Irish Pensions Trust Ltd v Central Remedial Clinic

JurisdictionIreland
JudgeMr. Justice Kelly
Judgment Date18 March 2005
Neutral Citation[2005] IEHC 87
CourtHigh Court
Docket Number[2004 No. 200 SP]
Date18 March 2005

[2005] IEHC 87

THE HIGH COURT

No: 200 SP/2004
Irish Pensions Trust Ltd v Central Remedial Clinic & Ors.
COMMERCIAL
IN THE MATTER OF CENTRAL REMEDIAL CLINIC PENSION AND DEATH BENEFITS PLAN

BETWEEN

IRISH PENSIONS TRUST LIMITED
PLAINTIFF

and

CENTRAL REMEDIAL CLINIC, RICHARD TIERNEY AND MERCER HUMAN RESOURCE CONSULTING LIMITED
DEFENDANTS
Abstract:

Pensions - Rectification - Whether the escalation or increase of pension payments pursuant to the pension scheme at issue was subject to a consumer price index (CPI) cap - Whether the remedy of rectification was available in respect of pension schemes.

The plaintiff was the trustee of the Central Remedial Clinic Pension and Death Benefit Scheme (the scheme). The plaintiff submitted that the increase of pension payments to members was subject to a CPI cap. The plaintiff argued that insofar as the special rules adopted for the scheme in 1993 purported to permit an increase without the CPI Cap they ought to be rectified or alternatively set aside so that the scheme could continue to operate with such a cap.

Held by Kelly J. in favour of the plaintiff: That the evidence established that there was a continuing common intention between the plaintiff and the first named defendant that the escalation of pension payments would be subject to a CPI cap. The common intention of the parties was not displaced by the adoption of the special rules. Accordingly, the plaintiff was entitled to rectification of the special rules.

Reporter: L.O'S.

1

JUDGMENT of Mr. Justice Kelly delivered the 18th day of March, 2005

THE ISSUE
2

The plaintiff is the trustee of the Central Remedial Clinic Pension and Death Benefit Scheme (the scheme).

3

As is usual in such schemes provision is made for the escalation or increase of pension payments to the members. That much is not in dispute. Neither is there any dispute as to the fact that the headline rate of such increase is 5% per annum.

4

The matter that is in dispute is whether this escalation or increase is subject to what is called a "CPI Cap". Such a cap, if it operates, limits pension increases by reference to the Consumer Price Index.

5

If the cap does not apply it is as a result of the adoption of special rules for the scheme in July 1993. It is argued that insofar as they purport to permit of an increase without the CPI Cap they ought to be rectified or alternatively set aside so that the scheme may continue to operate with such a cap.

BACKGROUND
6

The plaintiff carries on business as trustee of occupational pensions schemes. One of the schemes for which it acts in that capacity is the scheme. The sponsoring employer of the scheme is the first defendant (CRC) which is a charitable body established in 1951. Prior to November, 1998, the plaintiff acted as the administrator, actuary, documentation draftsman and consultant to the scheme in addition to fulfilling its role as trustee. In November, 1998, all aspects of the plaintiff's business with the exception of trustee services were transferred to the third name defendant, (Mercer).

7

The above accounts for the joinder of all of the parties to this suit save the second named defendant (Mr. Tierney). He was joined as a representative defendant on behalf of pensioners of the CRC who are in receipt of pensions at present.

8

The reason for joining Mr. Tierney arises as follows. The plaintiff contends that the escalation rights of pensioners are and were always intended to be capped at the applicable rate of the CPI since a pensioner's retirement date. If the plaintiff is wrong in this contention then an escalation entitlement of 5% per annum compound would apply without any CPI Cap. This has serious ramifications for the solvency of the scheme and could ultimately lead to its winding up. The scheme would not have sufficient assets to meet the totality of its liabilities to its members in such circumstances. This is because escalation rights uncapped by reference to the CPI have not been funded for to date either by the employer's contributions or the contributions of active members.

9

Liabilities to current pensioners enjoy first priority on a winding up. If such were to occur, members of the scheme currently in receipt of pension payments, i.e. pensioners in payment, would be entitled to receive 100% of their benefits including escalation rights. Thus pensioners in payment have a clear interest in arguing that the CPI Cap should not apply because it would be more beneficial to their pension payments in the short term and they would receive 100% of their benefits in the event of a winding up. Pensioners in payment are the only persons in whose interests an argument for the absence of a CPI Cap could be made.

10

Escalation rights uncapped by reference to CPI would have to be funded by substantially increased contributions from both the first defendant and active members of the scheme. Their contributions would have to increase dramatically over a short period so as to ensure that such enhanced benefits could be paid. Given the amount of such increases it is more likely that the scheme would be wound up to their ultimate disadvantage. Thus Mr. Tierney was joined to argue in favour of an escalation clause which is not capped by reference to the CPI. He is being indemnified as to his legal costs by the plaintiff.

