Bungled pension scheme could have cost bank "many millions of pounds"

Monday 13 March 2017

Jersey's Royal Court has allowed a leading bank to re-write the bungled terms of its pension scheme because it could inadvertently have had to pay out millions to its employees.

Under the original terms of Citibank's scheme, drawn up in 1984, the amount of money paid to members was based on their years of service and the salary they were on when they retired.

In 2012, the terms were re-written. Under the original terms it was explicitly stated that final salary, "...shall not include any bonuses, special allowances, overtime payments, commissions, presents, donations or other similar distributions."

That got lost in the re-drafting. Instead it simply said: "'Pensionable Salary' means actual earnings received from the Employer during the 12 months ending on the day before the last Scheme Anniversary."

After seeking legal advice Citbank was told "actual earnings" probably would include overtime, bonuses and other payments, which could make  considerable difference. 

After noticing the problem the bank instructed an actuary to calculate the financial consequences for the bank if the definition of pensionable salary was calculated on gross earnings as opposed to basic salary for all members of the scheme from 1 November 1980. The Court noted: "...it is clear that the financial consequences for the bank would be significant (both in terms of current liabilities and future contributions) running into many millions of pounds."

Although those in the scheme told the Court they'd always thought their pensions were based on the stricter definition of salary, and not the wider one which included any fringe benefits, the matter needed to go to Court for rectification (the legal term whereby a court orders a change in a written document to reflect what it ought to have said in the first place).

To allow that to happen the Court had to be satisfied of three things: that it was a genuine mistake, that there had been full and frank disclosure, and that this was the only practical remedy. They agreed it passed all three hurdles, and gave the go ahead for the terms to be re-draftted to reflect the stricter definition of salary.