not, the preservation regime would be unworkable. If Miss Campbell were correct, he says that either the actuary or formerly the OPB would have had to consider every permutation of age, length of service and date of leaving on an individual basis which would be completely impractical.
89. If he is wrong about all of this, in the further alternative, he seeks to rely upon the exception to s74(1) found in s74(4) on the basis that the benefit is "at an amount or at a rate unrelated to pensionable service." He emphasised that this was far from his primary submission. He says that if the rules are to be construed as being awarded if one remains in service until NRD, they are not related to pensionable service and the exception applies.
90. In this regard, he says that the reference scheme test to which Miss Campbell referred is of no assistance to her and takes the matter no further forwards. For the purposes of contracted out continuing rights it is necessary to provide benefits by reference to the reference scheme or better than that. He says these were better and the reference test sheds no light on the issues in this case.
91. Lastly, when construing "accrues" in section 74(3), a term which is not defined, he urges me to look to the substance of how the benefits were provided rather than the form.
92. It follows that his answers Issue 1 and to Issue 2 should it arise are inevitably "no" and his answer to Issue 3 is that any underpin should be as limited as possible.

Preliminary Issue 1: Would the removal by means of an order for rectification of a 'Basis (a) underpin' (the method of calculation set out in Rule 12.3(a) of the 2006 Deed and Rules for a Category B Member) cause the Scheme method for the calculation of pension benefits for or in respect of early leavers to contravene the requirements of section 74 of the Pension Schemes Act 1993?

93. As Sir Nicholas Browne Wilkinson VC pointed out in Shucksmith v OPB, the first task in this matter is to apply the ordinary rules of construction in order to determine what the rights of the members are to long service benefit and the way in which it is computed. This is obviously necessary in order to be in a position to determine whether the rules are compliant with the Preservation Regulations by means of the general rule contained in section 74(1) Pension Schemes Act 1993 or whether the exceptions contained in section 74(3) and/or (4) apply.
94. When determining whether the Preservation Requirements are satisfied, in my judgment it is clear that one is directed to consider the rules of a scheme as a whole and not as Miss Campbell submitted, to consider compliance on a member by member basis. I can find no support for such an approach whether in the legislation itself or in the OPB Memorandum 78 which I find of particular assistance, despite the fact that it has lapsed and never had statutory force and that the OPB was itself, abolished as from 6 April 1997.
95. Memorandum 78 was produced by the body, namely the OPB which as Warren J pointed out at paragraph [36] of his judgment in the case, was able by virtue of section 63(7) Social Security Act 1973 to determine whether schemes were preservation compliant and if not, was empowered to order that trustees and managers exercise what powers they had in order to modify the rules to render them so.
96. In my judgment therefore, it is necessary to construe the rules as they might apply in any circumstance and in particular to any member who might join at any age rather than merely in relation to a specific member such as Mr Hughes, or solely with an eye to those who joined over or under a particular age.
97. I should add that I was not referred to any particular authorities in relation to the construction of pension schemes but it is well established and I regard it as uncontentious that although there are no special rules which apply, the Court should endeavour to adopt a purposive approach, should construe the provisions of a scheme as a whole and may take into account the legislative and in particular, the fiscal background to the scheme.
98. In this case, I was referred to both the taxation legislation and the Inland Revenue guidance which quite clearly formed the backcloth and rationale for the tables which appeared both in Rule 4(a)(1) of the 1982 Deed and Rules and was all but replicated in Rule 9.1 of the 2006 Deed and Rules and for the additional paragraph in Rule 9.1 which relates to pre'89 Joiners. The existence of the provisions with which this matter is concerned are clearly a product of the fiscal background and in particular, the need to avoid the provision of benefits which would have prejudiced exempt approval for the relevant scheme.