THE MAIN AFFIDAVIT
11

The principal grounding affidavit is sixty pages long and runs to 245 paragraphs. It was sworn by Mr. Tom Molloy, the managing director of the plaintiff. He commenced working with the plaintiff in 1971 and so has well in excess of thirty years business experience with it. It is quite clear that an enormous amount of research was done in order to ensure that all relevant information was placed before the Court on this application. It is not necessary for me to rehearse in detail all of the matter dealt with in the extensive evidence placed before the Court. I will content myself with a recital of what I perceive to be the relevant factual matters pertinent to the reliefs which are claimed.

THE PLAINTIFF
12

The plaintiff was formed in 1953 and is thus one of the longest established service providers in the Irish pensions market. Prior to November 1998, when the plaintiff's business with the exception of trustee services was transferred to Mercer, the plaintiff was providing a comprehensive pensions service. Typically an employer who wished to establish a pension scheme would approach the plaintiff who would then provide a range of services. They included advice in respect of the design of the scheme to be established, the drafting and settling of the scheme documents, preparation of material to communicate with the employees, arranging of insurances and investments necessary for the scheme and its administration by, inter alia, effecting pension payments on a continuing basis. If requested the plaintiff also acted as trustee of the scheme.

13

Since the transfer of the bulk of the plaintiff's business to Mercer it has carried on the business of acting as a trustee of pension schemes. At present it acts as trustee for approximately 550 self administered pension schemes.

OCCUPATIONAL PENSION SCHEMES
14

An occupational pension scheme is constituted as a trust. The beneficiaries of the trust are the present and future employees of the employer in respect of which the scheme is established who are eligible and who participate in it together with their dependants. The assets of the trust are contributed by both the employer and to a lesser extent the employee.

15

Retirement benefits under a scheme may be granted on a defined benefit basis or on a defined contribution basis.

16

In a defined benefit scheme the retirement benefit is based on a promise to pay a certain level of pension. The amount of such benefit is often based on the number of years a member has participated in the scheme multiplied by a fraction (usually one sixtieth) of the members final pensionable salary. Thus if a member has participated in a defined benefit scheme for thirty years his or her retirement benefit would be thirty sixtieths. The maximum retirement benefit which the Revenue Commissioners approve is forty sixtieths of final remuneration. The scheme which is the subject of these proceedings is a defined benefit scheme. It is therefore not necessary to deal in any detail with a defined contribution scheme save to say that such a scheme is not based on a promise to pay a certain level of pension but rather on the value of the member's retirement account. That is made up of the benefits accrued to the investment of the contributions made to that account by both the employer and the employee.

REVENUE IMPLICATIONS
17

In order for a pension scheme to attract tax advantages it has to obtain the approval of the Revenue Commissioners as an exempt approved scheme pursuant to the relevant tax legislation. Crucial to the success of a pension scheme is the availability of tax reliefs.

18

Employees are entitled to tax relief on contributions made subject to certain limits and the employers contributions are not assessed as income of the employee. Normally an employer's contributions are deductible for tax purposes as an expense in the year in which they are paid but this is not relevant to the scheme in suit because CRC is a charity.

19

The statutory regime for the approval of occupational pension schemes was formerly contained in Chapter II Part I of the Finance Act, 1972 and is now principally contained in Part 30 Chapter 1 of the Taxes Consolidation Act, 1997. Over the years the Revenue Commissioners established guidelines which indicated the conditions which must be met by an occupational pension scheme before it could be approved. These guidelines were originally contained in a revenue publication called ...

To continue reading

Request your trial
11 cases
  • John P Greene and Others v Danny Coady and Others
    • Ireland
    • High Court
    • 4 February 2014
    ...BANK PLC 1991 61 P & CR 518 MCGHEE & ORS SNELLS EQUITY 32ED 2010 PARA 7.019 IRISH PENSIONS TRUST LTD v CENTRAL REMEDIAL CLINIC & ORS 2006 2 IR 126 2005/31/6463 2005 IEHC 87 COURAGE GROUPS PENSION SCHEMES, IN RE; RYAN & ORS v IMPERIAL BREWING & LEISURE LTD & ORS 1987 1 WLR 495 1987 1 AER 528......
  • Leopardstown Club Ltd v Templeville Developments Ltd
    • Ireland
    • High Court
    • 29 January 2010
    ...required - Irish Life Assurance Co Ltd v Dublin Land Securities Ltd [1989] IR 253 and Irish Pensions Trust Ltd v Central Remedial Clinic [2005] IEHC 87 [2006] 2 IR 126 applied - Monaghan County Council v Vaughan [1948] IR 306, Nolan v Graves [1946] IR 376, United States of America v Motor T......
  • Smithson and Others v Hamilton
    • United Kingdom
    • Chancery Division
    • 10 December 2007
    ...have modified what he said on this issue. 122 The third case in which there have been obiter dicta of a similar nature is Irish Pensions Trust v Central Remedial Clinic [2006] 22 PBLR, a decision of Kelly J in the High Court of Ireland in March 2005. It is another case in which the judge he......
  • Smithson and Others v Hamilton
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 23 July 2008
    ... ... a discretion pursuant to the terms of the trust and the effect of the exercise was different from ... ...
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT