Posts by Mike

Mike Crowe

Mike Crowe

Mike is the Head of our Consulting team and actively involved across the business in providing legal input and support as part of his wider role.
Mike Crowe

I am sure that with the many aspects of Brexit that are occupying the minds of businesses around the country the impact on the company pension scheme might not be high up on the list for the sponsoring employer. Whilst I have every sympathy for this view it would be remiss of me not to suggest that companies don’t lose sight of this and to engage with their trustees for whom this is a very real issue.

Let me start with a question. If you asked your trustees what was the top risk on their scheme risk register what would they say? If it is not “Brexit” then ask them again until they get the right answer. (Yes, I gave you a hint there.) The current economic uncertainty caused by Brexit highlights the need for an effective integrated risk management framework for pension schemes. It is important that your trustees understand the risks that the scheme faces and that they are actively engaging with you. Effective contingency planning is key and that planning is needed now.

But, as the events of November 2018 have shown, no one knows what 29 March 2019 will bring or indeed who will be leading the discussions, so how can I plan? Will there be a deal? If there is a deal what will it look like – a hard Brexit, a soft Brexit or something in between? Maybe no Brexit at all? Will the date or the transition period be extended? All valid points, but, as I was always told, you hope for the best but prepare for the worst. So with that in mind what do you need to discuss with the trustees?

Employer Covenant

The impact that Brexit will have on the business of a sponsoring employer is critically important to the trustees. Conversations should be taking place so that trustees and their covenant advisers can understand the impact on the sponsoring employers business prospects given the uncertain economic climate and potential shifts in currency or other markets  which may impact on their support for schemes – either in terms of DB funding or contributions to DC pots. This is something that you will be very aware of for your business and open and honest dialogue with your trustees will allow them to effectively assess risk and plan.

Actuarial Assumptions

The impact of Brexit should be taken into account in setting assumptions for actuarial valuations and agreeing recovery plans. To enable the trustees to assess the impact on planned contributions to the scheme, they need to understand the impact of Brexit negotiation outcomes on the cashflows of the business.

The funding levels of DB schemes need to be reviewed as continuing low interest rates and quantitative easing means DB liabilities remain high. New market conditions will raise questions about whether the scheme’s valuation is still current. The funding level and the associated risk it poses to the employer needs to be considered and ways of mitigating this risk need to be discussed.

Buy out prices for DB schemes may be more attractive and trustees may be checking with the scheme’s advisers whether now is the time to remove some risk from the scheme.

For a sponsoring employer this is all relevant and relevant now. Being an active part of the process is crucial not just for the scheme but for your business too.


Trustees will need to consider whether the scheme’s investment strategy is still appropriate for current market conditions and take advice from their investment advisers. For a DC scheme, they will need to check to see if the default fund is suitably diversified so as to protect members from any shock to the UK or European economy. A check should be carried out to see whether there has been an impact on the value of collateral that the scheme posts or receives under derivative contracts. The scheme might need to post extra margin, or ask their counterparties to do so.

It will be some time before there is clarity on how Brexit affects schemes’ investments, contingent assets and investment yields in other countries – both EU and non EU. Trustees need to keep this under review.

Trustees will also need to check that their fund managers have a Brexit plan. They should.

Scheme members may well be worried about security of their pensions in the run up to 29 March 2019 and beyond.  It is imperative that you and the trustees prepare for whatever 29 March 2019 brings. As far as you can, protect the scheme and the members from the impact of Brexit. Communication will be key both with your trustees and your employees to manage the uncertainty that Brexit

Mike Crowe

Whilst we have seen a number of cases coming through the Courts that have had a pensions element to them I wanted to concentrate on one that I had looked at before. This is the Court of Appeal decision in British Airways plc v Airways Pension Scheme Trustee Ltd [2018] EWCA Civ 1533 (5 July 2018). Back in 2017, I wrote a blog for our sister company Dalriada Trustees’ website, and I looked at the original decision which the Court decided in favour of the Trustee ( The facts of the case and the learning points for trustees are set out in this blog.

The issues (and the costs) involved always meant that this case was going to be appealed and earlier this month we had the outcome. As is sometimes the case when two heavyweights step into the legal ring there was a split decision with the majority of Judges eventually finding in favour of British Airways and the original decision was reversed. What this meant was that the Court of Appeal found that the decision of the Trustee of the Airways Pension Scheme to exercise its unilateral power of amendment to introduce a new trustee power to provide discretionary pension increases was invalid. In reading the judgement (at 39 pages a lot easier read than the original 164 page decision) a couple of points stood out. In paragraph 102 Lewison LJ noted

“… the function of the trustees is to manage and administer the scheme; not to design it. The general power that is given to them is limited to a power to do all acts which are either incidental or conducive to that management and administration.”

In paragraph 121 Peter Jackson LJ said

“… there is nothing to suggest that the power of amendment was intended to give the trustees the right to remodel the balance of powers between themselves and the employer”

Now it is always difficult to highlight only two points of interest in a complex case (which relies on the facts) but it struck me that these two points in particular indicated the attitude of the Court to the exercise of a unilateral power by trustees and what their parameters should be. Indeed, the balance of power between trustees and employers is very much a fine balance.

Trustees have to be cognisant of their powers and duties and take care in exercising them properly ensuring the “… journey itself is permitted… “ [paragraph 122], especially in the area of discretionary increases. If trustees are unsure then they may need to take legal advice and I am sure their legal advisers will be taking this case into account. If they don’t then I am sure the lawyers for employers will.

It should be noted that the Court of Appeal granted the Trustee permission to appeal to the Supreme Court and I would be very surprised if this did not happen.

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