14 April 2011 – High Court hands down judgment in Prudential pensions dispute

Mr Justice Newey has handed down judgment in Prudential Staff Pensions Ltd v Prudential Assurance Co Ltd, which concerns the validity of Prudential Assurance Co Ltd's ("Prudential Assurance's") decision to change its long-standing policy on granting inflation-linked pension increases in its staff pension scheme.

The claim was brought by the trustees of the pension scheme, Prudential Staff Pensions Ltd, who asked for directions from the court. In November 2005, Prudential Assurance had decided that in future increases to pensions in payment to members would be in line with the Retail Prices Index ('RPI') subject to a normal maximum of 2.5% per annum. In subsequent years the increases made failed to keep up with the RPI. This was contrary to what was said to be general understanding amongst members of the scheme that the pension increases would fully compensate for inflation.

The issues in the case were (1) whether the 2005 decision by Prudential Assurance breached an implied obligation of good faith towards the members, (2) whether Prudential Assurance was estopped from denying that members were entitled to have pensions increased in line with RPI, (3) whether as regards certain members the trustee had the power to grant pensions which carried an automatic right to annual increases and (4) whether decisions in respect of pensions granted to the members mentioned in (3), which did not carry an automatic right to annual increases, were valid.

Mr Justice Newey decided on the various issues that (1) Prudential Assurance's decision did not breach the obligation of good faith, the crucial reason being that the relevant rule of the scheme conferred on Prudential Assurance a discretion which was not subject to any express restrictions, (2) the estoppel argument failed, (3) the trustees had the power but only in relation to transfers in and (4) the decisions were valid.

Andrew Simmonds QC and Joseph Goldsmith acted for the Claimant trustee.

A copy of the judgment can be found at the link below.

Judgment >>