The Commonwealth Bank Case

Summary

Peter Beck a former employee of the Commonwealth Bank of Australia (CBA) was retrenched at the age of 51 after 24 years of service.

The Trustee of the Commonwealth Bank Officers’ Superannuation Fund paid Mr Beck a lump sum benefit of $1.4 million based on the provisions to be found in the amended Trust Deed of that fund.

However Mr Beck had originally been a member of the Colonial Group Staff Superannuation Fund which provided a pension benefit if a member retired or was retrenched after the age of 55.

A Deed of Variation had added a provision to allow the trustees to provide an adjusted pension benefit to a member who had completed a long period of service, but who was retrenched before the age of 55.

However this provision had been deleted in 1995 and had not been included in the Rules of the Commonwealth Bank Officers’ Superannuation Fund when Mr Beck’s membership was transferred to this fund in 2003.

The Judge ruled that Mr Beck was entitled to have his benefit determined in accordance with the deleted provision which entitled Mr Beck to a pension benefit with a value of approximately $4 million compared to the $1.4 million benefit he had been paid.

If the Colonial Fund had the same provisions of The Provident Fund then Mr Beck would have been entitled to a pension benefit worth approximately $5.8 Million.

The President of the Supreme Court of the United Kingdom Lord Neuberger stated in Bestrustees v Stuart [2001] PLR 283, [2001] Pens LR 283, [2001] EWHC 549 (Ch), [2001] OPLR 341: as Neuberger J:

“I bear in mind that a pension scheme is likely to continue for a substantial period of time and that those most affected by them and entitled to protection from the trustees, the employer and indeed the Court, will be people who are comparatively poor, who will not have easy access to expert legal advice, and who will not know what has been going on in relation to the management of the Scheme. In those circumstances, it seems to me that protection of the beneficiaries requires the Court to be very careful before it permits a departure from the plain wording and plain requirements of the trust deed.”

In the Peter Beck case, Mr Beck was not “comparatively poor”, yet the Supreme Court of New South Wales was not prepared to permit a departure from the plain wording and plain requirements of the trust deed as amended and properly construed.

The Case

Where a person has an entitlement to a particular benefit in a superannuation trust (fund), transferring the member to another fund cannot be used as a means of of reducing or abrogating that entitlement.

This important principle of trust law has been confirmed by a case in the Supreme Court of New South Wales – Beck v Colonial Staff Super Pty Ltd & Ors [2015] NSWSC 723.

The complete transcript of this case can be found {Link}.

This case was a matter of negligence on the part of the trustee of the Transferor fund who had deleted a valuable provision on faulty legal advice without obtaining the advice of the fund actuary.

Importantly the following allegations were not made:

  • The Trustee of the Transferor Fund had acted dishonestly.
  • The Trustee of the Transferee Fund had acted dishonestly.
  • The wrong type of amending instrument had been used to amend the rules of the fund.
  • The Deeds of Variation had been executed by the wrong parties.
  • The Deeds of Variation had not been properly duty stamped.
  • An attempt had been made to conceal the earlier Deeds of the Fund.
  • Deeds had been concealed from APRA during the fund registration process.
  • Either or both trustees had not been lawfully appointed to the office of trustee.
  • Either or both trustees had been out of jurisdiction for more than 12 months.
  • The fetters on the Power of Amendment prevented the Trust Estate of the original Fund from being transferred to another Fund without an Act of Parliament to amend the rules of the fund.
  • False and misleading material had been published and circulated to members of the Fund.
  • There were no periods where there were no member-elected Representatives to oversee the administration of either funds.
  •  

    The provision deleted was not a mandatory duty of the trustee(s) to pay a prescribed benefit, but a provision that empowered the trustee(s) to make a discretionary decision as to how a benefit could be adjusted if a member with a long service history was retrenched before the age of 55, and where a mandatory pension benefit would become due for payment.

    The Colonial Fund

    The Colonial Mutual Life Assurance Society Limited was founded in Melbourne, Australia in 1873.

    Peter Beck was an employee of Colonial Mutual and a member of the Colonial Group Staff Superannuation Fund {the “Old Colonial Fund”} which provided a life pension to a member who retired or was retrenched after the age of 55, as well as a survivorship pension to his widow.