Pre'87 Joiners

99. As I have already mentioned, it is necessary to consider whether a scheme as a whole is Preservation Requirement compliant and to construe the rules of a scheme as a whole and not in isolation. With that approach in mind, in my judgment, Miss Campbell's approach to the construction of the rules both of the KPL Scheme and the Scheme by which she seeks to focus solely on the first paragraph or rule 9 of the 2006 Rules and the first sentence of rule 4(a)(1) of the 1982 Deed and Rules which state the pension payable to a member with ten years Pensionable Service who retires at NRD, is artificial. In my judgment, both with regard to rule 4(a)(1) of the 1982 Deed and Rules and rule 9.1 of the 2006 Deed and Rules, it is necessary to construe the provisions in relation to pre '87 Joiners as a whole and not as if in each case, the table were not present.
100. When construed as a whole, in my judgment the provisions in relation to the pension payable at NRD to a pre '87 Joiner are determined in accordance with the table, the last line of which, in the Rule 9.1 2006 form includes the pension of 2/3rds of Final Pensionable Salary in respect of the Member who has completed 10 years Pensionable Service or more. Although the table in rule 4(a)(1) stops at 9 years service, if one construes it as a whole, its meaning is no different from Rule 9.1, nor was it suggested otherwise.
101. Given the existence of the table which culminates in a 2/3rds pension for those who have completed 10 years Pensionable Service, it seems to me that there is indeed an acceleration of accrual over the period until ten years Pensionable Service has been served and as Mr Moeran says, it stops at that stage. Miss Campbell's approach seeks merely to take a snapshot as Mr Moeran put it, once the ten years have been served.
102. In order to bolster such an approach, Miss Campbell relied upon the heading to the first column in the table which is "Years of Service to Normal Retirement Date". However, in my judgment, if one reads the rule purposively and as a whole, whether that be rule 4(a)(1) or rule 9.1, it is clear that the benefit is intended to accrue year on year of Pensionable Service and does so unevenly. This is consistent with provisions consistent with uniform accrual having been included in rules 4(b) and 13 of the 1982 Deed and Rules, respectively retirement before NRD and withdrawal from service.
103. Such a conclusion is consistent with the determination of the OPB in Shucksmith v OPB against which Mr Shucksmith sought to appeal. Although Miss Campbell submitted that one should not speculate about the actual provisions in the rules which had been under consideration, in my judgment there can be little doubt that the table contained in Rule 11(a)(b) in that case, was of the same nature as that to be found in Rules 4(a)(1) and 9.1 in this case. It is described by Sir Nicholas Browne-Wilkinson VC at paragraph 2 of his judgment as:

"(b) a pension calculated in accordance with a table, interpolating where appropriate. There then follows a table setting out the amount of pension payable, dependant on the length of service. Down to ten years the amount of pension expressed as a fraction of salary is less than 40/60ths, after ten years or more service the pension amounts to 40/60ths of the final pension salary."

