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Cite as: [2000] EWHC 457 (Ch), [2001] OPLR 37, [2000] PLR 339, [2000] EWHC Ch 457, [2000] Pens LR 339

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		Neutral Citation Number: [2000] EWHC Ch 457
		HC 00 01775, HC 00 04190

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON AN APPEAL FROM A DETERMINATION OF
THE PENSIONS OMBUDSMAN

21st November 2000

B e f o r e :

The Hon Mr Justice Neuberger
____________________

	BARCLAYS BANK PLC	Claimant
	-and-
	(1) JOHN M. HOLMES (2) BARCLAYS PENSION FUNDS TRUSTEES LIMITED (3) THE PENSIONS OMBUDSMAN	Defendants
	And
	BARCLAYS BANK PLC	Claimant
	-and-
	(1) BARCLAYS PENSION FUNDS TRUSTEES LIMITED (2) JOHN M. HOLMES	Defendants

____________________

Mr. Andrew Simmonds QC (instructed by Messrs. Lovells) appeared on behalf of the claimant.
Mr. Christopher Nugee QC (instructed by Messrs. Travers Smith Braithwaite) appeared on behalf of the second defendant to the Appeal and the first defendant to the Part 8 Application.
Mr James Clifford (instructed by Messrs. Pattinson & Brewer) appeared on behalf of the first defendant to the Appeal and the 2nd defendant to the Part 8 Application.
____________________

HTML VERSION OF JUDGMENT
____________________

MR. JUSTICE NEUBERGER:

THE PROCEEDINGS

This case involves two interrelated sets of proceedings concerning the Barclays Bank UK Retirement Fund ("the Fund"). Barclays Bank plc ("the Bank") is the employer sponsoring the Fund, Barclays Pension Funds Trustees Limited ("the Trustee") is the sole trustee of the Fund, and Mr John M. Holmes ("Mr Holmes") is one of the many pensioners of the Fund.

The two sets of proceedings are:

(1) An appeal by the Bank against the determination of the Pensions Ombudsman ("the Ombudsman") dated 17^th March 2000; and

(2) A Part 8 claim made by the Bank, which seeks a declaration that certain amendments made to the Rules of the Fund ("the Rules") on 27^th June 2000 are valid and effective.

Because Mr Holmes initiated the complaint to the Ombudsman, he was joined as the representative member of the Fund in the Part 8 proceedings. However, as there are members of the Fund in whose interest it is that the Bank should succeed in the Part 8 proceedings, I have ordered, by consent, that the Bank represent them.

THE BACKGROUND FACTS

The Fund, then known as the Barclays Bank (1964) Pension Fund, was established by a Deed of 1^st October 1964 ("the 1964 Deed"). Its terms have been varied by Deeds of Variation from time to time. For present purposes, one need go no further back than 23^rd May 1995, when the Trusts and Rules of the Fund were consolidated by the 35^th Deed of Variation ("the 35^th Deed"). A subsequent amendment was made by a 36^th Deed of Variation, but its provisions are not relevant for the purposes of this case.

The Fund is exempt approved for tax purposes, contracted out, and has at all times been non-contributory on the part of its members. As at September 1998, there were around 130,000 members, and the total assets were around £10bn, with surplus of £1bn.

At all times up to and including 30^th June 1997, the Fund provided pension benefits solely on a final salary basis. In other words, the basis on which a retired employee's pension rights are calculated under such a scheme is by reference to his final salary. Normally, the level of his pension is the product of his final salary and a fraction, of which the numerator is the number of months in service and the denominator is 720.

During 1996, the bank decided that it would provide benefits for future recruits on a money purchase basis rather than a final salary basis. A pension on the money purchase basis is determined, not by direct reference to an employee's final salary, but by the annuity which can be purchased on his retirement for a sum equal to the value of the investments purchased (or notionally purchased) with contributions made to the Fund in respect of that employee.

Whether it is set up on a money purchase basis or on a final salary basis, a pension scheme has the same general ultimate aim, namely to enable a retiring employee to enjoy a pension for the rest of his life. In each type of scheme the size of the employer's annual contributions in respect of an employee will be related to his level of salary. Furthermore, under either type of scheme, the size of his pension will be related to the employee's length of service and his level of pay. In a final salary scheme that is self evident, once one understands how the pension is calculated. In the case of a money purchase scheme, the longer the period of service, the greater the total contributions by the employer, and the longer the investments acquired with the contributions will have had to grow, and the greater the employee's salary, the greater the contributions by the employer.

However, despite the similarities, there are obvious differences between the two types of scheme. A final salary scheme is a defined benefits scheme, whereas a money purchase scheme is a defined contributions scheme. This is because the former type of scheme defines, by reference to the final salary and the years of service, the precise level of pension which a retiring employee will enjoy. Subject to the terms of the trust deed setting up the pension scheme, actuarial recommendations, and legislation, it is for the employer to decide what, if anything, he pays into the scheme, or sets aside in some other way, by way of contributions. A money purchase scheme, on the other hand, of necessity involves the parties defining (in absolute terms or by reference to a percentage of the employee's salary) how much is to be contributed to the scheme each year in respect of the employee's pension, but, because one does not know how the investments purchased with the contributions will perform until he retires, or what annuity rates will be when he retires, the level of pension is ultimately a matter of speculation.

In the modern world, employers, and indeed employees, often perceive that a pension scheme on the more traditional, final salary, basis is less appropriate than one on the money purchase basis, not least because employees are much more likely to change employers, often more than once, during their working lives. A money purchase scheme is more sensible, in the eyes of many, in such circumstances.

Having decided that it would provide benefits for future recruits on a money purchase basis, the Bank entered into discussions with its Pension Fund Advisory Committee and UniFI, one of the trades unions for the Bank's staff, of which Mr Holmes was the chairman. In a circular dated 10^th October 1996, the Bank notified each member of staff that it intended to establish a money purchase section to the existing pension scheme, and that this would be known as the Retirement Investment Scheme ("the RIS"). The circular provided some "outline details" of the contribution and benefit structure of the RIS, and included this statement:

"Each month the Bank will make a contribution equal to 5.5% of your pensionable payable into the Scheme."

On 12^th March 1997, the Bank and the Trustee executed a 37^th Deed of Variation ("the 37^th Deed"). The effect of this deed, whose terms I will have to consider in a little detail, was as follows:

a. It introduced the RIS with effect from 1^st July 1997;

b. It closed the final salary section (which was renamed "the 1964 Pension Scheme") to new entrants after 30^th June 1997, unless the Bank otherwise directed;

c. It permitted existing employees, who by definition were in the 1964 Pension Scheme (hereinafter "the 1964 Scheme"), to transfer to the RIS if they so wished;

d. It renamed the Fund the Barclays Bank UK Retirement Fund;

e. It made other amendments to the Scheme to ensure that it complied with the provisions of the Pensions Act 1995 ("the 1995 Act") which was then due to come into force.

As I have mentioned, the Fund had surplus in excess of £1bn, or over 10% of the total Fund, by the end of September 1998. This meant that, on the basis of the actuary's calculations and advice, there was over £1bn in the Fund in excess of what was required to cover the total of the Bank's accrued liabilities to its pensioners and employees under the terms of the schemes governing the Fund. Because of the existence of this surplus, the Bank had been contributing to the Fund with effect from 1^st January 1996 at a reduced rate of 2.5% of pensionable salaries. With the inception of the RIS, the Bank's contributions continued at the same rate, although the account of each employee who was a member of the RIS section (hereinafter "RIS member") was credited with contributions at the full rate of 5.5%. With effect from 1^st January 1998, because of continuing, and, indeed, I think, growing, surplus, the Bank reduced its contributions to nil (save to the extent precluded by law) in respect of each of the two sections, albeit that the account of each RIS member was still, of course, credited with contributions at the full rate of 5.5%.

The way in which each RIS member had his account credited with the 5.5% contribution was by a drawing, or notional drawing, on surplus to which I have referred.

In October 1998, Mr Holmes, as a member of the 1964 Scheme, complained to the Ombudsman that the Bank's use of surplus to fund its contributions to the RIS constituted maladministration. Mr Holme's complaint was based on the contention that, if such a course was permitted by the 37^th Deed, it constituted a breach of Clause 12(ii) of the 1964 Deed as varied by the 35^th Deed ("Clause 12(ii)"). While the Ombudsman upheld Mr Holmes's complaint, he did so on a slightly different basis. He concluded that the RIS was not "actually a part of [the] pre-existing 1964 Scheme" and that there was therefore no legal basis for the payment of the Bank's contributions in respect of RIS members out of the surplus in the 1964 Scheme. As I read his determination, the Ombudsman effectively left open the question of whether, if he was wrong, the amendments made by the 37^th Deed, in so far as they purported to permit the Bank to do that of which Mr Holmes complained, represented a breach of Clause 12(ii).

Mr Holmes also complained to the Ombudsman about the Trustee's conduct, but the Ombudsman did not uphold that complaint. As a result of the Ombudsman's finding against the Bank, he ordered it to pay into the Fund a sum equivalent to the total gross amount of surplus which it had used to fund its contributions to the RIS, together with interest thereon. The Bank appeals against that decision. There is no appeal in respect of the Ombudsman's finding in relation to the Trustee.

After the execution of the 37^th Deed, three subsequent Deeds of Variation were executed, but they have no relevance to these proceedings. On 27^th June 2000, the Bank and the Trustee executed the 41^st Deed of Variation ("the 41^st Deed"). This Deed was executed with a view to ensuring that, if the Bank's instant appeal fails, it would nevertheless be entitled in the future (as the Deed does not purport to operate retrospectively) to fund its contributions to the RIS section out of surplus. The Part 8 proceedings issued by the Bank seek a declaration that the 41^st Deed is valid and effective.