    This fund had been established by a Trust Deed executed on 30 June 1978.The Fund was a Defined Benefit Fund. The proper law of this fund is that of Victoria.

    Mr Beck had become a member of this fund in February 1987, after immigrating to Australia after joining the company in February 1981 at the age of 27.

    This fund originally had natural person trustees, however these were replaced by a corporate Trustee in 1996. Colonial Staff Super Pty Limited (“CSS”) became the trustee of the Old Colonial Fund between the July 1996 deed and the December 1996 deed

    Colonial Staff Super Pty Limited (“CSS”) {ACN 074 962 628} registered on 23 July 1996.

    The rules of the Colonial Group Staff Superannuation Fund (a Defined Benefit Fund) had been amended from time to time, including relevantly, by three deeds of principal importance to this case, made respectively in August 1985, July 1996 and December 1996.

    The Trustees of the fund held the Power of Amendment. It is assumed that the provisions of the Power of Amendment prescribed the amending instrument to be a Deed. {No allegation was made that the Deeds of Variation had been executed by the wrong parties or did not comply with the formalities of the Power of Amendment or were otherwise defective such as not being properly duty stamped }.

    A Deed of Variation dated 28 August 1985 (the August 1985 deed) had amended the rules of the Old Colonial Fund, which at least from 1985 included a rule for a pre-55 resignation benefit (clause 22(a)) and a rule for a pre-55 discretionary benefit (clause 22(b)).

    In 1994 Colonial Mutual acquired the State Bank of New South Wales. As part of that acquisition, the assets and liabilities of the Old Colonial Fund were transferred to and became part of another superannuation fund, then known as the State Bank Superannuation Benefit Scheme. In 1994 this reconstituted fund was renamed the “Colonial Group Staff Superannuation Scheme”. But it was still in substance the Old Colonial Fund. Proper Law?

    The July 1996 Deed of Variation was essentially a restatement of the existing fund rules, without any relevant intention to change their substance.The July 1996 deed was executed by seven natural person trustees.

    The July 1996 Deed of Variation contained two important provisions of the Old Colonial Fund’s rules.

    The July 1996 Deed of Variation, clause A11.3 largely replicated (although with some differences) the existing clause 22(b) provisions of the August 1985 Deed of Variation for the pre-55 discretionary benefit). And the July 1996 Deed of Variation, clause 33.2 largely replicated (although in slightly different words) the existing clause 32 provisions of the August 1985 Deed of Variation.The law of the July 1996 deed is the law of Victoria

    In December 1996 the rules of the Old Colonial Fund were amended again. By Deed of Variation dated 30 December 1996 (the December 1996 deed) CSS made the change that is important to the central contest in this case: it removed Clause A11.3 from the Fund Rules – the pre-55 discretionary benefit.

    In the case of the retirement of a member at the agreed retiring age of 62 the contributor was entitled to a retirement pension, calculated by a defined formula on the basis of 1/60th of the contributor’s pensionable salary averaged over the last three years of his or her service, for each year of pensionable service from commencement and payable from age 62. The pension was payable for life (or a minimum of 7.5 years) and 60% of the pension would continue to be payable to a contributor’s spouse for his or her lifetime after the contributor’s death

    .

    If a member retired or was retrenched between the ages of 55 to 62 the the pension benefit otherwise payable at the age of 62 was adjusted accordingly.

    An Accumulation Fund was established in 1998 ( the “New Colonial Fund”).

    Upon the introduction of the New Colonial Fund, Mr Beck was offered the opportunity to transfer from the “Defined Benefits Division”, operating in accordance with the rules of the Old Colonial Fund, to what was called the “Accumulation Division” of the New Colonial Fund. Mr Beck declined this offer.

    In July 2000 the Commonwealth Bank of Australia (CBA) acquired Colonial Limited and Mr Beck became an employee of CBA.

    On 3 October 2003 the assets and liabilities of the Defined Benefit Fund and the new Accumulation Fund, including the reserves held in respect of Mr Beck were transferred to the “Commonwealth Bank Officers Superannuation Fund” (OSF). At the same time Mr Beck ’s superannuation benefits were transferred to the OSF.

