Options for Defined Benefits schemes: consultation


On 23 February 2024, the DWP issued a consultation on options for Defined Benefit schemes.

In this response

General comments

As pensions lawyers our expertise lies, among other things, in understanding the legal complexities in the current DB pensions landscape.  Before delving into the detailed questions, we thought it would be helpful to provide some general comments that feed into several of the question areas.

Our understanding of policy intent and use of extracted surplus

One of the stated aims is to support schemes to invest “surplus in productive asset allocations” by making it easier to share surplus with employers and members (paragraph 21).  The 2023 call for evidence explored the potential uses for the extracted surplus, such as providing additional contributions to the employer’s DC scheme (question 8).  However, our understanding from paragraph 22 of the consultation is that the current intent is for employers to be able to use any extracted surplus freely, without constraints.

Benefit for trustees and sponsors to have more alternatives to buy-out

We welcome any proposal that will give trustees and sponsors more choice as their schemes mature, and to enable them to make decisions appropriate for their particular scheme and members.

Subject to appropriate safeguards (see responses to specific questions below), addressing the complexities around surplus could make the prospect of running on a scheme a more viable option for some trustees and employers than is currently the case.  Similarly, transferring to a public sector consolidator may be more appropriate than buying out with an insurer, especially where that scheme is unattractive to a commercial insurer, meaning the pricing may be prohibitive.

Trustee duties

We support the aim of simplifying the currently complex law surrounding the extraction of surplus, along with a possible statutory override to overcome restrictions in scheme rules (see our responses to questions 2 and 3 below).  However, when exercising any power, trustees must go through a two-stage process – first, can they exercise that power and, second, should they exercise that power. Simplifying the process will help with the first step but, in an occupational scheme set up under trust, existing trustee duties are a key part of the second step, and these duties will remain unchanged by the current proposals.  In particular, there is established case law surrounding distribution of surplus and the exercise of trustee duties.  The particular factors to consider may vary depending on whether the scheme is ongoing or in wind up.  Our responses to questions 7 and 8, and the appendix, provide more detail.

Specific consultation questions

Chapter 1: Treatment of scheme surplus

Question 1: Would a statutory override encourage sharing of scheme surplus?

If there are appropriate safeguards in place to ensure the security of members’ benefits, then for those schemes with employers who have a strong long-term covenant, introducing a statutory override will simplify the process and remove some of the current barriers, which may mean sharing of surplus is more likely to happen.

There are some schemes where the option to run on could offer tangible benefits, and managing surplus is a key part of any such decision.  For example, schemes with limited inflation-linked protection (which is often granted under discretionary benefits), those with US parent companies (where buy-outs and surplus have very different implications for US GAAP reporting), or those with illiquid assets could all see benefits to running on a scheme.

Question 2: What is the appropriate balance of powers between trustees and employers? Should a statutory override allow trustees to amend scheme rules around surplus at their sole discretion, or should such amendments be contingent on an agreement between trustees and the sponsoring employer?

In principle, we welcome the opportunity to simplify what is currently a rules-based lottery governing the return of surplus.  The restrictions in some scheme rules can lead to tricky discussions with the employer – for example, where there is a surplus but the only permitted use of the surplus is to return it to employers on winding up, rather than permitting any payment to employers (or members) whilst the scheme is ongoing.  Simplifying the “can” element of returning surplus creates a level playing field for trustees to then consider whether they “should” be returning surplus.

However, there is no straightforward answer as to how this should be achieved in practice.  As a general rule, we tend to support the approach of maintaining the current balance of powers where possible.  The difficulty here is that this isn’t necessarily possible, since there may be a number of provisions in play which could have different balance of powers, including:

  • power to amend the rules
  • standalone power to return surplus in an ongoing scheme
  • power to return surplus on winding up
  • restrictions in any of those provisions (eg a restriction on using the amendment power to introduce a power to return surplus to the employer – this is a relatively common restriction in amendment powers), or even in other provisions (eg restrictions on using DB surplus for a DC section in a hybrid scheme)
  • some scheme rules may not have a current power, so there is no balance of powers to replicate.

Question 3: If the government were to introduce a statutory override aimed at allowing schemes to share surplus with sponsoring employers, should it do so by introducing a statutory power to amend scheme rules or by introducing a statutory power to make payments?