THE ISSUES

During the course of the hearing, the precise characterisation of the issues raised in these proceedings was refined. As I see it, the questions I have to answer are as follows:

(1) Does the 37^th Deed constitute a single trust fund subject to two separate schemes, namely the RIS and the 1964 Scheme, or does it constitute two separate trust funds, one for the 1964 Scheme and the other for the RIS?

(2) If there is a single trust fund, then, on the true construction of the Rules governing the RIS in the 37^th Deed, is the Bank obliged to pay contributions in respect of RIS members (over and above any minimum contributions required by Statute) when the Fund is in surplus?

(3) If the Rules contained in the 37^th Deed do authorise the Bank to make such use of the surplus, was the Deed made in breach of Clause 12(ii)?

(4) A new point raised on behalf of Mr Holmes, namely, was the introduction of the RIS section outside the powers of the Bank and/or the Trustee?

(5) Is the 41^st Deed effectively invalidated by the provisions of Section 67 of the 1995 Act?

The first four questions all apply to the 37^th Deed, and require to be answered in relation to the Bank's appeal against the determination of the Ombudsman, but the fifth question is not relevant to that aspect. So far as the Part 8 application is concerned, the third, fourth and fifth questions need to be answered, the first question is irrelevant, and the second question could have some bearing.

The first and second questions are, in certain important respects interrelated. There is a case for dealing with them at the same time; indeed, there is a case for dealing with the second question before the first question. However, I think that the most satisfactory way of dealing with the two questions is in the order in which I have identified them, although it will involve a degree of cross referring.

Before dealing with these questions, it is necessary to consider the provisions of the 35^th Deed, the 37^th Deed, and the 41^st Deed. Having described, or, where necessary, set out, the provisions of those Deeds, I will then deal with the five questions in turn.

THE PROVISIONS OF THE RELEVANT DEEDS

The 35^th Deed

As I have mentioned, at the time of the 35^th Deed, the Fund was called "the Barclays Bank (1964) Pension Fund" and it was set up purely on the final salary basis. In the first Schedule to the 35^th Deed, the trusts under which the Fund was held were set out - i.e. the terms of the 1964 Deed as varied. By Clause 11, the Bank had the power "in its absolute discretion" to "extend the Fund to employees of an associated company which shall have become a participating employer". Clause 11.2 provides that the terms of any Deed under which an associated company can become a participating employer "may include such special terms for the participation in the Fund by such company as may be agreed between such company and the Bank."

Importantly, for the purposes of the third and fourth points I have to consider, Clause 12 was in these terms:

"12. AMENDMENT OF RULES

The Bank may from time to time (with the consent of the Trustees where the Bank is not acting as sole trustee) alter or amend any of the provisions of the Trust Deed and Rules or insert new provisions therein PROVIDED that no alteration shall be made which will:

(i) cause the main purpose of the Fund to cease to be that of provision of pensions on retirement at a specified age for employees and former employees of the Bank; or

(ii) result in the return of any portion of the Fund to the employers."

The second schedule to the 35^th Deed set out the Rules of the Fund. They included Rule 3.1 which required the Trustee to admit to membership "such Eligible Employees as shall be determined by the Bank", an eligible employee being an employee of the Bank or its associated companies, subject to certain exceptions. Rule 5.1 made it clear that the Fund was not non-contributory, in the sense that employees were not obliged, indeed, subject to two exceptions, permitted to contribute to the Fund. The two exceptions were set out in Rule 6 and Rule 23.6; the former enabled employees to make "AVCs" which are additional voluntary contributions which satisfy certain requirements; the latter entitled former employees of Martins Bank (which had been taken over by the Bank) to make contributions in so far as they had been permitted to do so under the Martins Bank's pension scheme.

Rules 10 and 11 were concerned with "Benefits on Early Retirement" respectively due to ill-health and otherwise than through ill-health. They applied to all employees, but Rule 11 gave certain special rights to four classes of employee, the rights differing slightly from class to class (three of the classes being those who had respectively joined the Scheme before 1952, 1964 or 1973 and the fourth class being employees of another company which had been taken over by the Bank).

Rule 12 provided that, if an employee had had more than two years' service at the Bank, and then ceased employment before the age of 60, he would be entitled to a deferred pension from the age of 60, the pension being based on the number of years service and his final pensionable salary. This Rule was again subject to special rules for employees who had started employment before 1952, 1964, or 1973, and those who had been employed by the same company to which I have referred which was taken over by the Bank.

Rule 13 entitled a member who was entitled to a pension under the Fund to "elect to commute part of that pension" into a lump sum calculated in accordance with the terms of the Rule. Rule 14 provided for the payment of a lump sum to the executors or personal representatives of an employee who died in service equal to the product of his final salary and four (or less if the employee had served for less than five years). Rule 16 provided that the widow or widower of an employee or pensioner of the Bank should be entitled to a pension at the rate of half that rate to which the employee or pensioner would be entitled. Rule 17 provided for benefits for dependants, other than spouses, of employees or pensioners of the Bank.

The 37^th Deed and the 1964 Deed as amended

Paragraph (1) of the Recital referred to Clause 12 (in the 35^th Deed) as entitling "the Bank … from time to time … [to] alter or amend any of the provisions of the Trust Deed or the Rules". Paragraph (3) of the Recital was in these terms:

"The Bank wishes to alter or amend the provisions of the Trust Deed and the Rules in order to:

a. introduce changes required by the [1995] Act and other changes;

b. introduce a new benefits structure with effect from 1^st July 1997; and

c. change the name of the Fund to the Barclays Bank UK Retirement Fund

and the Trustee is willing to consent to such alterations and amendments."

The 37^th Deed then went on to provide that with effect from 6^th April 1997, the trust set up by the 1964 Deed as varied from time to time by the 36 previous Deeds of Variation should be read as altered in accordance with the terms of the 37^th Deed including the new Rules set out in the second schedule.

The first schedule to the 37^th Deed set out the terms of the 1964 Deed as varied by successive Deeds of Variation, including the 37^th Deed. Clause 2 identifies "the Fund" as the Barclays Bank UK Retirement Fund, and Clause 3.2 provides:

"The assets of the Fund (including all contributions paid to the Trustees) are vested in the Trustees."

Clause 5 sets out the powers and discretions of the Trustees, and Clause 5.5 provides that all the assets of the Fund should be held in the name of the Trustees or their nominees. Clause 11 is in the same terms as Clause 11 of the 35^th Deed. Clause 12 is in the same terms as Clause 12 of the 35^th Deed, save that the Bank's right to amend the provisions of the Trust Deed or the Rules is expressly "subject to Section 67 of the [1995] Act where that section applies".

Clause 17 is concerned with winding up and dissolution. Subject to Section 73 of the 1995 Act, it sets out the order in which the assets of the Fund are to be applied on a winding up or dissolution. In such an event, the assets of the Fund are to be converted into money, which, after the costs charges and expenses of the winding-up, is to be dispersed in accordance with the following ranking (which I have simplified somewhat):

(1) The purchase of annuities equal to their pension rights for all former employees of the Bank who have already retired, with a rateable abatement if there is insufficient money;

(2) To secure benefits for and in respect of each RIS member who is not yet in receipt of a pension arising out of "the Member's Basic Interest", which expression is defined in the Rules, as mentioned below;

(3) The purchase of "annuities of the appropriate amount" for members of the 1964 Scheme who are not yet in receipt of a pension;

(4) The purchase of increased annuities or increased deferred annuities for pensioners and employees under the 1964 Scheme, as the Trustee should determine;

(5) Subject to Section 76 of the 1995 Act, any remaining undistributed surplus is to be paid to the Bank.

Under Clause 19.3, provision is made for the transfer of assets out of the Fund to another pension scheme in the event of a sale of part of the Bank's business. Clause 20.1 provides that "when a pension is due to come into payment to or in respect of a RIS member" the Trustees shall, unless the Bank objects, purchase a policy or policies to provide a pension for such a person. Clause 20.3 provides that the Trustees may use "such part of the assets of the Fund" as they consider appropriate for such purchase, subject to it "not exceeding the member's actuarial interest in the Fund".

The 37^th Deed: the new Rules

As I have mentioned, the second schedule to the 37^th Deed sets out the new Rules of the Fund. They are divided into four sections, and references hereafter to any section is to a section of the new Rules.

Section A is headed "THE GENERAL RULES". Rule A1 is the definitions provision. It contains the following relevant definitions:

"Effective Date" which is defined as 1^st July 1997;

"Existing Member" is defined as an employee who is a member of the Fund on 30^th June 1997;

"Member" means a member of the 1964 Scheme or a member of the RIS "who remains entitled to benefits under the Fund";

"Member's Account" is defined as meaning "the RIS Member's Account representing his or her interest under the Fund". All contributions "credited or paid in respect of or by a RIS Member" are to "be credited to his or her Member's Account" which is also to be "credited (or debited) with the income and capital gains (or losses) arising from the investments representing the Member's Account.";

"Member's Basic Interest" means an RIS Member's interest attributable to his or her Member's Account, other than any interest arising as a result of his or her voluntary contributions;

"RIS Rules" and "RIS Member" mean the rules relating to the RIS Scheme set out in Section C and a member to whom the RIS Rules apply;

"1964 Pension Scheme Rules" and "1964 Pension Scheme Member" means the Rules relating to the 1964 Scheme as set out in Section B and a member to whom those Rules apply respectively.

Rule A3 provides that:

"… Section A … contains rules of general application (except where expressly stated to the contrary) to both the 1964 Pension Scheme Members and the RIS Members. Section B … comprises the 1964 Pension Scheme Rules applicable to 1964 Pension Scheme Members whilst Section C … comprises the RIS Rules applicable to RIS Members. Section D … contains rules setting out the options available to Existing Members."

Rule A6.1 provides:

"The 1964 Pension Scheme Rules and the RIS Rules specify the provisions for Member's contributions", which are matched contributions or voluntary contributions.

