Drawing Pensions on Semi-Retirement

A recent Court of Appeal decision means that occupational pensions cannot be drawn while still working for the same employer - even in a different capacity.

Entitlement to benefits on "retirement" - when can pensions be drawn?

The case of Venables v Hornby was heard this year in the Court of Appeal. The effect of the decision, handed down on 18 September 2002, is that employees will not be able to draw a pension if they simply alter or reduce their role in the company.

The Court decided that, unless there is a strong indication of contrary intention in the pension scheme rules, the concept of retirement should be interpreted in line with the Income and Corporation Taxes Act 1988 (the "Taxes Act"). Although the word "retirement" is not specifically defined by the Taxes Act, the Venables case offers some very useful guidance:

ï "Retirement" means cessation of service as an employee of the relevant employer. It does not include a change in the nature of service with the same employer.

ï "Employee", in relation to a company, includes any director of the company, whether executive or non-executive. Therefore, Mr Venables, who was an executive director who became a non-executive director, did not alter his status as an "employee". He could not be said to have "retired" and was not therefore able to draw a pension. It may, however, be possible to draw a pension whilst continuing in some sort of consultative capacity, but not if this amounts to being an officer or employee of the company.

Can a scheme be tailored so as to avoid these legislative definitions?

The Venables case says that terms such as "retirement" and "employment" are to be read in accordance with the Act in the absence of a strong indication that this is not the intention of the parties. In theory, therefore, it is possible to define "retirement" in scheme rules as "retirement from service as an executive director", or to define "service" as "service as an executive director". With careful planning and consideration of the terms of...

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