The High Court has rightly outlawed a blatant attempt by trustees of a small troubled pension fund — the Ilford Imaging scheme — to “game” the pensions lifeboat system to the advantage of their own members and the detriment of all other pension funds. But Mr Justice Henderson went further, again rightly, ruling more generally that pension trustees should not make decisions at all predicated on the comforting existence of the lifeboat, the Pension Protection Fund.
This, potentially, has huge implications for the many schemes in deficit and with shaky sponsoring employers. The existence of the PPF had started to have a distorting effect on decision-making among trustees, introducing moral hazard and threatening the already tottering PPF with an even heavier burden. Trustees will no longer be able to justify taking racy asset allocation bets safe in the knowledge that the PPF will bail them out. Nor will they be able to use the PPF as justification for letting sponsoring companies off the hook for whatever reason.
With the PPF offering generous compensation terms to pension fund members whose sponsoring company has failed, there has been less of an onus on trustees to put pressure on employers to chip in when deficits balloon.
One wonders whether the trustees of the British Airways pension fund would so confidently have sacrificed £330 million of assets the other day to help out the struggling airline if this ruling had already been made.