Rule A7 is in these terms:

"A7 EMPLOYER'S CONTRIBUTIONS

A7.1 [The Bank] shall pay such contributions to the Fund as the Bank after consulting the Trustees and the Actuary decides are necessary to pay the benefits under the Fund …

A7.2 [The Bank] may by giving reasonable notice in writing to the Trustees terminate its liability for contributions to the Fund. In that event the provisions of Clause 17 [Winding up or Dissolution] … shall apply."

Rule A8.1 states:

"The 1964 Pension Scheme Rules and the RIS Rules specify the benefits payable … to 1964 Pension Scheme Members and to RIS Members respectively."

I should also refer to Rule A16:

"A person to whom a pension has been or shall be granted shall be entitled to payment only out of the Fund and shall have no claim upon the capital property or other assets of the Employer in respect of such pension."

Section B contains the rules for the 1964 Scheme, which, subject to Section D, applies and will continue to apply, to all then-current employees of the Bank (as well as to then-existing pensioners of the Bank). The effect of Section B was to make some small alterations to the 1964 Scheme over and above the alterations effected by the 35^th Deed. Rule B3 provides that, with the exception of voluntary contributions, 1964 Scheme members can make no contributions to the Scheme. Rule B6 provides that a 1964 Scheme Member who has completed at least two years of service with the Bank is entitled to an annual pension of 1/720^th of his final pensionable salary for each month of pensionable service. Rules B8 and B9 deal with benefits on early retirement due to ill-health or otherwise, and Rule B12 provides for a lump sum in the event of an employee's death in service. These Rules substantially repeat Rules 10, 11 and 14 under the 35^th Deed. Rule B12 provides for a commuted lump sum in similar terms to Rule 13 in the 35^th Deed. Rule B10 reflects Rule 12 under the 35^th Deed.

I turn now to Section C, which applies to the RIS. Rule C2.7 has this proviso:

"Provided that the Member pays Member's Matched Contributions; Employer's Extra Contributions shall also be credited to his or her Member's Account."

This arises from Rule C4, which permits a RIS Member Employee to "elect and commence to pay Member's Matched Contributions" by arrangement with the Bank.

Rule C3 is titled "CONTRIBUTIONS TO MEMBERS ACCOUNTS" and Rule C3 provides, so far as relevant:

"C3.1 Each RIS Member who is [an employee] … shall have Employer's Core Contributions credited monthly during [employment] to his or her Member's Account at the rate of 5.5% of the Member's… Salary for that month …

C3.2 While a RIS Member is paying Member's Matched Contributions… the Employer's Extra Contributions to be credited in respect of him or her shall be [as] set out… [in a table]"

Rule C5 is concerned with investment of "Member's Accounts" and Rule C5.1 entitles, but does not oblige, the Trustees to "make investment options available for the investment of a Member's Account". By virtue of Rule C5.3, an RIS Member is entitled to select one or more of those options, but if he does not do so "the Trustee shall invest the Member's Account… in such fashion as they shall determine".

Rule C6 deals with the benefits payable to a retired RIS Member. By virtue of Rules C6.2 and C6.3, the interest in the Fund attributable to his account is to be used to pay a lump sum and/or a pension for life and/or a contingent annuity to a spouse or other dependant, with a potential escalation feature and/or a guaranteed minimum number of years. Rule C6.4 entitles an RIS Member, on retirement through ill-health to such benefits as can be purchased with his Basic Interest "increased to such extent as the Bank determines".

Rule C6.6 provides a lump sum payment to his executors or personal representatives on the death of an employee in service, calculated in accordance with the formula set out in Rule 14 of the 35^th Deed and Rule B12. Like them, it also has provisions for payments of a lower sum in favour of a spouse and of children of a RIS Member who dies in service.

Section D enables existing members of the Scheme, that is employees of the Bank who, as at 30^th June 1997, were members of the 1964 Scheme, to transfer from the 1964 Scheme to the RIS Scheme. I shall call such members "transferees". Rule D1.2 provides that:

"A Member who has [so] opted .. shall, if …still in [employment with the Bank]…, be credited with an opening balance to his or her… Member's Basic Interest under the RIS Rules, the amount of which… shall be calculated by the Trustees (on a basis recommended by the Actuary) and agreed by the Bank as the value of the Member's deferred benefits assuming that the member had left the Fund on [30^th June 1997]."

Without a further adjustment, this credit would have been less than the actuarial value of the benefits transferees could reasonably have expected to receive had they stayed in the 1964 Scheme, because the credit would have ignored the possibility of future salary increases which would have resulted in an upward revaluation of the deferred pension. In order to make good this shortfall, Rule D1.2 has the following final provision:

"Until the termination of [employment with the Bank] the Trustees will credit the Member's Account with monthly amounts (if any) calculated in the manner notified to the Member by the Trustees prior to [1^st July 1997]."

The 41^st Deed

It will be recalled that this Deed was executed following the adverse decision of the Ombudsman. If the Bank wins the present appeal, it may well be a superfluous document; if the Bank loses the appeal, then it is contended on behalf of Mr Holmes that it is an ineffective document.

The substantial effect of the 41^st Deed is to discharge Rules A3.1 and A7.1 in their original form and to replace them with new rules.

The new Rule A3.1 under the 41^st Deed is in these terms:

"A3.1 The Fund is one fund. To the extent that, prior to the date [hereof], there has been more than one fund, all such funds shall be merged to form one fund with effect from no later than [27^th June 2000].

The new Rule A7.1 is in the following terms:

"A7.1 [The Bank] shall pay such contributions to the Fund as the Bank after consulting the Trustees and the Actuary decides are necessary to fund the payment of benefits under the Fund, whether arising under the 1964 Pension Scheme or the [RIS] or otherwise… and contributions may vary between Employers at the discretion of the Bank.

For the avoidance of doubt, the Bank may, if it considers that the Fund has a surplus and after consultation as aforesaid, decide to reduce or suspend as appropriate the Employer's Contributions in respect of the 1964 Pension Scheme and/or the [RIS]."

I have set out the substantial additions to Rule A7.1 effected by the 41^st Deed in italics.

THE FIRST QUESTION: ONE TRUST FUND OR TWO?

General considerations

Mr Andrew Simmonds QC, who appears on behalf of the Bank, and Mr Christopher Nugee QC, who appears on behalf of the Trustee, accept that, if the 37^th Deed creates two separate trust funds, the first in respect of the 1964 Scheme and the second in respect of the RIS, then the decision of the Ombudsman was correct. This concession is made on the basis that, if there are two separate trust funds, then the surplus forms part of what would be the 1964 Scheme Fund, and cannot be employed for the benefit of another trust fund, namely what would be the RIS Fund. As a matter of principle that must be right: at least in the absence of a specific provision permitting such a course, the Trustees of one trust fund cannot use any of the assets in that fund for the benefit of another fund. That the Trustees of the funds are identical and that the purposes of the two trusts are similar in no way alters that conclusion.

Mr James Clifford, who appears on behalf of Mr Holmes, does not contend that it is impossible as a matter of law for there to be a single trust fund in respect of a pension scheme such as that created by the 37^th Deed, namely a scheme under which some of the beneficiaries and potential beneficiaries receive or are to receive their pensions on a final salary basis and others on a money purchase basis. In my judgment, he is right to make that concession. There is no intrinsic reason, as a matter of general law, why an employer or any other person could not set up a Pension Scheme expressly on that basis, in the way that, for instance, the Bank has undoubtedly purported to do, in the present case, in the 41^st Deed. Such a view is supported by consideration of the multifarious types of private trusts which are created from time to time, which often involve many differing classes of beneficiary but a single fund.

Further, specifically in connection with pensions, Section 149 of the 1995 Act refers to "Hybrid Occupational Pension Schemes", which it defines as being schemes which provide for pensions on a defined benefit basis and for pensions on a defined contribution basis. It provides that, in relation to such schemes:

"The Secretary of State may by regulations provide…for Part III of [the Pension Schemes Act 1993] to have effect as if the scheme were two separate schemes providing, respectively, the pensions referred to in paragraphs (a) and (b)."

To my mind this supports the notion that the legislature envisages a single Fund supporting the two types of Scheme.

Also, Article 13 of the Occupational Pension Schemes (Winding Up) Regulations 1996 (1996 S.I. No.3126) is concerned with "hybrid schemes" which are defined in Article 13(1) as any scheme:

"(a) which is not a money purchase scheme, but

(b) where some of the benefits that may be provided are relevant money purchase benefits."

It is clear from Section 181(1) of the Pension Schemes Act 1993 that, in order to be a "money purchase scheme", "all the benefits… provided" under the scheme must be "money purchase benefits". The words I have so far cited from Article 13 of the 1996 Regulations could be said to beg the question whether, in the case of a hybrid scheme, there would nonetheless have to be two separate trust funds. However, it appears to me that the terms of the Article make it clear that the draftsman was proceeding on the basis that, in the case of a hybrid scheme, there would be a single trust fund.

In this connection, it is germane to mention that the concept of "trust", "fund", and "scheme" are used somewhat interchangeably in statute, cases, and argument. In my judgment, the draftsman of the 1996 Regulations, when referring to "any scheme" was referring to a scheme governing a particular fund. That is, I think, clear once one appreciates that Article 1391) goes on to apply Section 73 of the 1995 Act to such hybrid schemes, albeit subject to modifications. When one turns to Section 73(2) of the 1995 Act, it refers to "the assets of the scheme". On the terminology I have adopted, at the suggestion of Mr Nugee, that would be reworded as "the assets of the trust fund subject to the scheme".

It is also worth pointing out that under the terms of the 1964 Trust, as it was established in the 35^th Deed, different employees had different rights under the 1964 Scheme (and this was continued under the 37^th Deed). I have in mind Rules 11 and 12 which gave somewhat different rights to four classes of employee. Further, Rule 23.6 gave special rights to another class of employee so far as contributions were concerned. Further, Clause 11 envisaged other employees joining on different terms. It is fair to say, however, that the difference between the RIS and the 1964 Scheme is far greater than the differences arising from those provisions relating to special categories of employee within the 1964 Scheme.

