Judgement on Pilots’ pension deficit case brings clarification for employers

The High Court judgement on the Pilots’ National Pensions Fund (PNPF) deficit case brings clarification for pensions schemes on what is classified as an employer with regards to pension liabilities.

Following the ruling, employers that believed they were free of obligations to contribute to under-funded schemes may still be eligible for contributing to shortfalls.

The main issues in the case were which employers were liable to pay contributions to make up the deficit and what powers the trustee had to require contributions from them.

The PNPF, a UK defined benefit (DB) pension scheme for marine pilots, has a deficit of approximately £300 million. It includes self-employed as well as employed members, and is funded by multiple employers, including harbour authorities that only authorised self-employed pilots and had never previously been required to contribute to the scheme.

The court ruled that an ‘employer’ is an employer of persons eligible to join the pension scheme, rather than just of those who are actual members of the scheme and therefore eligible to contribute to any shortfall.

The judge, Mr Justice Warren, said trustees have the power to require contributions from participating employers, even those that authorised self-employed members.

Law firm Sackers and Partners acted for the Port of London Authority, one of the participating employers, which are responsible for pilotage services on the Thames estuary. Peter Murphy, the partner who led the team at Sacker and Partners, said: “The trustees now have a legal framework from which to start addressing the massive deficit in the pension scheme. One must hope they do so in a fair and reasonable way, which minimises the impact on the health of individual ports as well as the UK ports industry as a whole.”

The decision also has consequences for employers in respect of employer debt legislation, a section 75 debt. An employer is liable to contribute if it employs individuals who are eligible to join a pensions scheme, even if they have not done so. Employing a deferred or pensioner member is not sufficient to avoid debt.

Giles Orton, head of pensions litigation at law firm Eversheds, who acted for Port of Tyne which authorised self-employed pilots who were members of the PNPF, said: “The judge took a different line from two other recent cases (but only after giving the legislation a much more thorough analysis). There was never any doubt that employing active members of a scheme makes a company ‘an employer’.

“However, Mr Justice Warren also held that employing individuals who are eligible to join a pension plan, even if they have not done so, can make a company an employer and hence liable to contribute.

“It says little for the quality of the drafting of our pensions legislation that in repeated reviews by the Courts, different judges are coming up with differing interpretations of such fundamentals as the definition of an “employer”.

“This decision of Mr Justice Warren, a former pensions practitioner, is much the most authoritative yet delivered. Hopefully it will make things a little more certain, though scarcely less complex.”

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