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03 Feb 2022

A look at the De La Rue battle over final salary rules


A case update on De La Rue & Ors v De La Rue Pension Trustee Ltd & Anor

The recent case of De la Rue Plc & Ors v De La Rue Pension Trustee Ltd & Anor [2022] EWHC 48 (Ch) has seen the High Court rule on the construction of the De la Rue scheme's (the Scheme) deferred benefits revaluation rule. This is the latest in a line of cases to provide insight as to how the Court construes pension scheme documentation. The case demonstrates that determining a scheme's rate of benefit uplifts remains one of the most important issues for trustees to resolve - with high value liabilities attached.

Background and arguments

The single issue before the Court was how a class of members who had accrued final salary benefits was entitled to have those benefits revalued whilst in deferment.

The Court was asked to construe Rule 17 of the Scheme's rules (Rule 17), which provided as follows:


In relation to a Member of the Final Salary Section only, short service benefits before they come into payment shall be revalued in accordance with Chapter II of Part IV of the Pension Schemes Act 1993.

This Rule shall only apply if it would provide a greater increase in deferred benefits than that provided at Rule 21."

Rule 21 provided for increases to pensions in payment and did so by reference to a cost-of-living index subject to a cap of 5% a year and a floor of 3% a year (in respect of pensionable service prior to 1 April 2005).

The claimants, who were the principal and participating employers of the Scheme, argued that Rule 17 essentially provided revaluation in accordance with the statutory minimum.

The first defendant was the trustee of the Scheme and took a neutral role in the proceedings. The second defendant was joined to the proceedings as a representative pensioner member of the Scheme.

The representative member argued that the relevant benefits were to be revalued by the greater of (i) statutory revaluation; and (ii) a cost-of-living index subject to a cap of 5% per annum and, in respect of pensionable service prior to 1 April 2005, a floor of 3%.  He argued that before the statutory revaluation regime was to be applied to the valuation of short service benefits, it was necessary to quantify the extent of the increase that would be achieved if the annual rates of increases provided for by Rule 21 were to be applied for the period of deferment.  He argued that only once the extent of the Rule 21 increases was established could a comparison be carried out. 

If the representative beneficiary's argument was successful, it would increase the Scheme's liabilities by approximately £20 million as against the basis which were being administered.

What did the Judge conclude?

The Judge found in favour of the claimants' argument. His reasoning for doing so has provided useful insight into how the Court will construe pension scheme documents.

When interpreting a pension scheme's documentation, the Court must defer to the words chosen by the drafter of the text.  In the Scheme, the Judge felt that the drafter clearly contemplated that there were, or might, be some circumstances in which a comparison between the separate increases provided for in Rule 17 and Rule 21 were to be made. 

If there was an increase other than an increase in deferred benefits to be encapsulated by Rule 17, as the representative member had argued, the Judge felt it would be much more natural for that other increase to be spelt out with an express provision in Rule 17, which he found was contrary to the factual position here.

The Judgment shows a further example of the application of the principles governing pension scheme construction (following judgments in Britvic plc v Britvic Pensions Ltd [2021] EWCA Civ 867, Barnardo's v Buckinghamshire [2018] UKSC 55 and Safeway Ltd v Newton [2018] Pens LR 2).  He added that this did not mean that "literalism rules the day" and noted that a purposive construction may be appropriate, particularly where it is required to give reasonable practical effect to the scheme.

The Judge concluded by saying that the effect of Rule 17 "is directed at restating the practical consequences for which the mandatory provisions of the law would provide in any event.", which the Court should not shy away from.

Considering the historic governing documentation of the Scheme provided the Judge with limited assistance in construing the provisions in front of him.  He held that if there had been an intention to change the nature of an entitlement, then the drafter has chosen rather obscure language to achieve such a result.

The Judge also felt that only if the terms of the rule had been truly ambiguous, was it permissible to consider the parties' conduct both before and after the rule in question had been introduced into the scheme, which is a principle that has already been established.  However, the Judge felt that this principle must be treated with some caution and can only be engaged where the language is truly ambiguous.


This case, as with all cases of this type, will be dependent on its facts and the rules of the pension scheme in question.

Whilst the recent run of cases has shown the court leaning strongly towards a more literalist construction of documentation, that the Judge did not dismiss the possibility of purposive construction should provides practitioners with at least some hope of where questions of practical effect arise.  In the same vein,  the parties should not view this decision as necessarily preventing historic governing scheme documentation being considered in a construction case despite the Court advising caution when doing so.  Where there is need for conduct of the parties to be examined the court may well do so.

The case provided an example of cost-effective and efficient representation of the parties. Hogan Lovells were instructed by both the claimant employers and the neutral trustee, although separate barristers were appointed by each.  The trustee took the role of assisting the court where asked and making submissions on matters of administration. 

This piece was first published by Professional Pensions, and can be found here (£).