Subject to one point, the dispute between the parties on this issue is purely a dispute as to the effect of the 37^th Deed as a matter of construction. The one other point is this. Mr Clifford contends that where an employer, or anyone else, sets up, in a single document, a hybrid scheme, there is a presumption, indeed a strong presumption, that the employer intended there to be two separate trust funds, one for each type of scheme. He bases this contention on the difference between the two types of scheme. Not merely is it a question of one being a defined benefits scheme and the other a defined contributions scheme. In a final salary scheme, there is no question of any employee being able to identify, even notionally, a particular share of the fund; on the other hand, in a money purchase scheme, each employee has, albeit possibly in a notional and non-legally enforceable sense, his own private fund. That contention has obvious attraction. Indeed, it is reflected in some of the new rules, including the concept and definition of "Member's Account" in Rule A1, the way in which destination of contributions are described in Rule C3, the ability of members to select investments under Rule C5, and the way in which ultimate retirement benefits are actually acquired and assessed under Rule C6.2 and C6.3.

There is, in my judgment, real force in Mr Clifford's contention that if it amounts to this, namely that one might well expect an employer who is setting up a pension scheme, which offers employees pensions and associated benefits either on the final salary basis or on the money purchase basis, to do so on terms that there will be two separate trust funds, one for each type of scheme. However, given that the overall purpose of the two types of scheme is the same, namely to provide pensions and associated benefits, which are always related to some extent to length of service and salary of employees, it does not seem to me that, if there is a presumption of the sort Mr Clifford contends for, it should be a particularly strong one.

I have come to the conclusion that, even if there is a presumption of the sort contended for by Mr Clifford, the terms of the 37^th Deed lead one to the conclusion that there is a single trust fund, and not two trust funds. There are a number of reasons for reaching that conclusion.

The Recital and the 1964 Deed as amended

It is convenient to start with the recital to the 37^th Deed. That recital must, of course, be read in the context of there having been a single trust fund at the time of the execution of the 37^th Deed. Paragraphs (1) and (3) of the recital to the 37^th Deed indicate that the Bank (with the consent of the Trustee) is purporting to amend the terms of the trusts under which the Fund is held pursuant to the provisions of Clause 12 of the 35^th Deed. The Bank is stated as wishing "to alter and amend the provisions of the Trust Deed", and the centrally relevant wish in this connection is described as being a wish to "introduce a new benefits structure". While none of this language is anything like conclusive on the issue, it appears to me to be more consistent with the notion that there continues to be a single trust fund, rather than the notion of an entirely new and separate trust fund being created.

So far as the provisions of the first schedule to the 37^th Deed, which sets out the terms of the trusts under the 1964 Deed (as varied by the 37^th Deed), are concerned, there are a number of provisions which tend to support this conclusion. Thus, there is a fund with a single name (Clause 2) whose assets are referred to as "the assets of the Fund", and are vested in a single set of Trustees (Clause 3.2), whose powers and discretions as set out in Clause 5 extend to all the money in the Fund. Similarly, the power of extension of the Fund under Clause 11, the power to amend the Rules under Clause 12, and the consequences of winding up and dissolution under Clause 17 apply equally to both Schemes. Even before one goes into the details of any of these clauses, they appear to me to be rather more consistent with the concept of one trust fund, rather than two trust funds.

This view is reinforced when one considers Clause 17 in a little more detail. The ranking of the potential recipients of the assets of the Fund on dissolution indicates, to my mind, that, at least up to the moment of dissolution, there is intended to be a single trust fund whose beneficiaries are the various people identified in the rankings in Clause 17.2. In particular, one notes a certain symmetry if one concentrates on the second, third and fourth rankings. The employed RIS Members benefit over the employed 1964 Scheme Members, in the sense that the RIS Members' "right" to a pension ranks second, whereas the 1964 Scheme members rank third. However, if after the third rank is satisfied, there is still a surplus, then it is the members of the 1964 Scheme who benefit: the RIS Members do not. The logic behind this ranking is that, unlike the 1964 Scheme Members, each RIS Member has his own "Members Account", and one sees how it could be said that that should therefore rank ahead of any "right" of the 1964 Scheme Member, but, equally, one can see that, if both types of pension scheme member are fully protected so far as their pension rights are concerned, any surplus should potentially benefit the 1964 Scheme Members rather than the RIS Members.

Mr Clifford contends that this analysis supports his contention that there are two separate trust funds, because the rankings in Clause 17.2 indicate that there are in fact two very different types of scheme, and, if it is necessary and appropriate to distinguish between them in this way on liquidation or dissolution, then it should follow that there is a similar distinction between their interest while the schemes are functioning, and that this leads to the conclusion that there are two separate trust funds. I do not agree. The ranking provisions of Clause 17.2 plainly only arise on liquidation or dissolution, and, while I would accept that the terms of Clause 17.2 do not absolutely preclude there being two separate trust funds, they lie far more happily with the concept of there being a single trust fund up to the time of dissolution or liquidation.

From a more negative point of view, there is no term in the 1964 Deed as varied by the 37^th Deed of the sort one might expect if it was the intention of the Bank and the Trustee to create two separate trust funds. Although I accept, once again that it is not by any means conclusive, one would have expected to find some term specifically stating that two separate trust funds were being created by the 37^th Deed and were to be kept separate, if such had been the intention. I am not suggesting that there is a presumption that the parties intend a single trust fund unless they state otherwise. It is more that, in light of the fact that there was already a single trust fund, and in light of the provisions to which I have referred, one would have expected the parties to spell out their intention to create two separate trust funds and to set out some direction in that connection, if that was indeed what they had in mind.

Sections A and B

I now turn to the Rules in Section A. It is clear that they are intended to apply both to the 1964 Scheme and to the RIS - see Rule A3. The fact that there are some common rules to the two Schemes is neutral on the issue I am considering, save to the extent that it provides that the terms upon which the two Schemes are administered, and the people by whom the two Schemes are administered, are the same. However, two Rules in Section A are, in my opinion justifiably, relied on by Mr Simmonds as supporting his contention that there is a single trust fund.

First, there is Rule A7.1. As a matter of ordinary language, this clearly envisages that the level of the Bank's contributions into the Fund, be it the RIS or the 1964 Scheme, is to be at such a level as the Bank, after consultation with the Trustee and Actuary, considers necessary. As Mr Clifford accepts, that is inappropriate if there are two separate funds, one in respect of the 1964 Scheme and the other the RIS, as he contends. In relation to a final salary scheme, such as the 1964 Scheme, it is entirely appropriate that the Bank's contribution can be reduced (even to nothing) because of the existence of surplus, as indeed, has happened, in relation to the 1964 Scheme. Furthermore, if there is a single trust fund in respect of a hybrid scheme, then, unless the terms of the Trust Deed or the Rules otherwise forbid it, there is no reason why the employer (in this case the Bank) should be prevented from crediting the RIS with its contributions at the appropriate level (in this case at the rate of 5.5% in accordance with Rule C3.1) out of surplus. On the other hand, if there are two separate trust funds, as Mr Clifford argues, then the surplus does not form part of the RIS fund, and it would not be open to the Bank to draw from surplus for the purpose of making its contributions to the RIS fund. If that were the case, a provision such as Rule A7.1 could not be expected to apply to the RIS fund, because the Bank would always be obliged to pay at the rate of 5.5% in accordance with Rule C3.1.

In my judgment, it is hard to argue that Rule A7.1 does not apply to the RIS. It is in Section A, and Rule A3 states not merely that Section A applies to members of each Scheme: it stipulates that this is so "except where expressly stated to the contrary". In a pension fund trust deed, just as in any other document, words are ultimately slaves, not masters, and I accept that even that emphatic indication does not mean that it would inevitably be impermissible to construe a rule in Section A as only applying to the 1964 Scheme, without any express provision to that effect. However, I do regard the way in which the parties have expressed themselves in Rule A3 as giving rise to a particular problem for the argument that Rule A7.1 does not apply to the RIS. The contention that Rule A7.1 was intended to apply to the RIS as well as to the 1964 Scheme is supported when one considers its immediate context: it is clear that the immediately preceding Rule A6, and, even more significantly, the immediately following Rule A7.2, apply to both Schemes, and this would make it even more surprising if Rule A7.1 did not do so.

Albeit that it is less significant, Rule A16 appears to me to give a little support to the view that there is only one trust fund. While I accept that the main purpose of this Rule is to make it clear that no employee or pensioner can have recourse to the Bank, as opposed to the Fund, for his pension or related benefits, there is some force in the point that it limits each employee or pensioner, who will inevitably be either in the 1964 Scheme or in the RIS, to a claim on "the Fund", which is, of course, to the whole of the Fund. If, as Mr Clifford argues, there are two separate trust funds, then the first part of Rule A16 is either simply inaccurate (given that "the Fund" has been defined as the whole Trust Fund) or must be read, unnaturally, as a reference to the appropriate trust fund, which is nowhere defined or identified.

1 I do not think it legitimate to draw any inferences in favour of the conclusion that there is a single trust fund from the fact that there is nothing in Section A to contradict that conclusion. Given that Section A is concerned with Rules which apply to both sections of the Fund, one would expect to find any rule in that Section which indicated that there were separate trust funds. It is also right to say that there is nothing in Section B which, in my judgment, assists on the issue which I am currently considering. Again, I do not think one would expect to find anything which helped, given that Section B is concerned with the 1964 Scheme.