We have seen several commentators struggling with the distinction between these two options, so we thought it would be helpful to expand on our understanding of each:

  • Statutory override introducing a statutory power to pay surplus to employers. This would allow trustees and employers to use a statutory process to pay surplus to the employer, regardless of what the scheme rules provide.  This would simplify the “can” element of exercising any power, allowing trustees to focus on whether they “should” exercise that power.
  • Statutory override introducing a statutory power to allow trustees / employers to amend the scheme rules to introduce a power to pay surplus. This introduces an additional step into the process – as well as deciding whether to return the surplus to employers, trustees would first need to decide whether to amend the rules to introduce such a power. This could be particularly tricky for those trustees who have a unilateral power to amend their scheme rules.  We are aware of some trustees who hold such a power (which includes restrictions on using that power to make an amendment which would permit the return of surplus to the sponsor) and have raised strong concerns about the prospect of coming under pressure to amend the rules in this way, given their trust law obligations.   A statutory override introducing a power to pay surplus in line with the first option above, would place such trustees in a less difficult position.

If the decision is to proceed with a statutory override, we believe there are several factors to consider:

  • whether the override would cover a return of surplus on winding up, or from an ongoing scheme, or both
  • how the override would interact with the existing statutory regime, including:
    • section 37 of the Pensions Act 1995 (return of surplus in an ongoing schemes). In addition to meeting any requirements in the scheme rules and other statutory requirements, trustees also have to be satisfied that it is in members’ interests to make the refund.  This amounts to an obligation to actively consider what is or is not in members’ interests, and extends beyond just being satisfied that it would not adversely affect members
    • section 76 of the Pensions Act 1995 (return of surplus on a winding up). This section sets out various requirements which must be satisfied before a return of surplus can be made on a winding up, including where there is a power to augment benefits, that the power has been exercised or a decision has been made not to exercise it, along with a set process for trustees to follow, including giving members written notice
    • section 251 resolutions. Following the introduction of a new pensions tax system on 6 April 2006, section 251 of the Pensions Act 2004, which applied to schemes in existence before 6 April 2006 that had a power to return surplus from an ongoing scheme, provided trustees with the power to pass a resolution to confirm or amend powers in their scheme rules to make payments to the employer or allow them to cease to be exercisable. The deadline for passing the resolution and notifying members in order to retain the power has long since elapsed. Some trustees would have passed such resolutions and some would not have done (whether intentionally or through omission).

See section 1 of the appendix for more detail on the relevant legislation

  • how the override would interact with any relevant provisions / restrictions in the scheme rules (see response to question 2 above).

Question 4: Should the government introduce a statutory power for trustees to amend rules to enable one-off payments to be made to scheme members, or do schemes already have sufficient powers to make one-off payments?

We support the proposal to enable trustees to make one-off payments to scheme members.

As noted in paragraph 28 of the DWP consultation, the main restriction on making such payments from DB schemes is the current tax regime, rather than necessarily any limitation in scheme rules.  At present, one-off payments would be treated as “unauthorised payments” under the Finance Act 2004, and subject to a punitive tax charge.  As well as the tax charge, schemes face the risk of being deregistered as a “registered pension scheme” if they make too many unauthorised payments, and some scheme rules prevent trustees from making unauthorised payments.  If this power were to be introduced, changes to the Finance Act 2004 would therefore be needed, so as to extend the existing authorised payments regime to accommodate such one-off payments.

Given that not all scheme rules will allow for trustees to make one-off payments, we agree with the proposal to introduce a statutory power for trustees to amend their scheme rules accordingly.  It would encourage trustees to actively think about a surplus refund if they could grant a one-off benefit to members rather than a permanent increase to benefits, which would have funding implications. The one-off payment also has potential to be simpler to administer than a permanent adjustment to members’ benefits.

Question 5: What impact, if any, would additional flexibilities around sharing of surplus have on the insurance buyout market?

The buy-out market has been extremely busy recently, particularly over the last couple of years with improved funding levels.  The fierce competition for “good” business and attractive pricing has often led to frantic activity and very tight timeframes.  If the possibility of sharing of surplus makes running on a scheme more attractive to some trustees and employers (even if just for the short or medium term), then this could help to slow down the pace of the market and transactions. In turn, this could enable such transactions to take place over a more appropriate time period and avoid a capacity crunch.

Although we don’t have any firm evidence, based on discussions with our wide client base, we are of the view that there will still be material industry interest in moving to buy-out even if sharing surplus is made easier.