    The history of the fund is illustrated on the following diagram.

    Colonial Fund History

    This transfer to the OSF did not in itself diminish the benefits already available to Mr Beck under the New Colonial Fund. As Mr Beck assumed, the SIS Regulations, reg 6.29 prevents a trustee of a superannuation fund from transferring the benefits of a member from one fund to another without the consent of the member, unless the successor fund confers equivalent benefits on the member.

    Mr Beck did not contend that there was any breach of that duty on transfer by either CSS as trustee for the Colonial Fund or CBOSC as trustee for the OSF. Rather the breach complained of in these proceedings relates back to the December 1996 amendment to the Colonial Fund, when the trustee, CSS sought to delete clause A11.3. That is the dispute related to what “equivalent benefits” actually were when the rules of the fund {terms of the trust} are properly construed.

    The benefit paid to Mr Beck

    Mr Beck ’s withdrawal benefit when he was retrenched on 11 July 2005 at the age of 51 and 5 months was $1,397,008 after 24 years of service.

    If Mr Beck had remained employed for another three and a half years Mr Beck would receive a pension of $160,487 per annum from age 55.

    The following graph illustrates the pension benefit based on different age when leaving scenarios.

    Peter Beck Pension #1

    The cost of an annuity to provide such a pension benefit was determined to be around $4.6 to $5.3 million which is around 3.5 times the benefit that was actually paid to Mr Beck.

    In relation to the power of the Court to review decisions made by trustees, Slattery J stated at [244]:

    Then in 2010 the High Court in Finch (at [33] and [36]) recently stated the law in a way that distinguishes superannuation schemes from discretionary trusts that attract Karger principles. After affirming the characterisation of superannuation as “deferred pay” and as a method of attracting labour, the Court said in Finch (at [33]), “The legitimate expectations which beneficiaries of superannuation funds have that decisions about benefit will be soundly taken are thus high. So is the general public importance of them being sound.” This public importance has implications for rights of review of trustee’s decisions of the High Court said (at [36]) “Thus the public significance of superannuation and the close attention paid to it through statutory regulation support the conclusion that the decisions of superannuation trustees are not likely to be largely immunised from judicial control without clear contrary language in the relevant trust document”.

    The Court’s Ruling

    Slattery J ruled at [380-381]:

    For the reasons given, the plaintiff, Mr Beck , has been successful in challenging the validity of the decision to amend the rules of the Old Colonial Fund in December 1996 to remove clause A11.3. He is now entitled to consideration of possible benefits under that clause.

    But he has also been successful in his estoppel case and is now entitled to relief on the basis that he was entitled to a pension at age 55, subject to the adjustments and other relief considerations above.

    Comparison with The Provident Fund

    The provisions of the pension benefit provided by The Provident Fund (Elders IXL Superannuation Fund) provide an immediate pension to a male officer who is retrenched who has completes at least 15 years of service irrespective of age.

    If the provisions of the Colonial Fund were similar to those of The Provident Fund, Mr Beck would not have had the issue of the “pre-55″ retrenchment benefit.

    The following table summaries the differences in the pension factors.

    Pension Factors

    Because the pension formula in The Provident Fund was amended to include the “age when leaving service”, this pension formula provides a greater pension factor for those retrenched before the age of 55. In the case of Peter Beck he would be entitled to a pension at the age of 51.5 of nearly 50% more if the Colonial Fund had used the same pension formula as The Provident Fund.

    The following graph compares the pension benefit where the blue bar is the final average pensionable salary at the age of leaving service.

    Pension two funds

    The capital value of the pension benefit provided by the Colonial Fund is approximately $4 million where Peter Beck is retrenched at the age of 51.4. If the Colonial Fund had similar provisions as The Provident Fund the capital value of the pension would be nearly 50% more at $5.8 million.

    The compares to the lump sum of $1.4 million that was originally paid to Mr Beck.

    Note that if Mr Beck had remained employed until the age of 60, the difference in the pension benefit entitlement becomes much less.

    More details are proved here:

    The Commonwealth Bank Matter

    Supplement – The Commonwealth Bank Matter


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    This tab updated on 28 December 2015