Section C: support for one trust fund

I turn, then, to Section C. I believe that there are some provisions in that Section which support the contention that there is a single trust fund. First, there is the point that the draftsman has been very careful in distinguishing between how the "Employer's Contributions" (whether "Core Contributions" or "Extra Contributions") are made, and how RIS Members "Matched Contributions" and "Voluntary Contributions" are made. It is clear, from Rules C3.1, C3.2 and C4.2 (as well as from a number of other Rules; which it is unnecessary to identify, let alone to quote, because they simply make the same point) that all Employer's Contributions are "credited", whereas all Member's Contributions are "paid", to the "Member's Account". A "credit" does not by any means necessarily involve a formal payment; it involves entering or recording a sum, whether presently in the future or contingently, normally in an account; in favour of the account holder. The point can be illustrated by reference to an ordinary bank account: the account holder, or a third party, can fairly be said to "pay" money into the account, whereas the bank with whom the account is held will not "pay" money into the account, but will "credit" the account.

It appears to me that the very purpose of using the word "credit" in Rules such as C3.1 is to indicate that, if there is another source for the contributions contemplated by Rule C3.1 within the Fund itself, then the Bank is not obliged to pay money out of its own pocket. Again the only likely source from which a credit could be obtained other than by the Bank paying, or getting some third party to pay, into the Fund, could be surplus. If the Bank can look to the surplus as a source of crediting RIS Members' Accounts, then, as I have indicated, this supports the contention that there is a single trust fund. Mr Clifford argued that this conclusion was inconsistent with the use of the word "contributions"; while I see the force of that point, it is not strong. In any event, it is outweighed by the contrast between "credit" and "pay" to which I have referred.

The subtle distinction between "credit" and "pay" would, on its own, be a pretty slender basis for reaching the conclusion that there is a single trust fund. The distinction is more important in connection with answering Mr Clifford's argument that Rule A7.1 does not apply to the RIS and that it is not open to the Bank in any event to draw on surplus to pay contributions to the RIS, because Rule C3.1, among other rules, requires the Bank to pay contributions in accordance with its terms: the new Rules do not require a payment from the Bank, merely a credit.

Rules C6.4 (Retirement due to Incapacity) and C6.6 (Benefits payable on Death) both tend to support the contention that Rule A7.1 applies to the RIS as well as to the 1964 Scheme and that therefore there is a single trust fund. It will be recalled that, under a money purchase scheme, such as the RIS, each member has a notional account which contains a sum (added to by the Bank each year) which accumulates over the period of his employment with a view to buying him a pension. Rules C6.4 and C6.6 clearly envisage circumstances in which the benefit paid as a result of the employee retiring early through ill-health or dying in employment may effectively cost substantially more than could be purchased for the amount which had accumulated in the Member's Account by the date of his incapacity or death. If it is open to the Trustee to invoke Rule A7.1 or to draw on surplus to find the money needed to honour the provisions of Rules C6.4, and C6.6, then there is no problem. However, if there is no such right in the Trustee, there is a problem: either the terms of the two Rules cannot be met, or there will be a deficit, or there must be an implied obligation on the Bank to pay a contribution to avoid such a deficit.

In my judgment, the sensible answer is that, in order to honour the terms of Rules C6.4 and C6.6, the Trustee would be entitled to invoke Rule A7.1 and/or to draw on surplus. Realistically, Mr Clifford accepts that conclusion, but argues that it does not therefore mean either that there is a single trust fund or that it is therefore open to the Bank to refuse to pay (as opposed to credit) its contributions to the RIS. I agree that Mr Clifford's realistic concession, as to how the provisions of Rule C6.4 and C6.6 would be honoured, does not make it impossible for him to argue that three are two separate trust funds. As I have mentioned, it is perfectly possible to have two separate trust funds whose terms entitle the trustees of one fund to pay money for the benefit of beneficiaries of the other fund in certain circumstances.

However, where, as here, there is an argument as to whether there is a single trust fund or two trust funds, and, if there are two trust funds, it would be necessary to imply a right on the trustees of one fund to make payments in certain circumstances for the beneficiaries under the other trust fund, whereas there is no need for any implied term if there is only one trust fund, that must, I think, be a factor which favours the conclusion that there is one trust fund. To put the point another way, if there are two trust funds, Rules C6.4 and C6.6 involve Rule A7.1 being capable of application only in limited circumstances, and in an indirect way, for the benefit of the RIS Fund. In light of the way in which Rule A7.1 is worded (and in light of Rule A3) that seems to me to be an unconvincing construction of the Rules.

Section C: support for two trust funds

It is fair to say that there are provisions in Section C which could be said to support the view that there are separate trust funds. In particular, the existence of separate "Member's Accounts" in respect of each employee in the RIS could be said to give rise to a separate trust in favour of each RIS Member. One can see why it is necessary to have an actual or notional "Member's Account" for each member of the RIS: each such member is entitled to choose where "his" contributions are invested, and, on retiring, each such member is entitled to require his pension (and lump sum if he elects to have one) to be effectively purchased with the value of the investments, together with accrued income and gains or losses, in his account - see the definition of "Member's Account" in Rule A1 and the provisions as to payment of benefits under Rule C6.

As I understand it, Mr Clifford does not suggest that each RIS Member in fact has a separate trust fund for his own benefit, effectively embodied in the Member's Account. It is nonetheless fair to say that such a suggestion would have obvious attraction, at any rate at first sight, essentially for the reasons I have just been discussing. Furthermore, the suggestion could be said to receive a little support from the judgment of Lord Millett, giving the decision of the Privy Council, in Air Jamaica Limited -v- Charlton [1999] 1 WLR 1399 at 1409C-E, where he said this:

"…in relation to a defined benefit scheme like the present. In their Lordships view such a scheme can properly be regarded as comprising a series of separate settlements. Every time an employee joins the scheme, a new settlement is created. The settlement comprises the contributions made in respect of the employee whether by him or by the company."

If this is true of a defined benefit scheme, such as a final salary scheme, then, it might be said, it is a fortiori true of a money purchase scheme. In my judgment, however, it is plain that those observations have to be read in the context of a discussion about the contention that the pension scheme in that case was void because it breached the rule against perpetuities. Lord Millett cannot, with respect, have been intending to suggest that the proper analysis of any defined benefits pension scheme is that it consists of a series of different trusts, each of which is for the benefit of a particular employee. In my judgment, the clue to what Lord Millett had in mind is to be found in the words "can properly be regarded" in the context of considering whether the rule against perpetuities was infringed.

The 37^th Deed was obviously drafted with a view to obtaining Revenue approval, and I believe that it must be construed having regard to material published by the Inland Revenue at the date of the 37^th Deed. Particularly following the observations of Lord Hoffmann in Investors Compensation Scheme -v- West Bromwich Building Society [1998] 1 WLR 896 at 912-913, it must be right that, where, as here, a pension scheme trust deed is drawn up expressly with the intention of obtaining Inland Revenue approval, one can, indeed one should, have regard to the material published by the Inland revenue as to what it requires or recommends of a pension scheme before it can be approved. In this connection, IR12, whose full title is "Practice Notes on Approval of Occupational Pension Schemes", was issued by the Pensions Schemes Office, an executive office of the Inland Revenue, in 1997. In paragraph 1.1, it is stated that IR12 "relate[s] only to schemes for which approval is sought under the exercise of the Board's discretion" and that it gives "only general guidance on how that discretion is exercised". Paragraph 2.9 is in clear terms, and it provides:

"A scheme set up under trust which is both self-administered and provides benefits on a money purchase basis must protect the trust from being extinguished by the action of one or more members. This should be done by expressing the individual member's right to benefit as being against the funds of the trust as a whole even though they may be calculated by reference to specific trust assets."

The requirement and suggestion of the Pension Schemes Office have been adopted by the draftsman of the 37^th Deed. In Rule A16 it is specifically stated, as I have already mentioned, that a member's claim is against the Fund as a whole, although the provisions of Section C make it equally clear that the pension and other benefits enjoyed by an RIS Member are indeed "calculated by reference to specific trust assets". Further, in its booklet, "Staff Pensions - Your Benefits", prepared in relation to the RIS, and made available to all members of staff who are, or intend to become, members of the RIS, the Bank makes this specific statement:

"You should be aware that paying into the [RIS] does not give you title to any particular assets of that scheme which are held and administered by the Trustees of the Pension Fund on your behalf."

It is right to mention that in Harris -v- Shuttleworth [1994] PLR 47 at paragraph 54, Glidewell LJ expressed "considerable doubts" as to whether IR12 was admissible when considering the issue of construction of a pension scheme trust deed in that case (and Evans and Waite LJJ agreed with his judgment). That does not deter me from concluding that, in the present case, it is right to take into account IR12 when construing the 37^th Deed. First, the Court of Appeal did not decide that IR12 was inadmissible as an aid to construction, albeit that they were obviously sceptical. Secondly, there is first instance authority which suggests that it is appropriate to take into account IR12: see Mettoy Pension Trustees Limited -v- Evans [1990] 1 WLR 1587, where, at 1610h, Warner J said:

"[A]s was common ground, pension scheme documents have to be construed in the light of the requirements of the Inland Revenue Commissioners from time to time for their approval of a scheme…."

Thirdly, the observations of the Court of Appeal were made before the decision of the House of Lords in West Bromwich. Fourthly, it appears to me that, in Harris, as I understand it, IR12 was being invoked for the purpose of construing the phrase "retirement from the service by reason of incapacity" (see at paragraph 66) and the reason for seeking to invoke IR12 was to assist on the meaning of the word "incapacity", which was in fact defined in the scheme trust deed before the Court. I can see a powerful argument for saying that, in those circumstances, IR12 was not admissible as an aid to construing the word "incapacity" in that scheme trust deed, but it does not follow that IR12 is inadmissible when deciding whether the draftsman of a trust deed, which was self-evidently prepared with a view to obtaining Inland Revenue approval, intended to comply with the guidelines issues by the Inland Revenue for that very purpose. Of course, in a case where the trust deed clearly provides for something inconsistent with the requirements of the Revenue, a document such as IR12 cannot be invoked to rewrite the deed, but that certainly does not mean that IR12 cannot be taken into account when construing a pension scheme trust deed.

