Reform Pension Schemes – part 3 – Decisions

Pension Fund surpluses do not happen at once but accumulate over the life of the scheme.  The court does not recognise this approach and rules that existing members of the scheme should get the surplus because former members have received their full entitlement.

Now, I am not recommending that all previous members should get a share of the surplus but there are two groups of persons that I wish to raise questions about.  The surplus in the Island Life pension fund was distributed based on the contributions made by the members.  My question is “was there any consideration given to increasing the pensions of persons who retired from the scheme?”  It might be argued that persons who retire are still members of the scheme as they are entitled to receive a pension until death.  These persons would have contributed to the generation of the surplus over their working lives.

Island Life Insurance Company had a major redundancy exercise in which many persons were laid off and others were transferred to Life of Jamaica Insurance Company.  At the time of transfer it is likely that the persons received their entitlement based upon the application of the scheme rules.  At the time of this exercise there would have been a surplus in the pension scheme.  Given the expectation that the scheme was to be discontinued, my question would be “whether the persons who were made redundant received a share of the surplus at that time?”  I suspect not and the court could have ruled that these persons were also entitled to share in the surplus.

Finally on the matter of Mr. Fraser transfer of his previous pension scheme’s contribution to the Island Life scheme.  My main problem lies with the Trustees who permitted the transfer and should have known the fund would be closing and that the transfer might entitle Mr. Fraser to share in the surplus which was generated while he was not a member of the fund. The court might have considered this factor and ruled that he should share only in the surplus generated between his date of entry and the closing date.

The method used to allocate the surplus suggests the aim of rewarding the persons who were in the scheme longer more of the surplus than those who had just joined.  It may be for this reason that the transfer was excluded as it would reduce the benefit to long term members of the scheme.  It is for this reason that I say that although not legally wrong, the decision to sue for more of the surplus is morally wrong as it assumes entitlement to a benefit that was not his to get in the first place.  If all the surplus occurred after he joined the scheme then I would say he is correct.

In the last part of this series we will look at how to fix this problem.