The recent  ‘Pilots’ judgment contains important clarification for pensions schemes on who is an employer. The Court interpreted relevant legislation to construe the ’employer’ as meaning an employer of persons eligible to join the pension scheme (rather than just of those who are actual members of the scheme).

This decision could have potential ramifications for some employers both in respect of scheme specific funding obligations, and in respect of employer debt where an employer ceased to employ active members prior to April 2008, but continue to employ persons eligible to join the scheme.

Giles Orton, Head of Pensions Litigation at international law firm Eversheds, who acted for Port of Tyne who authorised self-employed pilots who were members in the Pilots National Pension fund, comments on the High Court decision in PNPF v Taylor and others.

“The Pilots’ fund raises many issues that are unique to that fund – I know of no other defined benefit pension scheme where most of the liabilities relate to members who are or were self-employed and paid all the contributions for their own benefits.

“The judge has gone for a solution that gives the trustee an unfettered discretion to amend the scheme to require participating ports to contribute. Even ports where pilots were self-employed and the port never paid and never expected to pay a penny in contributions, may now be called upon.

“Of greater interest to the wider pensions industry are the judge’s comments on the vexed question of who is an “employer” for statutory purposes. This is relevant to the questions of which employers are subject to the statutory provisions to pay contributions while a scheme is ongoing (“scheme specific funding”) or to pay an exit charge when they cease to be associated with a scheme (a “Section 75 debt”)

“The judge took a different line from two other recent cases (but only after giving the legislation a much more thorough analysis). There was never any doubt that employing active members of a scheme makes a company “an employer”. However Mr Justice Warren also held that employing individuals who are eligible to join a pension plan, even if they have not done so, can make a company an employer and hence liable to contribute.

“It says little for the quality of the drafting of our pensions legislation that in repeated reviews by the Courts, different judges are coming up with differing interpretations of such fundamentals as the definition of an “employer”. This decision of Mr Justice Warren, a former pensions practitioner, is much the most authoritative yet delivered. Hopefully it will make things a little more certain, though scarcely less complex.

“The “employer of eligibles” definition does sit better with the legislation, though it contradicts previous tPR Guidance. It is perhaps telling that the judge said “I feel able to attach only the slightest weight to the views of tPR”. But you have to be a judge before you are able to say that.”