Once one rejects the contention that each member of the RIS has his own separate trust fund, it seems to me that Mr Clifford's contention, that the existence of a separate Account for each RIS Member suggests that there is more than one trust fund, effectively evaporates. If, as he appears to concede, and as I would accept, it is wrong to conclude that each member of the RIS has a separate trust fund, then I do not see how provisions, which might nonetheless indicate that there was so, can support the contention that, as between them, all members of the RIS have a single separate trust fund.

Section D

Finally, it is right to refer to Section D. The only provision which I think assists on the issue, of whether there is one trust fund or two trust funds, is the closing sentence of Rule D1.2. The question which arises, if there are separate trust funds for the RIS and the 1964 Scheme, is the source of the funds to enable the Trustee to credit the Member's Account under that provision, as the Trustee is obliged to do. Again, Mr Clifford realistically accepts that the source must be, in effect, surplus or a payment under Rule A7.1. However, he contends that the fact that surplus, which on his case is, at least in general, limited to the 1964 Scheme Fund, can be used to credit RIS Member's Accounts or that Rule A7.1 can be invoked in such a case, does not necessarily mean that there is a single trust fund. Mr Clifford's argument is, I accept, in less difficulties as a result of Rule D1.2 than Rules C6.4 and C6.6. The obligation in the last sentence of Rule D1.2 is only to credit the Members' Accounts of transferees - i.e. those who were members of the 1964 Scheme. It is rather easier, therefore, to imply a term that surplus can be used or Rule A7.1 invoked for that purpose even if there are two separate trust funds. I therefore consider that the last sentence of Rule D1.2 gives rise to a relatively weak argument in favour of there being a single trust fund, but it does nonetheless point in favour of that conclusion.

Conclusion

In these circumstances, looking at the various provisions of the 37^th Deed, including the preamble, the body of the Deed, the terms of the 1964 Deed as thereby amended, and the Rules, it appears to me that, whether one views them in an overall sense, or whether one analyses many of them rather more critically, they support, and when taken together they fairly strongly support, the conclusion that, although the 37^th Deed resulted in there being two schemes, there is only one trust fund.

Mr Simmonds referred to a decision of the US Supreme Court, Hughes Aircraft Company -v- Jacobson [1999] 28 PLR 1(10), where a pension scheme, set up by an employer on terms which entitled the employees to contribute, was subsequently amended so that, with effect from a specified date, new employees could not contribute, and would receive fewer benefits. The complaint of the employees, which had been upheld by the Federal Appeals Court, was that the employer, Hughes, had used surplus from the contributory section to add to the non-contributory section. In paragraph 17 of the judgment, the US Supreme Court, which took a different view, said this:

"Hughes did not act impermissibly by using surplus assets from the contributory structure to add the non-contributory structure to the plan. The act of amending a pre-existing plan cannot as a matter of law create two de facto plans if the obligations (both pre-amendment and post-amendment) continue to draw from the same single un-segregated pool of fund of assets."

One must, of course, be cautious before drawing any assistance from cases in other jurisdictions in relation to a pension scheme, which contains different provisions from the scheme under consideration in the present case, and where the precise nature of the issue was a little different from that in the present case. Nonetheless, it seems to me that, at the very least, the Bank's argument here can draw a little comfort from those observations of the US Supreme Court.

THE SECOND QUESTION: USE OF SURPLUS TO FIND RIS CONTRIBUTIONS

The terms of the 37^th Deed

Having concluded that there is a single trust fund, in respect of the RIS and the 1964 Scheme, it does not automatically follow that the Bank can refuse to make any payments in respect of its contributions to the RIS, on the basis that these contributions will effectively be made from the surplus. The conclusion I have reached on the first issue merely removes what would otherwise be an insuperable hurdle to the Bank taking such a course. The question I have to consider is whether, in light of the terms of the Fund, as set out in the 37^th Deed, there is any reason why the Bank should not be able to proceed in such a fashion.

The first reason that is put forward is that, despite the terms of Rule A7.1, the Bank is obliged to pay into the Fund the contributions in respect of each RIS Member calculated in accordance with the provisions of Rule C3.1 and C3.2. This argument involves considering the effect of Rule A7.1, and in particular the question of whether it applies to contributions to the RIS, and the nature of the Bank's obligation under Rules C3.1 and C3.2. I have already discussed those matters and I have concluded that Rule A7.1 applies to the RIS as well as to the 1964 Scheme, and that nothing in Section C prevents the Bank invoking surplus for the purpose of crediting RIS Members' Accounts. Indeed, as I have explained, the use of the word "credit" rather than "pay" in Rules C3.1 and C3.2, and the effect of Rules C6.4 and C6.6 support this view.

Kemble -v- Hicks [1999] PLR 287

At this point, it is right to refer to the decision of Rimer J in Kemble -v- Hicks [1999] PLR 287. The basic issue in that case was, to all intents and purposes, the same as in this case, namely whether the employer under a pension scheme, whose terms originally only provided for pensions on a final salary basis, could, after amending the trust fund to provide for pensions for some employees to be on a money purchase basis, invoke the surplus to make his contributions for the benefit of employees in the money purchase scheme. In paragraph 29, Rimer J held that the employer could not take this course. He said this:

"[T]he establishment of the money purchase scheme involved the setting up of what was, within the overall scheme, a scheme quite separate from the final salary scheme and to which different considerations applied. Those who joined the money purchase scheme severed their connection with the final salary scheme, transferred to a new scheme and enjoyed the benefit of a payment of the sum representing the actuarial value of their benefits in the final salary scheme accrued until [the date of their transfer from the final salary scheme to the money purchase scheme]. Those who elected not to transfer retained their interest in the assets which remained subject to the final salary scheme. It seems to me to follow that, to the extent that the surplus in the latter scheme was thereafter used to fund the employer's contributions to the money purchase scheme, the money purchase scheme members were thereby improperly or unfairly subsidised by the final salary scheme members because the surplus remained held on the trusts of the final salary scheme."

Mr Clifford does not seek to rely upon Rimer J's decision or reasoning as justifying a conclusion that, in every case in which an employer "adds on" a money purchase scheme to what was a final salary scheme, it is illegitimate for the employer to invoke surplus built up in the final salary scheme to meet the employer's contributions in respect of the money scheme. As I have already indicated, each case must, at least to an extent, turn on its own facts, and, in particular, on the terms governing the final salary scheme and the terms upon which the deed is amended for the purpose of introducing the money purchase scheme.

In my judgment, the essential feature in Kemble, which led to the Judge to his conclusion was the terms upon which the deed setting up the pension scheme was amended to introduce the money purchase scheme. The amendment was effected by a deed which stated that the amendment was to be:

"In accordance with the terms of the announcement issued to members and potential members of the [particular pension] plan"

and that, until a formal amending deed was executed, the terms of the pension plan deed in question were to be:

"Modified as necessary to implement the amendment set out in general terms in the announcement scheduled hereto" (see paragraphs 20 and 21).

No subsequent formal amending deed was ever executed.

In paragraph 22, Rimer J set out the terms of the announcement in question, which included this:

"The Company will pay contributions into the new money purchase plan at the rate of 8% of each member's basic annual salary …" (emphasis added).

In these circumstances, it seems to me that the basis of the decision was that the amending deed (temporary though it may have been intended to be) expressly incorporated the terms of the announcement (and indeed annexed it) and those terms imposed an unequivocal obligation on the employer actually to pay into the fund, at least in relation to contributions relating to members of the money purchase scheme.

Subject to one point, the facts of the present case are very different. There was here a full and final amendment Deed, namely the 37^th Deed, and, on its true construction, for the reasons I have given, it does not oblige the Bank actually to pay contributions in respect of the RIS Members if they can be funded out of surplus. It is true that, as in Kemble, the Bank did, in the circular informing employees about the introduction of the RIS, state that it would "make" such contributions into the Fund if and when it was amended to include the RIS. However, not merely were the terms of that circular not expressly, or even impliedly, incorporated in the 37^th Deed: the point at issue was specifically raised with the Bank. Prior to the execution of the 37^th Deed, the solicitors to UniFI wrote to the Bank referring to the fact that the Bank had made reduced payments into the Fund that year, because of substantial surplus, and asking for confirmation that the Bank "will not be using the surplus in this way", in relation to the RIS. The Bank replied on 20^th January 1997 referring to the fact that, because of surplus, the Bank's contributions had been reduced to 2.5%, that the Bank's intention was to continue not to make a full contribution and that this was "expected, over a number of years, to reduce the Pension Fund surplus". The Bank then went on to say this:

"This will not alter following the changes in the nature of the new members' benefits; all members' benefits will be funded in part by current contributions and part from surplus."

it may be that there were other reasons, based on the terms of the trusts of the scheme in that case for arriving at Rimer J's conclusion, but I prefer to rest my view for distinguishing that case on the ground I have mentioned.

It is only fair to the Ombudsman, who relied strongly on the decision in Kemble, and indeed to Mr Clifford's argument, to recognise that way in which Rimer J expressed himself in the passage I have quoted from paragraph 29 of his judgment in Kemble might appear to be based on a wider reason than the precise terms of the amending deed in that case. However, given that it must be possible for a final salary scheme to be amended to include a money purchase scheme on terms which enable the employer to effect his contributions to the money purchase scheme from surplus in the existing final salary scheme, provided that this does not infringe the terms of the existing trust under which the final salary scheme is held, and provided that it is permitted by the amended deed, Rimer J's judgment must have been based on the facts and the terms of the deeds in the case before him.

Wider considerations

If one casts one's eyes rather wider, I believe that the conclusion that the Bank can invoke surplus for making its credits to the RIS is reinforced by considerations of commercial common sense and policy. The dispute between the parties is whether it is open to the Bank to avoid having to pay contributions (or to reduce payments) to the RIS Scheme, as well as to the 1964 Scheme, in circumstances where there is sufficient surplus to draw on, as it were, for the purpose of crediting the Bank's contributions to the RIS Scheme as well as to the 1964 Scheme.