Question 6: What changes to the tax regime would support schemes in delivering surpluses to distribute as enhanced benefits?

See answer to question 4 above. Specific changes to the tax regime would depend on what one-off payments were considered permissible from a policy perspective. For example, the high inflation over recent years has caused many trustees and employers to consider the position of pensioners who do not receive any inflation protection on their pensions, or very little inflation protection. We have seen several examples where employers would not agree to awarding a permanent increase under discretionary powers due to the funding implications. However, they were willing to make a one-off lump sum payment but this could not be done as an authorised payment from the scheme. If from a policy perspective it was considered that a one-off payment in these circumstances should be allowed, consideration would be needed as to whether this is best done by amending the categories of lump sum that count as an authorised payment, or the provisions preventing pensions in payment being reduced except in specified circumstances.

Question 7: Are there any other alternative options or issues the government should consider around the treatment of scheme surplus?

Trustee duties

Regardless of any statutory override being introduced and changes to taxation, the assets in DB occupational pension schemes are ultimately held under a trust.  This means that trust law will always be relevant when trustees are making decisions.

Trustees have to use any powers for their proper purpose.  The “main purpose” of a scheme is to provide retirement and other benefits for employees of the sponsoring employers.  The main purpose of the investment power in a DB scheme is, broadly speaking, to invest to generate returns in order to provide the specified level of benefits promised under the scheme. As such, as the law stands, whilst sharing out surplus may help to achieve these purposes, using the scheme as a vehicle with the main aim of generating surplus for the employer, or to invest in UK productive assets for the benefit of the economy as a whole, may not be consistent with the use of the investment power for its proper purpose, or with the main purpose of the scheme.

Use of surplus

There have been numerous cases relevant to the distribution of surplus, setting out various principles that trustees need to follow, and relevant factors that they should consider – see question 8 below and section 2 of the appendix.

Other options

There are other options that could be explored, such as making it easier for employers to use DB surplus to fund contributions to their other pension schemes.  Currently, there are legal difficulties in using a DB surplus to fund contributions into a separate DC or DB scheme, including case law constraints, restrictions in schemes’ rules, as well as current tax legislation. Introducing an overriding statutory trustee power could make this a more viable alternative option.

Question 8: Under what combination of these criteria should surplus extraction be permitted? If you feel alternative criteria should apply, what are they?

The funding criteria determines part of the “can” question for trustees.  If there is a relatively low bar in terms of the funding gateway to distributing a surplus, this could put the employer-trustee relationship under enormous strain (eg if the employer were to put pressure on the trustee to return surplus).

Regardless of where the bar is set, trustees will still need to consider all relevant factors before agreeing to any return of surplus.  Case law sets out relevant factors for trustees to consider, including:

  • the scope of the power
  • the purpose of the power
  • the source of the surplus
  • the size of the surplus
  • the financial position of the employer
  • the needs of the members of the scheme.

See section 2 of the appendix for more detail on the relevant case law. Trustees would also need to satisfy the current statutory tests (eg section 37 requires that any return of surplus must be in the members’ interests – see question 3 above).  However, the specific factors which may be relevant would need to be assessed by reference to a scheme’s own unique circumstances.

Question 9: What form of guidance for trustees around surplus extraction would be most appropriate and provide the greatest confidence?

Depending upon how the statutory override is framed, ie assuming there is a statutory power to pay, then the key question for trustees will be whether they “should” return any surplus to employers.  When faced with any such decision, trustees need to consider all relevant factors and disregard any irrelevant factors.  Any guidance (which we assume will come from TPR) would need to take into account existing case law on surplus (see question 8 above and section 2 of the appendix) and be sufficiently flexible to take account of the fact that relevant factors will largely come down to a scheme’s specific circumstances.

In view of such case law, some commentators aren’t keen on factors being set out in TPR guidance.  In particular, TPR’s current role around return of surplus under section 76 of the Pensions Act 1995 is a process driven one, so we struggle to see what powers they have to determine when the payment of surplus to an employer would be acceptable.  If members or employers challenge trustee decisions around surplus payments, trustees won’t be able to rely on the guidance – they will still need to demonstrate that they have gone through the proper legal decision-making process.  Given this, it would be helpful for some high-level key factors to be set out in legislation, giving them legal standing, rather than in guidance.

Question 10: What might remain to prevent trustees from sharing surplus?

