Case of the Week: Foster Wheeler v Hanley & others

In the Court of Appeal, Civil Division on appeal from the High Court, Chancery Division

What is the case about?

Foster Wheeler is a US engineering that employs staff in the UK. This case concerns what should happen to the pensions of certain British Foster Wheeler employees as a result of European laws that forced changes on the way UK pension schemes operate.

In common with many UK businesses, the Foster Wheeler pension scheme was set up so that men would collect their pension at 65 and women at 60. However, in 1990 the European Court of Justice ruled that this was discriminatory and that both sexes should begin collecting their pensions at the same age. The ruling took some time to take effect in the UK but in 1993 Foster Wheeler responded by fixing its pensionable age for male and female staff at 65, a process called equalisation.

This created confusion because, a woman, for instance, who joined the scheme before 1993 and retired anytime afterwards will have paid some of her contributions based on collecting her pension at 60 and the remainder based on collecting it at 65. Under UK pension law, the woman is allowed to collect the first portion when she reaches 60 but she cannot start collecting another, separate pension at 65.

Foster Wheeler issued proceedings against the trustees of its pension fund to ask the court to decide how it should deal with such cases. Since there can only be one final pension, the two pensions starting at 60 and then 65 must be mixed together into one pot. The two sides could not agree on a fair way to “mix” the pensions.

What is at stake?

There are two basic ways to solve this problem: give the woman her full pension at 60 and effectively ignore the fact that some of it is not due until she reaches 65. Or give her the pension at 60 but make a deduction to reflect the period that is not yet due.

Not surprisingly, the workers preferred the no deduction option while Foster Wheeler wanted a deduction. Foster Wheeler said the cost of not making a deduction was £30 million. Since this issue affects hundreds of pension schemes, the total cost for UK business is estimated in the billions.

Who were the lawyers?

Freshfields acted for Foster Wheeler instructing Brian Green, QC, and Jonathan Hilliard.

Clifford Chances acted for the pension trustees instructing Andrew Simmonds, QC.

Bond Pearce acted for a representative Foster Wheeler employee. It instructed Andrew Spink, QC, and Keith Bryant.

Who were the judges?

Lady Justice Arden, Lord Justice Lloyd and Mr Justice Richards.

What was decided?

The High Court ruled the pensioners should be given their full allowance at 60 with no deductions, leading to this week's appeal by Foster Wheeler.

The Court of Appeal overturned the High Court's decision and said pensions calculated at 60 should include a deduction for the period that should only have become available at age 65.

Is there a wider legal principle involved?

The issue affects most UK employers who have pension schemes dating to before 1990 and so is of huge significance to the pensions industry. Although the court only considered the issues raised by Foster Wheeler, lawyers say the generally pro-business judgment will also affect other schemes.

Giles Orton, a pensions partner at Eversheds, said: “This is a welcome judgment. The Court of Appeal has told schemes they can adopt pragmatic approaches to equalisation. The issue has proved very expensive to pension schemes over the years.

"Trustees and employers have at last clear concise principles which they can use to determine the most appropriate way for their scheme to achieve sex equalisation, he said".

What happens next?

A direct appeal to the House of Lords is possible but none of the parties has indicated its intentions.