There is no doubt that the Bank had the right not to pay any contributions (or to pay reduced contributions) to the Fund, so long as there was sufficient surplus, until the RIS was introduced. It does not seem very likely that, by introducing the RIS, the Bank intended to lose the right which it had previously had to debit surplus with part or the whole of its contribution to the Fund. Indeed, although it is arguable that, notwithstanding the observations of Lord Hoffmann in West Bromwich, it may be inadmissible, the exchange of correspondence between the Bank and UNiFI prior to the execution of the 37^th Deed bears out that view. UNiFI specifically asked the bank to confirm that it would not debit the surplus with any contributions to be credited to the RIS, and the Bank refused to give such an assurance: on the contrary.

Furthermore, it is not as if surplus is in some way beneficially owned by any of the employees or pensioners under the 1964 Scheme. As was said in Re Imperial Foods Limited Pension Scheme [1986] 1 WLR 717 by Walton J at 728E-G:

"[N]ot only is there the possibility that the surplus will be wiped out altogether before the continuing members receive any benefit out of the fund, eve if it is not wiped out in this manner, there is no certainty that it will be used for their benefit. Of course, it may be, through the generosity of the company; but it may remain the precise and exact surplus all the remainder of the lives of each and every existing member of the fund continuing in membership after the date of separation without their having the slightest benefit therefrom. ….. [T]he surplus in the continuing fund is not one which can in any way be regarded as applicable to the continuing members alone."

I also believe that my conclusion is consistent with observations of Robert Walker J in The National Grid Company plc -v- Laws [1997] PLR 157, where, in paragraph 11, he said this:

"[A]ny general exclusion of employers from surplus would tend to make employers very reluctant to contribute to their pension schemes more than the bare minimum that they could get away with. That would be unfortunate, and it would be even more unfortunate if employers were driven to abandon final salary, balance of cost schemes and were instead to turn to money-purchase schemes which may in the long term prove less advantageous to the beneficiaries."

I quote the last part of that observation even though it could be said to be not in point in the present case, or even to cast doubt on the policy reason favouring the conclusion I have reached. However, it seems to me that the wider point being made by the Judge was that the result of concluding that an employer was shut out from lawfully using surplus in a pension scheme, could well be that it might cause employers to take decisions with regard to pension schemes which would not be beneficial for employees. After all, an employer is not obliged to provide a pension scheme, and it seems to me in the public interest that employers should be encouraged to provide pension schemes, and, indeed, relatively generous pension schemes, rather than otherwise. I have not overlooked the fact that the actual decision in National Grid was reversed by the Court of Appeal - see at [1999] PLR 37 (although it is on its way to the House of Lords). I do not understand the Court of Appeal to have called into question the observations of Robert Walker J which I have quoted: on the contrary.

THE THIRD ISSUE: CLAUSE 12(ii) OF THE 35^TH DEED

In light of my conclusions that the Fund, at least as established pursuant to the terms of the 37^th Deed, involves a single trust fund, notwithstanding the existence of two separate schemes, and that the Bank's contributions in respect of the RIS can be made out of surplus, it is contended on behalf of Mr Holmes that the terms of the 37^th Deed were in breach of Clause 12(ii).

I reject that argument. In my judgment, it cannot be said that the effect of the 37^th Deed was to make an "alteration" which purported to "result in the return of any portion of the Fund to the employers" which is what Clause 12(ii) forbids.

First, for the reasons I have already mentioned, on the true construction of the 37^th Deed, and in particular Rules C3.1 and C3.2, the Bank does not have an obligation to pay contributions to the Fund under the terms of the 1964 Deed as established by the 37^th Deed, or under the terms of the new Rules of the Fund as set out in the 37^th Deed. The Bank's obligation is to ensure that the relevant Member's Accounts in the RIS are "credited" with the appropriate pension contributions. There is no obligation on the Bank to pay any money itself. Of course, subject to whether or not the Bank can draw o surplus, I accept that the Bank might in practice normally expect to pay a substantial sum in respect of such contributions each year, but that does not alter the fact that the Bank is entitled to invoke surplus so as to avoid having to pay any contributions. In other words, it appears to me that the reasoning which has led me to a conclusion favourable to the Bank on the first two issues effectively also determines this issue.

In this connection, I would refer to British Coal Corporation -v- British Coal Staff Superannuation Scheme Trustees Limited [1995] 1 All ER 912. In that case, at 923A-E, Vinelott J said this:

"The release of the liability to pay an instalment would in my judgment constitute a transfer or payment out of the fund equivalent to a payment to the employer. … The Corporation's liability to pay future standard contributions and its liability to meet the costs of administration indirectly by deduction from the Corporations' contributions are all future liabilities. The actuarial value of the liabilities can be set off against surplus without involving any payment or transfer to the Corporation because the set off is made before any present liability has arisen. The application of surplus is made to ensure that no enforceable liability or obligation arises thereafter."

(In National Grid -v- Laws [1999] PLR 37, in paragraph 59, the Court of Appeal expressly left open the question of whether the first part of that observation was correct, but it is the second part of the observation which is relevant for the purpose of considering this point).

This observation of Vinelott J indicates that a provision entitling an employer to invoke surplus as a reason for not having to pay contributions cannot be treated as a payment out of the Fund to the employers. That view receives further support from the observations of Chadwick LJ in Edge -v- Pensions Ombudsman [2000] 3 WLR 79 at 98h, where, in paragraph 43, he said this about a rule change to a pension scheme:

"[It] did not result in the payment of any part of the fund to the employers. What it did was to facilitate a reduction in the employers' rate of contribution - which is quite a different matter."

The fact that those two cases were concerned with a purely final salary scheme does not, in my view, enable Mr Holmes to distinguish them on the ground that one is here concerned with a case where the employer is invoking surplus to avoid making payments to the money purchase section of a scheme.

Secondly, and quite apart from this, Clause 12 was concerned with future amendments which would have the effect described in sub-clause (ii). I have already concluded in this judgment that Rule A7.1 entitled the Bank to draw on surplus for the purpose of making its annual contributions to the Fund. Rule 5.2 of the 35^th Deed was in effectively identical terms. Accordingly, although I accept that the point is not quite as straightforward as at first appears, because the 37^th Deed introduced a new type of scheme, namely the RIS, it nonetheless appears to me that there is a second reason why Mr Holmes must fail on this third issue. That reason is that the entitlement of the Bank to draw on surplus for the purpose of making its employer's contributions to the Fund existed under the terms of the 35^th Deed, therefore, merely by reproducing this right in Rule A7.1, no relevant "amendment" could be said to have been made by the 37^th Deed, and therefore Clause 12 cannot be invoked.

In this connection, I consider that the fact that the 37^th Deed set up a new Scheme, the RIS, does not call this second reason into question. If the Bank had the right to draw on surplus for the purpose of making its contribution to the Fund in respect of all employee members of the 1964 Scheme up to the time of the 37^th Deed, the mere fact that future and transferring employees are to have their pensions on a money purchase basis does not mean that the continuance of the Bank's right to draw on surplus for the purpose of making its annual contributions to the Fund, constitutes an alteration. This view is not only based on conceptual considerations. It is supported by commercial considerations, in that it has been accepted on all sides that there was no question of the Bank proposing that future recruits should receive pensions on the money purchase basis, rather than on the final salary basis, for the purpose of financially benefiting itself.

THE FOURTH ISSUE: ALLEGED INVALIDITY OF RIS

This issue is raised on a new and radical contention on behalf of Mr Holmes. It is that the Bank and Trustee had no power to introduce the RIS, at least unless it was a self-contained scheme, independent of the 1964 Scheme and supported, as it were, by its own separate trust fund. In other words, it is argued that the introduction of the RIS, at least if I am right on the first and second issue, was illegitimate.

As originally raised in Mr Clifford's skeleton argument, this argument was based on Clause 12(i) of the 1964 Deed as amended by the 35^th Deed ("Clause 12(i)"), which precluded any alteration which "cause[d] the main purpose of the Fund to cease to be that of provision of pensions on retirement…" In my judgment, that argument is not sustainable. The main purpose of the RIS, every bit as much as the main purpose of the 1964 Scheme, is and was to be "that of provision of pensions on retirement". The only alteration, from the point of view of new members and transferring members, effected by the introduction of the RIS, was the basis upon which such pensions are to be calculated. That distinction may represent a significant difference in principle, and may well be capable of producing substantial differences in financial terms from the point of view of retiring employees. However, I do not see how it can possibly be said to be a difference which falls foul of Clause 12(i). Recognising, I think, the difficulty which this argument on this fourth issue faces if it is based on Clause 12(i), Mr Clifford, in his oral argument, concentrates more on the contention that the introduction of the RIS Scheme was outside the general powers of the Bank and the Trustee under the terms of the Fund as established by the 35th Deed. In other words, rather than relying on specific provisions of the 35^th Deed, he relies on the general law.

In that connection, two cases are cited. In relation to the powers of trustees to amend the pension scheme trusts, Millett J said this in Re Courage Group's Pension Schemes [1987] 1 WLR 495 at 505D-E:

"They must not infringe the provisos to the rule-amending power, particularly the express prohibition to be found in all three schemes against altering the main purpose of the schemes, namely the provision of pensions on retirement at a specified age for members. This is a restriction which cannot be deleted by amendment, since it would be implicit anyway. It is trite law that a power can be exercised only for the purpose for which it is conferred, and not for any extraneous or ulterior purpose. The rule-amending power is given for the purpose of promoting the purposes of the scheme, not altering them."

I do not consider that those observations assist Mr Holmes's case on this fourth issue. First, as I have already said, the introduction of the RIS in no way conflicts with the "main purpose" for which the Fund was established. Secondly, I do not see how it can be said in the present case that the introduction of the RIS was for an "extraneous or ulterior purpose". As I have said, it is not suggested that, by introducing the RIS, the Bank intended to reduce the contributions which it would have to make to the Fund or obtain some other collateral benefit.