See questions 7 to 9 above.   Trustees will also have to consider what happens if the funding levels deteriorate after any payment of surplus has been made.  This could this lead to member claims as well as having a reputational impact on the trustees.

Question 11: Would the introduction of a 100% underpin have a material impact on trustees’ and sponsors’ willingness to extract surplus? If so, why and to what extent?

Under existing case law (ITS v Hope [2009]), trustees cannot take account of compensation available under the PPF when making investment decisions.

Similarly, when TPR is assessing whether an employer might have acted in a way that materially affected the likelihood of accrued scheme benefits being received, which is an element of the criminal offence under section 58B of the Pensions Act 2004, any PPF compensation must be disregarded.

These legal hurdles would need to be overcome if a 100% underpin were to be introduced. Leaving them aside, however, we understand anecdotally that the current proposed top-up levy is pitched at such a level that many schemes/employers would be unlikely to pay it.

Question 13: If you consider a 100% underpin could deliver valuable benefits, what does the government need to prioritise to ensure an effective design? For example, does the way the “super levy” is calculated need to ensure that the “super levy” is expected to be below a certain level? How high a level of confidence does there need to be that the PPF will be able to pay a 100% level of benefits?

If the super levy were to go ahead there would need to be segregation in the PPF compensation fund of those assets to ensure that they were not used to subsidise other PPF compensation. Would this lose the economy of scale and investment return that the PPF benefits from? We are unclear on the finances and take-up rate needed to make this viable.  We would also expect any interested trustees would want assurances that the PPF compensation would not be downgraded in the future.

Chapter 2: Model for a public sector consolidator

Question 15: Would the proposed approach to eligibility allow schemes unattractive to commercial providers to access consolidation? Would it be attractive to such schemes?

Markets in the pensions industry can change very quickly – it might be that schemes that are currently attractive to commercial providers fall out of favour in future years, leaving them unable to access consolidators or insurers.  Given this potential for change, we suggest that any eligibility criteria have an element of flexibility built in, and that they are subject to regular review.

Question 17: Would a limit on the size of the consolidator be needed? If so, how might a limit on the size of the consolidator be set? Would limits on capital and a requirement to meet the same capital adequacy requirements as commercial consolidators suffice, or are there alternatives?

We would expect there to be a limit on the size of the consolidator to ensure that there is no market distortion but we suggest any limit has flexibilities built in, as we expect the appropriate limit would change over time. There is also the need to balance any such limits with the importance of scale that will be needed for the consolidator to succeed.

In respect of capital limits, a requirement to meet the same capital adequacy requirements as commercial consolidators seems a sensible place to start.

Question 18: How in practice might the public sector consolidator assess whether a scheme could access a commercial consolidator?

We struggle to see how a scheme could “demonstrate an inability to join a commercial consolidator or secure insurance buyout” in practice.  Would it be tied to the number of quotes that a scheme could obtain? How many insurers / consolidators must it ask for a quote from before it can “prove” it isn’t able to join a consolidator or secure buy-out? What if a scheme is able to obtain a quote but the pricing makes it unviable in practice?

There is also the cost involved in seeking quotes – requiring schemes to have obtained quotes might have a detrimental impact on schemes whose finances and resources are already stretched.

For these reasons, we agree that it might be simplest for the consolidator to be open to all schemes but with features that mean it will not be an attractive option to all schemes (eg a standardised benefit structure).

Question 21: Do you agree that the consolidator should run as a single pooled fund and operate on a “run on” basis rather than target insurance buyout? If not, what alternative structure or operating basis would you propose?

As one of the key aims is to “enable greater investment in high-growth UK assets”, then we think a single pooled fund would be needed to benefit long term from necessary economies of scale.

As an aside, we welcome the proposal that the consolidator will be ring-fenced from PPF compensation and any “top up” fund.

Question 22: Should underfunded schemes be segregated to avoid potential cross-subsidy with other schemes?

Yes. We think underfunded schemes will need to be segregated whilst the employer pays off the deficit.  Once fully funded, it could then be transferred to the “main” section of the consolidator.  This fits with the proposal for underfunded schemes to transfer to the PPF compensation fund if the employer goes insolvent before the deficit is paid off.  However, this will obviously impact the consolidator’s ability to reach scale quickly, so it will be important to understand the likely impact any segregation would have on achieving scale.

