Barclays v Holmes 2

Reference: (2001) OPLR 37

Barclays had a final salary scheme but in 1996, it decided it would provide benefits to new employees on a money purchase basis. Staff were notified of the intention to set up a money purchase section in the existing scheme and that under it employer contributions would be 5.5 per cent of pensionable pay. A deed of amendment was executed in 1997 which closed the final salary section and set up the new money purchase section. There was a substantial surplus in the scheme and in January 1998, the Bank ceased to make contributions and employer contributions to both sections were paid from the surplus. The scheme rules provided that no amendment could be made allowing a refund to employers.

The Ombudsman held that the use of surplus to fund contributions to the money purchase scheme was maladministration and he also thought that the money purchase scheme was not actually part of the final salary 1964 scheme.

The Court held there was no reason why an employer could not set up a single trust fund scheme under which some of the members received final salary benefits and some money purchase. However, the judge did find some strength in counsel's argument that where a money purchase arrangement was set up along side an existing final salary arrangement, there was a presumption that they were two separate schemes, although such a presumption was easily rebuttable (presumably by contrary wording in the scheme documentation). In addition, the judge thought his decision was reinforced by issues of "commercial common sense and policy".

Kemble v Hicks was found to be different on the basis that the announcement to members, which was incorporated into the interim deed, had referred to separate schemes and referred to "payment" of contributions whereas the Barclays scheme talked about contributions being "credited" to members' accounts.

The case restated that using surplus to fund a contribution holiday does not equate to refunding it to the employer. It also contained guidance as to the extent to which the Inland Revenue Practice Notes, IR 12 can be used to interpret scheme documentation. Finally, some consideration was given to s67 of the Pensions Act 1995 and it was decided that no s67 issue arose in this case as members did not have any "entitlement" to participate in the surplus.