Members of the Prudential Staff Pension Scheme in the UK will have to wait another two weeks to see if they can continue their fight to keep their pension increases as closely in line with inflation as possible

On 14 April, the High Court ruled that Prudential was allowed to issue discretionary payment increases, concluding the initial - and complex - case that had run since 2009.

The original deadline for launching an appeal was 5 May, but due to the number of recent Bank Holidays in the UK, the members, along with their law firm Sackers, have been given an extension to work out their response to the decision.

Members of the scheme had originally complained to the Trustee board over the insurance company's non-statutory pension rise policy, in place since 2005, which stated that increases would be based on RPI (the Retail Prices Index), but would be capped at 2.5%. This was implemented to save money in order to plug a huge deficit that the scheme had amassed. However, this limit was not applied in 2007, for example, when an increase of 2.7% was awarded.

This 2.7% increase, along with other increases not in line with inflation, prompted the trustee board to seek clarification through the courts on the issue after some members claimed that they had been led to believe by the company that they would continue to receive payments that were close to current inflation rates. Before that, the firm had awarded increases that were broadly in line with RPI.

In his conclusion on the judgement, Mr Justice Newey said that he could "see (that members) may feel themselves to have been treated unfairly by Prudential. However, the Rules give Prudential a discretion with regard to pension increases which is not subject to any express restriction."

Prudential, in an official statement following the decision, said that it welcomed the decision, and said that it had "sought at all times to be open with the Trustees of the Scheme about its thinking and proposals". 

"Prudential introduced the new policy, in good faith, as part of a package of measures designed to secure the financial future of its pension scheme," it added.

Despite the time period extension for an appeal, Pension Funds Insider has been told by David Metcalfe, one of the members involved in fighting the case, that there is "a feeling that the opportunity for an appeal is very slim".

"I have submitted a note to the Pensioner Group's solicitor in which I have put forward a few ideas for a possible appeal but also seeking clarification on various points within the judgement," he said.

Metcalfe and his fellow members believed that they had reason to challenge Prudential, as they were under the impression that pension increases would not be significantly affected by the 2005 policy change.

On a website created by the members, called Action for Pru Pensioners, they state that the company has been guilty of "the betrayal of promises made to employees and pensioners for decades about the level of increases to be awarded and about meeting the cost thereof," and  of "giving reasons for the change of policy that are clearly untenable".

The members have also argued that Prudential has adequate resources to meet higher pension payment increases.

Arshad Khan, an associate director at Sackers who has been working on the case, told Pension Funds Insider that problems arose from poor communication on the firm's part.

"It wasn't a matter of there being anything vague in the rules of the scheme. It was more about the communications that were made to staff when they retired or in pre-retirement seminars, and written material, that led them to have a certain belief and assumption about how (their pensions) would increase in line with inflation once they started to be paid," he said.

"It was that long-standing practice and policy and was at the heart of it - whether they would honour that. Even though the rules of the scheme made it clear that they could decide the rate of increase every year."

Arguments put forward to the court over affordability and Prudential's financial standing, had no bearing according to the judge, taking the view that what a company does with its money is up to its own directors, and not the pension scheme.

Khan pointed out that the firm appears to have adequate funds to meet any higher increases now and in the immediate future. A with-profits policy held by the company, for example, is in surplus and has no policy holders waiting for it to pay them out. But Prudential and the judge viewed this is as a separate issue.

If the members do not manage to lodge an appeal, then members may go to the UK's Pensions Ombudsman, to try and gain a decision in their favour.

mhandzel@wilmington.co.uk

First published 05.05.11