What it means to consult the scheme actuary

The recent court case involving the Mitchells & Butlers Pension Plan largely focussed on the correction of unintended changes to the Plan Rules dealing with increases to pensions in payment.

But alongside the lengthy consideration of questions about ‘rectification’ of the Plan Rules, the court also considered whether the unintended changes to the pension increase provisions complied with the requirements of the Plan’s amendment power.

The Plan amendment power allowed the Trustee to amend the Rules with the consent of the Principal Employer but only “after consulting the Actuary”. It was clear that the Plan actuary had to be consulted before any Rule amendments could take effect but what steps were needed for there to have been valid “consultation” with the Plan actuary?

A copy of the proposed new Rules was provided to the actuary, who was asked to confirm to the Trustee that it was appropriate to make the proposed changes. Some additional explanatory materials were also provided. However, although the draft Rules reviewed by the actuary included the changes to the pension increase provisions, they were not drawn to the actuary’s attention (unsurprisingly as the changes were unintended!).

The court decided that it wasn’t sufficient to provide the actuary with copies of the materials and leave the actuary to identify the relevant issues. Instead, it was the Trustee’s obligation (or more likely their lawyers) to draw the relevant changes to the actuary’s attention to allow them to give their actuarial opinion.

This meant that the requirement to consult the Plan actuary had not been fulfilled and the changes to the pension increase provisions had not been validly made (and were void as a result).

Whilst the court’s decision on this question is unsurprising, it is a helpful reminder of the need for ‘proper’ consultation where this requirement arises. This does not mean that every corrected typo or updated cross-reference needs to be drawn to the actuary’s attention in a new set of Rules. But all substantive changes should be specifically flagged where the amendment power requires consultation with the actuary (or any other person).

The decision in this case, and the attention it has drawn to this issue, may have an impact in other areas too. Due diligence in residual risks buy-in transactions may well see an increased focus on the materials provided to the actuary in connection with any material rule changes where the amendment power contains a similar restriction, and insurers may look to carve out liability from residual risks cover where those materials are deemed insufficient or (more likely) just can’t be found.