High Court split payments ruling could increase funding demands

Wragge & Co head of pensions disputes Peter Shave said the decision in Foster Wheeler Limited v Andrew Hanley and

Others was "yet more unwelcome news coming out of the Barber decision".

The Barber window, which gives schemes the opportunity to equalise benefits, exists because of two cases - Barber in 1990 and Coloroll four years later - which held that to comply with legislation benefits could be equalised by reducing those of advantaged employees.

Foster Wheeler held that Barber window benefits should be given effect by payment of a single pension at normal retirement date 60 with deemed consent, and a reduction for early retirement dependant on scheme specific wording - rather than a split pension with NRD 60 benefits at 60 and NRD 65 benefits at 65.

Shave told PP: "On split pensions, the case will be an unwelcome surprise to some and a disappointment to many who may have been hoping the split pension route offered some mitigation in cost terms particularly in cases where equalisation was effected later than was intended.

"For schemes in the former category, the idea that Barber window benefits have to be given effect to by the payment of a single pension and reductions dependent on scheme specific wording means they will need to review the judgment and test past practice against what the case says is now required."

Shave said Foster Wheeler itself added £30m to the ongoing deficit of the scheme.

"For schemes with second scheme specific funding cycles beginning next year, it will be a particularly bad time to be recognizing a significant liability. Even where a valuation is some way off, the extra liabilities may see those valuations brought forward."