104. It is clear from paragraph 8 of his judgment that the OPB had found the tables created "unequal pension rights depending on the period during which the member had been employed" and as a result the dispute arose over whether the exception to the general rule, which was contained in Schedule 16 Social Security Act 1973 and is now in section 74(3) Pension Schemes Act 1993 applied.
105. The next question which arises is whether either of the exceptions to the general rule that SSB must be computed in the same way as LSB applies in this case.
106. Dealing with section 74(3) and (4) in reverse order, I should say that with regard to section 74(4), I prefer the submissions of Miss Campbell. I can see no basis upon which it can be suggested that so much of any benefit arising as a result of Rule 4(1)(a) or Rule 9.1 "is of an amount or at a rate unrelated to length of pensionable service . . .". As Miss Campbell points out "unrelated" is a very wide term and it follows from what I have already decided that in my judgment, the benefit is clearly related to pensionable service. I also accept Miss Campbell's submissions as to contracted out rights.
107. What about section 74(3)? First, it also follows from what I have already decided that I have rejected Miss Campbell's submission that as all of the Category B members in question had the potential for more than ten years Pensionable Service to NRD when they joined, they were entitled to a full 2/3rds pension at NRD which accrued on a straight line basis and was therefore, outside the ambit of section 74(3).
108. As I have decided that the accrual rate was accelerated it follows that the application of the general rule in section 74(1) in the case of an early leaver would not necessarily produce an equitable result. In such circumstances, the purpose of the exceptions to the general rule, contained in section 74(3) is to protect the member from the prejudice he would otherwise suffer. This is clear from the explanation of the predecessor provisions set out at paragraphs 125 and 126 of OPB Memorandum 78.
109. In my judgment, Miss Campbell's assertion that to do so in the case of a member such as Mr Hughes would be to have the opposite result from that which was intended by the legislation is to look at the matter only from a narrow perspective. The consequence of such an approach would lead to a situation in which an early leaver with less than ten years Pensionable Service would be unable to rely upon the principle of uniform accrual and would receive a lesser benefit by virtue of the application of section 74(1). This is the very danger which the legislation seeks to avoid.
110. The next question both in relation to Pre'87 Joiners and Pre'89 Joiners is concerned with the construction and application of the phrase "so much of any benefit as accrues at a higher rate" which appears in section 74(3) Pension Schemes Act 1993. To what extent does section 74(3) apply? In this regard, Mr Moeran says that in a case such as this "any benefit" refers to the whole of the pension some of which accrues at a higher rate whereas Miss Campbell says that uniform accrual would only apply to that higher rate part and that all that part of the benefit which accrued at the standard rate would need to be stripped out.
111. In my judgment, not only would Miss Campbell's approach be unworkable and novel, it is also contrary to the approach which was adopted by the OPB and which was approved in Shucksmith v OPB.
112. The approach adopted in the example set out at paragraph 134 of Memorandum 78 does not reveal the "stripping out" exercise which Miss Campbell advocates. She says that the reference in paragraph 134 of the Memorandum to "total benefits" and therefore, the example is incorrect. As a result, she also is forced to say that the decision of the Vice Chancellor in Shucksmith v OPB is also wrong or should be distinguished. Although the benefit under consideration in that case had a money purchase element, in my judgment, the conclusions reached at paragraph 10 of the judgment are correct. When applying uniform accrual to "so much of any benefit" by virtue of section 74(3) one is being directed not merely to what one might call the top slice, the benefit which actually accrued at the higher rate, but that element of a benefit package which is the subject of the higher rate. This is consistent with the example in Memorandum 78, with the approach in Shucksmith and with the way in which "benefit" is described in section 70(1) Pension Schemes Act 1993. It provides as follows:

(1). . .. . . .

"long service benefit" in relation to a scheme, means the benefits which will be payable under the scheme, in accordance with legal obligation, to or in respect of a member of the scheme on the assumption –

(a) that he remains in relevant employment, and

(b) that he continues to render service which qualifies him for benefits

until he attains normal pension age; and in this definition "benefits' means

(i) retirement benefit for the member himself at normal pension age, or

(ii) benefit for the member's wife or husband, widow or widower, or dependants, or others, on his attaining that age or his later death, or

(iii) both such descriptions of benefit."

113. Accordingly, I accept Mr Moeran's submissions in this regard. In my judgment, in section 74(3) the "benefit" referred to is the composite of the various benefits which make up LSB and if the exception applies it does with regard to the entirety of such a component.
114. I consider the provision to be clear and unambiguous in this regard and accordingly, I consider the reference to the Social Security Bill and the extract from Hansard to which I was referred to be inadmissible. Even if I had taken it into consideration, it seems to me overall, to favour the approach advocated by Konica, although I do not find the extract from the Earl of Gowrie's speech to be particularly clear.