Question 24: Should open private sector DB schemes be eligible to enter the consolidator? Should the focus be on closed schemes specifically?

At this stage, we suggest the focus is on closed schemes.  There would be a lot of other considerations to address if the consolidator were extended to open schemes.

Question 25: Will this [a number of standardised benefit structures, using the actuarial equivalent of full benefits] achieve the right balance between limiting the cost of transactions whilst remaining reasonably attractive to scheme trustees and their members? Are there certain elements of schemes’ benefits that should always be retained?

We agree that limiting transaction costs is needed to attract schemes, particularly smaller schemes.  Standardising benefits has the advantage of potentially reducing costs on entry, whilst also simplifying administration processes on an ongoing basis for the consolidator. However, we are unsure whether standardising benefits would necessarily reduce costs as we would expect any actuarial equivalence calculation to need a benefit specification, which often takes a significant amount of work, particularly for schemes with multiple or complex benefit structures.  Moreover, any benefits from standardised benefits would, need to be balanced against protecting members.  We suggest TPR is involved to understand how it will view and approach any such transfers, eg how much scrutiny will it give trustee decisions around which benefit structure to adopt and how much will this vary according to the size of the scheme?

Where actuarial equivalence is used to convert benefits from one form to another, our experience is that the assumptions used can mean that there are “winners” and “losers” depending on how things actually play out in practice for any particular member eg how long they live, whether a deferred member dies before retirement etc. This can make it challenging for trustees to get comfortable that it is proper to agree to any significant reshaping.

Also, some schemes may have restrictions in their scheme rules on reshaping benefits – such as requiring member consent.  These may be more stringent than statutory requirements under section 67 of the Pensions Act 1995, so this approach may limit the number of schemes which could transfer into the consolidator, unless there was a statutory override.

Question 26: If standardised benefit structures are applied, what should these benefit structures be?

As this raises some important questions, we suggest that the PPF undertakes further research on the level of interest and types of schemes expressing an interest to help inform the benefit structures on offer.

One area for particular consideration is existing pensioner members – would their benefits be “standardised”? If so, how would this be communicated and to what degree might that affect trustees’ decisions whether or not to transfer?

In contrast, if pensioner benefits are not standardised, would there be an increased administrative burden in managing different pension increases etc?

Question 28: Will this proposed governance structure achieve effective administration and public confidence in the public sector consolidator?

We think the proposed governance structure seems appropriate.

Question 33: Are these arrangements [ie re schemes entering in deficit or surplus] for schemes transferring into the consolidator sufficient to achieve the consolidator aims outlined above? If not, what alternative arrangements would you propose?

The proposed arrangements for transferring schemes in deficit (ie where an employer has a repayment schedule but becomes insolvent before the instalments are complete and members would have their benefits reduced in line with the proportion of instalments made as a result) presents a difficult position for trustees when deciding whether or not to transfer to the consolidator.  This is because it raises the risk that benefits may not be secured in full.  We think this may make it tricky for trustees to agree to the transfer.

Separately, it is not clear at the moment what the penalty would be for an employer who doesn’t keep up with its payments, as we understand it would be a contractual agreement to pay deficit payments, rather than any replication of the section 75 (employer debt) regime.  Again, we would be concerned that this could make it easier for employers to abandon their schemes.  How would the moral hazard regime apply to these employers (ie after transfer but before the deficit is paid off)?

Question 40: What conditions ought to be met for the PPF reserves to be considered as a source of underwriting?

We don’t think it would be appropriate for PPF reserves to be considered as a source for underwriting a public sector consolidator, as the PPF levies paid by eligible DB schemes were made specifically to fund the PPF compensation fund.

Appendix – synopsis of relevant legislation and key cases on distribution of surplus

