Safeway Ltd v Newton  (Case C-171/18)
On 7 October 2019, the Court of Justice of the European Union (CJEU) gave a preliminary ruling on request from the Court of Appeal in Safeway v Newton. The CJEU ruled that, unless there is an objective justification, it will be contrary to the principle of equal treatment for a pension scheme to retroactively equalise the normal pension age (NPA) for men and women by "levelling down" the rights of the advantaged group. This applies even where such measures are permitted by national law and the scheme rules.
In 1990, the European Court of Justice (as it then was) gave its landmark judgment in Barber where it held that the EU law principle of equal treatment – equal pay for equal work – prohibits a pension scheme having different NPAs for men and women. As a result, a large number of pension schemes, including the Safeway scheme, took steps to equalise the position and end the discrimination.
Created in 1978, the Safeway scheme originally had an NPA of 65 for men and 60 for women. The scheme's rules contained an amendment power which permitted the scheme (including the value of its benefits) to be amended retroactively as of the date of a written announcement to members, provided that the amendment was effected via a trust deed at some stage in the future. Following Barber, announcements were made to members of the Safeway scheme on 1 September and 1 December 1991 informing them that the NPA was going to be equalised between men and women at 65 (that is, the rights of women were going to be "levelled down"). The amendment was said to take effect as of 1 December 1991 and the scheme was subsequently administered on that basis. The trust deed formalising the amendment (as required by the rules), entered into on 2 May 1996, confirmed that the amendment applied with effect from 1 December 1991 as indicated in the announcement. This amendment was effective under domestic law (at the time) and was in accordance with the scheme's rules.
In 2009, the trustees' independent adviser raised concerns about whether this retroactive levelling down was compliant with EU law, which led to the issue coming before the High Court in 2015. The High Court held that the amendment power could not be used via the announcements to members alone and that the retroactive levelling down of benefits was contrary to equal treatment. Safeway appealed that decision and the case came before the Court of Appeal in 2017.
The Court of Appeal affirmed that the announcements to members alone were not capable of achieving equalisation of NPA at 65; it was clear from the scheme rules that a deed was required and so, under national law, equalisation was not effected until 2 May 1996. Nevertheless, the Court of Appeal took the view that both national law and the scheme's rules would permit a retroactive levelling down of benefits for the period between the 1991 member announcements and the 1996 trust deed. However, the Court of Appeal considered that clarification was required from the CJEU as to whether such retroactive levelling down was compliant with EU law. Accordingly, it submitted a request for a preliminary ruling to the CJEU.
Question for the ECJ
It is clear from the existing CJEU case law that, as a general rule, the retroactive levelling down of accrued rights is contrary to equal treatment and therefore prohibited. Therefore, in essence, the Court of Appeal's question for the CJEU was whether that position was different in cases where those rights were "defeasible" under national law (that is, where the benefits could be retroactively reduced under national law and the scheme rules).
The CJEU's decision
The CJEU ruled that the fact that the accrued rights are defeasible under national law and the scheme's rules does not change the fundamental position; the retroactive levelling down of accrued rights is contrary to the principle of equal treatment, unless there is an objective justification.
Accordingly, for the period between the later announcement to members (1 December 1991) and the trust deed (2 May 1996), equalisation could only be achieved retroactively by levelling up the rights of the disadvantaged group (that is, by lowering the NPA for men rather than raising the NPA for women). The uniform NPA of 65 will be deemed to take effect after 2 May 1996.
As to what constitutes an "objective justification" which may permit retroactive levelling down, the CJEU noted that there would need to be an overriding reason in the public interest and that the legitimate expectations of the members would need to be respected. One such justification might be if being required to "level up" would create a risk of seriously undermining the financial balance of the scheme. Whilst the impact on the Safeway scheme was said to be in the region of £100m, the CJEU noted that whether this posed a risk of seriously undermining the financial balance was ultimately a question for the Court of Appeal.
In light of the previous EU case law on equalisation, the CJEU's decision in Safeway is perhaps to be expected. It is clear from that case law that the starting presumption is that equalisation can only be achieved retroactively by levelling up the disadvantaged group rather than levelling down the advantaged group. In this sense, the decision represents a logical and foreseeable continuation of that case law.
However, the CJEU did leave room for some uncertainty, debate and, for affected schemes with a certain type of amendment power, hope. The general prohibition on retroactively levelling down may be departed from where (a) the scheme's rules and the domestic law permit such an amendment and (b) there is an objective justification for doing so. Domestic law would now prohibit any retroactive amendment that could prejudice a member's rights following the introduction of section 67 of the Pensions Act 1995, so this case could only provide hope for those schemes which attempted to retroactively amend prior to 6 April 1997.
If your scheme has an amendment power that permitted retroactive amendment, the amendment was exercised prior to 6 April 1997 and was valid under the scheme rules, this case could provide you with an argument that the amendment to level down NPAs should be permitted if you can show objective justification. We have little information about what may constitute an objective justification, however, we know that a risk of seriously undermining the financial balance of a scheme is one possible example.
The case will now return to the Court of Appeal to make its decision in light of the CJEU's preliminary ruling. The Court of Appeal's decision may provide useful insight into the question of when there may be an objective justification for permitting retroactive levelling down.