Employer not liable to pay pension arrears on proper construction of pension scheme forfeiture rule

In the recent case of Re CMG UK Pension Scheme, sub nom CMG Pension Trustees Ltd v CGI IT UK Ltd, the High Court held that an IT company does not have to compensate its pensioners for unpaid pension benefits that were due for payment more than six years before the pension scheme’s trustees raised issues over the scheme’s benefit structure in 2019. The court ruled that a clause relating to unclaimed benefits was a forfeiture clause and meant that the employer, CGI UK Ltd, does not have to make good all of the arrears.

It was found that the scheme had a valid forfeiture clause where the scheme provisions stated that ‘any benefit or instalment of a benefit which has not been claimed within six years of the date on which it fell due for payment is forfeited and the entitlement to that benefit or instalment is extinguished’. Further, this is not limited to missing beneficiaries; it applies to all unclaimed benefits once the six-year period has expired. Such a clause is, it was held, ‘a forfeiture rule and takes effect whenever a benefit or instalment has not been claimed for more than six years after it fell due and, in particular, whether or not the beneficiary is missing or is aware that the benefit or instalment remains unpaid’.

The sole trustee, CMG Pension, had made the case that the clause in question was not a matter of forfeiture; rather, its purpose was only to deal with missing beneficiaries, even though the provision made no distinction between benefits unclaimed as a result of the beneficiary being missing and those unclaimed because the beneficiary is unaware of the entitlement. On this contention, the court said that ‘If the purpose of the rule was to draw such a distinction, one would have expected the drafter to use clear language to that effect’.

Even though the clause did not use the word ‘forfeit’ or ‘forfeiture’, setting a time limitation for claiming benefits in all circumstances was still found to be its aim.

Whilst not good news for members of the CMG UK Pension Scheme who are impacted by the review of the Scheme’s benefit structure, the case is useful for trustees grappling with GMP rectification and equalisation in terms of quantifying top-ups and arrears payments that may be due to pensioners. It follows the Lloyds Bank GMPE cases and the also fairly recent Axminister case.