Changing Pension Arrangements - Employer's Duty Of Good Faith - Pensions In 30 Podcasts, Episode 18

The duty of employers to act in good faith towards employees applies equally in relation to the way in which an employer exercises its powers under a pension scheme. In our latest podcast, we look at employers' duty of good faith when changing pension arrangements.

Key points

The Imperial case (Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd. [1991] 1 W.L.R. 589) established that an employer owes a duty to pension scheme members (including employees, former employees and dependants of members) when exercising its powers under the scheme. Summarised, the employer's duty is not, without reasonable or proper cause, to act in a way calculated or likely to destroy or damage the relationship of trust and confidence between employer and scheme member. For the employer to have acted in breach of duty, it needs to be shown that it acted irrationally or perversely, in a way in which no reasonable employer acting in good faith would. Although it is entitled to take into account its own interests in deciding what to do, those interests need to be weighed against any reasonable expectations which employers had created. The IBM case (IBM (UK) Holdings Ltd v Dalgleish [2014] EWHC 980 (Ch)) has recently considered this area. Main sources

Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd. [1991] 1 W.L.R. 589

IBM (UK) Holdings Ltd v Dalgleish [2014] EWHC 980 (Ch)

Summary

The duty of employers to act in good faith towards employees - a duty established in relation to employment contracts - applies equally in relation to the way in which an employer exercises its powers under a pension scheme.

A pension scheme has a term implied into it "that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee".

The duty extends to all the members of the pension scheme, including former employees as well as current employees (as well as dependants of members of the scheme).

More detail

Background

The Imperial case, decided at the end of 1990, has been commented on and approved by the Court on a number of occasions since it was decided. It remains good law. It was recently discussed in the IBM case (which could be subject to appeal).

The Imperial case creates an implied term in an occupational pension scheme, in relation to the employer's exercise of its powers under the scheme.

It is based on the...