  • Relevant legislation
    • Even where schemes contain a power to return surplus in an ongoing scheme, there are legislative conditions that need to be met. Except where a scheme is winding up, surplus may only be repaid to an employer if the requirements of section 37 of the Pensions Act 1995 are complied with, including that the trustees satisfied the repayment is in the members’ interests. Under section 37 trustees are given control of the process, even if the scheme rules say the employer decides.
    • Paragraph 23 in the consultation is not quite accurate as section 251 of the Pensions Act 2004 only applied to schemes established before 6 April 2006 (“A-Day”), which had a power to refund surplus in the Scheme Rules immediately before A-Day. For those schemes the trustees must have passed a valid resolution under section 251 of the Pensions Act 2004 before 6 April 2016 to retain that power.
    • Where a scheme is winding up, in order to be an authorised surplus payment, the scheme must comply with section 76 of the Pensions Act 1995 (broadly, all liabilities have been secured and any discretion to augment has been exercised). However, section 76 is not a free-standing power to repay surplus to the employer, as there must be a power “conferred on the employer or the trustees to distribute assets to the employer on a winding up”. Section 77 of that Act previously allowed schemes, whose rules forbade repayments of assets to the employer, to pay residual surplus to the sponsor, but it was repealed on A-Day without replacement.
    • For a scheme whose amendment power prevents or makes unduly complex the introduction of a power to repay surplus on wind-up to the employer, trustees may ask TPR to modify the scheme under section 69 of the Pensions Act 1995. Section 69 was amended in 2016 so that now TPR may act “only if prescribed requirements in relation to the distribution are met” (our emphasis). However, no regulations have been issued so there is a preliminary question to be addressed with TPR whether this means it believes it can act without restriction or cannot act at all.
  • Relevant case law

Relevant factors when distributing surplus (Thrells v Lomas [1993] 2 All ER 546)

  • The scheme employer was in insolvent liquidation. Owing to a conflict, the liquidator surrendered their discretion, as trustee, regarding the distribution of surplus on the scheme’s wind-up to the Court. The Vice Chancellor (as the president of the Chancery Division was then called) set out the six principal factors he took into account when choosing how to distribute the surplus:
  • the scope of the power
  • the purpose of the power
  • the source of the surplus
  • the size of the surplus and the impact of section 11(3) of the Social Security Act 1990 (which required surpluses available in a scheme when a company went insolvent to be used for benefit improvements)
  • the financial position of the employer
  • the needs of the members of the scheme.

Members’ “legitimate expectations” (LRT v Hatt [1993] PLR 227)

  • One of the relevant factors in Thrells (above) was the members’ reasonable expectations that they might share in the surplus. In LRT, the judge expanded on this concept of, as he called it, “legitimate expectations”, explaining that:

there are the expectations which members might quite legitimately harbour that discretions will be exercised in their favour where no such breach of a duty of good faith by the employer or abuse of a fiduciary power is involved in the non-exercise of the discretion. Typically this situation arises where there is a surplus discerned by the actuary to the fund and one possibility is for pensions to be increased. No doubt the larger the surplus the livelier the expectation but in the great majority of pension funds it remains an expectation rather than a right.”

  • These comments were made at a time when it was common for valuation surpluses to be shared between employers (contribution holidays) and members (benefit improvements and/or contribution holidays). Members’ expectations today may be more modest after many years of deficits and cessation of DB accrual but, as highlighted in response to questions 8 and 9, this will need to be considered against the backdrop of a scheme’s individual circumstances.

Principles when exercising trustee discretions (Edge v Pensions Ombudsman [1999] 4 All ER 546)

  • The scheme had a large surplus. In order for the scheme to continue to meet the then Inland Revenue requirements this surplus had to be reduced. The trustees decided to reduce the surplus by crediting active members with additional service and reducing both the members’ and the employers’ contribution rates. To implement these changes they amended the scheme rules. Pensioner members did not benefit from these changes and complained to the Pensions Ombudsman.
  • The Court of Appeal held:
  • trustees must always consider the “main purpose” of the scheme (to provide retirement and other benefits for employees of the participating employers). This involves considering the position of the employer
  • the duty to act impartially requires a discretionary power to be exercised for the purpose for which it was given, giving proper consideration to the matters which are relevant and excluding matters which are irrelevant. A preference for one set of beneficiaries may be the result of a proper exercise of the power
  • the trustees had taken their decision correctly and there were no grounds upon which the Ombudsman could properly have found that they had acted in breach of trust.

Exercising powers for their proper purpose (Hillsdown Holdings plc v Pensions Ombudsman [1997] 1 All ER 862)

  • In this case the members and the surplus were transferred from a scheme that prohibited repayments of surplus to another scheme where the surplus could be (and was) extracted. The Court upheld the Pensions Ombudsman’s decision that Hillsdown Holdings had acted unlawfully and held that this was an improper exercise of the trustees’ bulk transfer powers. The judge commented “…powers may not be exercised for a purpose or with an intention beyond the scope of or not justified by the instrument creating the power”.