Defined benefit pension scheme closure to future accrual

04 July 2018

In G4S Plc v G4S trustees, the High Court considered whether a defined benefit pension scheme was a “frozen scheme” for the purposes of the Employer Debt (‘Section 75’) Regulations. A frozen scheme is one where benefits have ceased accruing for all members.

Open or Frozen?

According to an early report from Herbert Smith Freehills, a law firm involved in the case  (a judgment transcript is awaited), the High Court decided that the G4S scheme, a multi-employer final salary scheme for employers in the same group of companies was, following its closure to future accrual, a “frozen scheme” for the purposes of Section 75. This was despite the fact that the scheme, even following closure, retained a link to future earnings for accrued benefits in respect of members still in employment. 

This judgment is a welcome clarification in respect of an issue over which there has been considerable long-term uncertainty. In an earlier case, involving the Merchant Navy Ratings Pension Fund, the court observed that members in closed schemes who retain an earnings link are not ‘actives’ for section 75 purposes. However, the observation was in a non-binding part of its decision; i.e. ‘obiter’ (made or said in passing). When schemes are closed to future accrual (i.e. closed to all members and not just new entrants), it is not uncommon for members at the time of closure to retain an earnings link for their accrued benefits whilst still in employment with a scheme employer. In some cases, whilst it may not be desirable, this is unavoidable because of restrictions in the pension scheme amendment rule. 

A word of caution?

Whilst this specific judicial comment on a long running area of uncertainty is welcome, it should not be assumed that members in closed schemes who retain an earnings link (or other enhanced benefit) will never be considered active members. 

For example, for the purpose of the tax regime the HMRC website says that for registered (tax approved) pension schemes, if an individual has left a pension scheme, but their future benefits are still linked to their final salary, the individual is not a ‘deferred member’ for the purpose of the tax rules. This is because the individual is still accruing benefits to the continued salary link. 

Any pension saving (calculated in the usual way for pension input amounts generally, including the CPI uplift on the opening value) counts as a pension input amount. 

So, advice on the particular circumstances of a scheme and its members is always recommended.

For more information on how this ruling may effect your company, speak to your usual JLT contact or John Wilson, Head of Technical on +44 (0) 131 456 6850 or at



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