Mr Clifford also refers to what was said by Chadwick LJ in Edge at [2000] 3 WLR 96F-97D. In that passage, having referred to a provision in the trust deed of the scheme before him, which stated that its "main purpose" was "the provision of retirement and other benefits for [relevant] employees who are members of the scheme", Chadwick LJ went on to say that this rule embodied "three concepts which are fundamental to a pension scheme of this nature." Part of the first of those three concepts was that the scheme was:

"a "defined benefits" scheme: the benefits are fixed by the rules. The scheme is not set up as a unit trust, under which the members would be entitled to a proportionate share in the fund."

Chadwick LJ then went on to set out other fundamental features, one of which was that the task of the trustees "is to maintain a balance between assets and liabilities valued on [an] actuarial basis". He went on to explain that, with movements in the market, it was inevitable that there would be surpluses and deficits from time to time and that "prudent trustees will aim to ensure that the likelihood of surplus outweighs the risk of deficit". The passage relied on by Mr Clifford concludes with these words:

"[I]t is no part of the trustees' function, in a fund of this nature, to set levels of contributions which will generate surpluses beyond those probably required as a reserve against contingencies."

In my judgment, none of these observations are inconsistent with the Bank's arguments in the present case. Indeed the concluding observation is helpful to the Bank, at least to the extent of emphasising that the members of a pension scheme normally have no right whatever to expect surplus, let alone have any legal interest in surplus.

When he observed that the scheme he was discussing was a defined benefits scheme, I do not understand Chadwick LJ to have been saying that, as a matter of law, unless the terms of the scheme otherwise provide, it is not open to the employer and/or trustee of the scheme to change the basis upon which future employees (and any present employees who voluntarily agreed to do so) receive their pension, to a money purchase basis. What he was doing was recording the fact that the scheme in that case was a defined benefits scheme. Even if one fixes on the words "the benefits are fixed by the rules", it does not seem to me that this assists Mr Clifford's argument. Whether one looks at the scheme in the present case before or after the execution of the 37^th Deed, the basis upon which any employee was to receive his pension, whether under the 1964 Scheme or under the RIS, was defined by the Rules. In sum, it seems to me that it would be wrong to regard Chadwick LJ as having laid down any general rules as to whether, and if so in what circumstances, an employer could do that which the Bank purported to do by the 37^th Deed: he was simply not concerned with that question at all.

THE FIFTH ISSUE: SECTION 67 OF THE 1995 ACT

It will be recalled that this issue only relates to the validity of the 41^st Deed. Given that I have rejected Mr Holmes's arguments on the first four issues, it seems to me to follow that the 41^st Deed was unnecessary. Its two main purposes, namely to confirm that there is a single trust fund, and to confirm that the Bank can fund its contributions to the RIS out of surplus, were achieved, albeit in less clear terms, by the 37^th Deed: hence my determination of the first two issues in favour of the Bank.

Nonetheless, it is right that I should deal, albeit somewhat briefly, with Mr Clifford's argument that the 41^st Deed, if it had been necessary, would have been invalid by virtue of Section 67 of the 1995 Act ("Section 67"). Section 67 is in these terms, so far as relevant:

"67(1) This section applies to any power conferred on any person by an occupational pension scheme (other than a public service pension scheme) to modify the scheme.

(2) The power cannot be exercised on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised unless the requirements under sub-section (3) are satisfied."

The requirements of sub-section (3) are, in brief, that (a) an actuary has certified that the modification will not adversely affect any member of the scheme or that all affected members of the scheme have approved the modification, and (b) that the trustees of the scheme have approved the modification.

It is not disputed that Section 67 would apply to the 41^st Deed if it effected any modification to the Scheme; nor is it suggested that the requirements of Section 67(3) have been satisfied. However, Mr Simmonds, on behalf of the Bank, and Mr Nugee, on behalf of the Trustee, contend that, in any event, the execution of the 41^st Deed would not fall foul of the Section. Three separate reasons have been put forward as to why that is the case. First, it is said that Section 67 is concerned with preventing amendments which effect reductions in the rights of members, not with preventing amendments which may make those rights more difficult to enforce. That is a point of some significance in the field of pensions law. Secondly, if that is wrong, it is contended on behalf of the Bank and the Trustee that no "entitlement or accrued right" of any member of the Scheme was affected by the 37^th Deed. Thirdly, it is contended that, in any event, the onus is firmly on Mr Holmes to establish that the effect of the 37^th Deed is to affect detrimentally the rights or interests of the members of the 1964 Scheme. This third point, it is fair to say, is a rather technical point.

Having heard the argument developed by Mr Simmonds and Mr Nugee, Mr Clifford felt unable to maintain his case on the fifth issue, on the basis that he felt that there was no satisfactory answer to their second point. In my view, Mr Clifford was entirely realistic in forming this opinion. Because I am told that the point may be of some interest to those who work in the field of pensions law, I shall briefly express my reasons for concluding, on this ground, that Mr Holmes fails on the fifth issue as well.

In order to succeed in establishing that the 41^st Deed "would or might affect any entitlement or accrued right" of any member of the 1964 Scheme (always assuming that Section 67 is concerned with preventing an employer or trustee of a pension fund making rights under pension schemes more difficult to enforce) it is necessary for Mr Holmes to establish that the right he claims is an "entitlement or accrued right". The interest which he claims to be such an entitlement or accrued right is an interest, together with other members of the 1964 Scheme, "in having surplus preserved for their benefit".

First, can it be said that this interest is an "accrued right"? In my view, on insuperable difficulty for arguing that such an interest in an accrued right is to be found in Section 124(2) of the 1955 Act which provides that:

"(a) [T]he accrued rights of a member of an occupational pension scheme at any time are the rights which have accrued to or in respect of him at that time to future benefits under the scheme, and

(b) at any time when the pensionable scheme of a member of an occupational pension scheme is continuing, his accrued rights are to be determined as if he had opted, immediately before that time, to terminate that service."

The effect of paragraph (b) of that definition is that, contrary to the view which Millett J expressed in Courage [1987] 1 WLR 495 at 513, the "accrued rights" of a member of a pension scheme under the 1995 Act are to be based on the pensionable salary of the employee at the date that his accrued rights are assessed, rather than on his anticipated final pensionable salary on the assumption that he remains in employment until he retires. I am not suggesting that Millett J was wrong; as Mr Nugee says, either view is tenable. The essential point is the view that was taken by the legislature in the 1995 Act). In these circumstances, the possibility of future increases in the level of pension due to continuing employment and increases in salary is not something which can be taken into account in connection with an employee when assessing his "accrued rights" for the purposes of Section 67(2). Indeed, that is why the bank, as employer, is entitled to take a "contributions holiday" - i.e. to suspend payments into the Fund by drawing on surplus to make its contributions.

Given that such potential future increases in anticipated pension cannot be taken into account, it seems to me that there can be no question of an employee member of the 1964 Scheme contending that the 41^st Deed, if it enables the Bank for the first time to use surplus for the purpose of making its contributions, took away or reduced any of his "accrued rights". After all, as was made graphically clear by Walton J in Imperial at [1978] 1 WLR 728E-G, and indeed by Robert Walker J in National Grid [1997] PLR 157 at paragraph 111, it cannot sensibly be contended that a member of a pension scheme has any "right", let alone an "accrued right", to or in relation to surplus.

As to the contention that an employee member of the 1964 Scheme could object to the use of surplus to fund the Bank's contributions to the RIS, it seems to me that, for the reason just mentioned, it cannot be said that a member of a pension scheme has any sort of "entitlement" to surplus. To contend that an employee who is a member of the 1964 Scheme is having his "entitlement" damaged because, owing to his expectation of continuing employment and increased salary, he anticipates a higher pension than that to which he has an "accrued right" (in light of the definition in Section 124(2) of the 1995 Act) must, in my judgment, be rejected. If, in Section 124(2) of the 1995 Act, the legislature has expressly excluded that aspect from the concept of "accrued rights", I think it would be wrong to hold that it should be included as an "entitlement". It would be very odd to construe the concept of "entitlement", in such a way as to enable an employee to get this point in through a back door, when the front door had been so firmly and clearly locked against him.

Quite apart from this, it seems to me that, when using the word "entitlement" in Section 67(2), the legislature had in mind a case where the right to payment had arisen, in other words, to take the normal case, it covers a pension in payment. As a matter of ordinary language, that is what "entitlement" means, particularly when contrasted with "accrued right". That view is heavily reinforced once one considers the provisions of Sections 91, 92 and 93 of the 1995 Act. For instance, Section 92(1) provides that, subject to exceptions, "an entitlement, or accrued right, to a pension under an occupational pension scheme cannot be forfeited". Although it is fair to say that the words "to a pension" are not to be found in Section 67(2), I think it would be very strange if the same word, "entitlement", in the same precise context, namely when used together with the words "accrued right", and in connection with the same sort of concept (in one case, forfeiture, in the other case, detriment) had a different meaning in two different sections of the 1995 Act.

I do not consider that my views as to the meaning of the words "accrued right" and "entitlement" render the latter word otiose. It is clear from Section 124(2)(a) of the 1995 Act that "accrued right" is an expression used to refer to "future" benefits. Once a pension has come into payment, it seems to me that it is not realistic to treat future instalments of that pension as "accrued rights" in the sense of payments in the future: the right to receive the pension for the rest of one's life, once one has retired, is an "entitlement", and not an "accrued right" as those expressions are used in the 1995 Act.

CONCLUSION

In these circumstances, I allow the Bank's appeal against the Ombudsman's determination. It appears to me that it is inappropriate to make any order on the Bank's Part 8 Application: like the 41^st Deed, it was unnecessary, albeit that it is fair to the Bank to say that it is entirely understandable why it was made.