Pre '89 Joiners

115. What is the position in relation to Pre'89 Joiners? It is not disputed that the additional paragraph contained in Rule 9.1 of the 2006 Deed and Rules was rendered necessary as a result of the Schedule 3 paragraph 19 Finance Act (No2) 1987 which operated as a cap on benefits. However on first reading, it appears to make reference to accrual on the basis of 1/30^th for twenty years.
116. It did not appear by way of amendment to Rule 4(a)(1) of the 1982 Deed and Rules but did make its way into the explanation of the benefits contained in the 1982 Scheme Handbook. In that explanation express reference is made to pensions for Pre '89 Joiners being calculated in "the same way" as for Pre'87 Joiners but that they would be subject to additional restrictions under the Inland Revenue rules. However, in accordance with the case law, I give little or no weight to the content of a mere scheme booklet.
117. In any event, in my judgment, the additional paragraph in the 2006 version should be construed in the light of the fiscal background which imposed a cap on benefits. This is consistent with the approach adopted in the earlier Handbook and the fact that Category B members are not dealt with separately under the early leaving provisions in Rule 12.3 of the 2006 Deed. Had it been intended that they accrue their benefits in a different way, it seems to me that not only would the 1999 Handbook have been drafted in a different way but that there would have been an express amendment to the 1982 Deed and Rules and that that would have been reflected in a more sophisticated early leaving provision in Rule 12.
118. In this regard, I accept Mr Moeran's submission that the last paragraph of Rule 9.1 of the 2006 Deed and Rules should be construed in the light of its fiscal origins as a cap and that it, just like the first paragraph is a snapshot. As a result, I accept that the accrual of benefits for the purposes of LSB in relation to Pre '89 Joiners will be accelerating just as it is for Pre '87 Joiners and that accordingly, the same issues come into play. In just the same way, therefore, in my judgment, section 74(3) Pension Schemes Act 1993 applies to the Pre'89 Joiners and as a result of section 73(6), uniform accrual applies to their SSB.

Preliminary Issue 2: If the answer to (1) is yes, is it necessary to retain the full Basis (a) underpin in relation to all members in order to secure compliance with section 74?

119. It follows from my answer to Issue 1 that this issue does not arise. Had I decided otherwise, it also follows from my analysis that I would have decided that the full Basis (a) underpin in relation to all members would have been necessary in order to secure compliance with section 74.

Preliminary Issue 3: If the answer to (2) is no: (a) What form of underpin is necessary in order to secure compliance with section 74, and (b) In respect of which members should that underpin apply?

120. Once again this issue does not arise. It also follows from my conclusions that even if I had decided Issue 1 in the opposite way, I would not have decided that a limited underpin rather than a full underpin was necessary.

Preliminary Issue 4: Does the Court have power to make an order for rectification on terms that a more limited underpin of the type contemplated in question 2(3) is introduced into the Scheme?

121. This issue arises in anticipation of an argument at the main rectification hearing to the effect that were rectification granted by the removal of Rule 12.3(a) from the 2006 Deed and Rules the effect would be to render those Rules non compliant with the Preservation Regulations and that therefore, rectification as sought should not be granted.
122. There was no dispute between the parties before me, in relation to this issue. Miss Campbell for Mr Hughes was happy to concede that there were no arguments to put forward in opposition to Mr Moeran's proposition that in the light of the fact that rectification is an equitable remedy, it can be granted on terms.
123. In this regard, Mr Moeran referred me to passages in Hodge on Rectification (2010) at paragraph 1-41 and in particular at paragraph 1-52 and the cases cited in the latter passage. At paragraph 1-41 under the heading, "Rectification is a discretionary, equitable remedy" it is stated that rectification may be awarded on terms. At paragraph 1-52 reference is made to two cases in which rectification was granted on terms being Central & Metropolitan Estates Ltd v Compusave [1983] 1 EGLR 60 in which a lease was rectified on terms which enabled the tenant to bring the lease to an end and Sargeant v Reece [2007] EWHC 2663 (Ch). In that case, Edward Bartley Jones QC sitting as a Deputy High Court Judge in the Chancery Division held at [86]:

"It seems to me that as rectification is a discretionary remedy I could make its grant conditional upon the imposition of terms."

and did so in order to ensure that the estate of the party against whom rectification was ordered was not prejudiced against what he might reasonably have expected to have occurred if the common intention found by the court had been carried into effect at the time of the parties' execution of the relevant document.

Preliminary Issue 6: Is the method for calculation of pension benefits for or in respect of early leavers in the previous rules, i.e. the 1982 Deed and Rules (in particular, Rule 13(4) and Rule 4(b)(1) of those Rules) in contravention of the requirements of section 74?

124. It follows from my answer to Issue 1 that the answer to this issue in my judgment, neither Rule 13(4) nor Rule 4(b)(1) contravened section 74.

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