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Patent stakeholders beware shifting terminal disclaimer practice
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Corrective member benefits received following underpayments were subject to six-year limitation period under forfeiture rule: CMG Pension Trustees Ltd v CGI IT UK Ltd
United Kingdom | Publication | September 2022
This High Court judgment, which goes into some lengthy and technical discussion on the relevant issues, highlights the importance of the precise wording of scheme rules. The decision meant that the employer was able to impose a limitation period on the payment of arrears relating to historical benefit underpayments.
The CMG scheme had experienced problems following historical mistakes made in the execution of rule amendments relating to the equalisation of normal retirement date for all members and a reduction in the accrual rate.
The scheme rules included the following provision:
“5.11 Benefit forfeiture
…..if a benefit or instalment of benefits is not claimed by or on behalf of the person entitled to the benefit or instalment in accordance with these Rules within 6 years of its date of payment it shall be retained by the Trustees for the purposes of the Scheme.”
Members had been paid lump sums in compensation for underpayments but the employer claimed that the above rule closed off this avenue after six years. The Trustee argued that the rule was merely intended to free up orphaned benefits and identifying missing beneficiaries. The Trustee’s claim was that identifiable members’ benefits were not extinguished, and shortfalls of historic benefits should still be paid.
Despite not actually using the word “forfeiture” or “forfeit”, and following examples in the Lloyds cases on GMP equalisation, the Court held that the words "shall be retained by the trustee for the purposes of the scheme" in rule 5.11 had the effect of forfeiture. The judgment discusses at some length the extent to which previous iterations of rules, headings and previous authorities can be considered when considering scheme rules.
The court also decided that where trustees seek to recover overpaid benefits by reducing members’ future benefit payments, a county court order is required and a direction from the Pensions Ombudsman will not suffice.
This case highlights that forfeiture rules need careful interpretation in deciding whether benefit arrears are subject to time limits applying to the look-back period. The Trustee in the CMG case had no discretion as to whether to apply forfeiture once it was established that the rule applied to the situation at hand.
The Lloyds judgment discounted any possibility of a statutory limitation applying to payment of arrears of GMP equalisation benefits but after this judgment it is possible that certain scheme rules may mean limitation applies, depending on the particular way the relevant provisions are expressed.
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