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Interpreting the trust deed and rules

A pension scheme’s trust deed and rules is a fundamental document. Interpreting scheme rules – particularly where multiple amendments have been made over time – can be difficult. It is essential that trustees seek professional advice on questions of interpretation and on any ambiguities, since any decision that is not in accordance with the trust deed and rules will be open to challenge. 

How do you interpret pension scheme rules?

The basic rule for interpreting pension scheme documents is that a word or phrase will have the meaning that a reasonable person would have understood the parties to mean when they used it – not what each of the parties actually thought it meant at the time, if that is different.

However, the courts have also recognised that pension trusts differ from other types of trusts; for example:1

  • Members are not ‘volunteers’ – pension benefits are earned as part of a compensation package.
  • Administering a pension scheme is incredibly complicated, and it is not reasonable to expect the original draftsman to have catered for every eventuality. Scheme rules should be interpreted so as to give reasonable and practical effect to the scheme.
  • In many cases, historic scheme rules have been amended at a number of different points in time. The statutory, regulatory and economic conditions at the time the rules were drafted can be relevant to how a particular rule should be interpreted. For example, the Supreme Court has stated that it is relevant to consider that pension schemes are drafted to comply with tax requirements.2
  • The trust deed and rules should be interpreted as a whole, so the meaning of a particular term in a specific provision should be considered in the wider context of the rules as a whole.

The Supreme Court has emphasised that the ‘distinctive characteristics’ of a pension scheme ‘make it appropriate for the court to give weight to textual analysis, by concentrating on the words which the draftsman has chosen to use and by attaching less weight to the background factual matrix than might be appropriate in certain commercial contracts’.3

Understanding the power of amendment

Questions of interpretation become particularly acute when applied to the pension scheme’s power of amendment. This may contain restrictions on how the scheme can be amended; for example, prohibiting retrospective amendments or the alteration of members’ existing rights. Any change will be invalid if it goes beyond what the amendment rule permits, so this needs to be checked carefully.

In theory, an unrestricted power of amendment could allow very wide-ranging changes to be made to a scheme’s structure and benefits. However, the courts will use the same objective rule when interpreting the amendment power, and will ask whether it was in the reasonable contemplation of the parties that the power of amendment could be used in a particular way.4 It is, for example, unlikely that the original parties would have contemplated the scheme being amended in a way that would change the whole nature of the trust.

Even the most widely worded power will not allow trustees and employers free rein to do whatever they choose:

  • the amendment power can only be exercised for a proper purpose – not, for example, to get around a restriction elsewhere in the rules – and trustees must exercise their powers in members’ interests;
  • there are restrictions on making changes that have the effect of reducing members’ existing rights under the scheme (section 67 of the Pensions Act 1995); and
  • in some cases, employers are required to consult affected members about proposed future changes.

To read more, visit

Asking for the court’s help

If the trustees, or indeed the scheme employer, are unsure of the meaning of a provision in the trust deed and rules, they can apply to the courts for directions on how to interpret the provision. A simplified procedure exists for this type of application to court – to read more, visit

In this type of application, trustees can either submit their interpretation to be confirmed or denied by the court, or they can remain neutral and leave it to the defendants (typically the employer and one or more members acting as a representative beneficiary for other members in the same position) to provide competing arguments about the correct interpretation.

Normally, the costs of making an application will be paid out of the scheme’s assets, unless the employer has agreed to cover the costs.

In the more unusual case where both parties agree and can prove what the provision was originally intended to mean, but the wording clearly does not reflect their intention, an application for rectification may be more appropriate – to read more, visit

British Airways Pension Trustees Ltd v British Airways plc (2002). 

Barnardo’s v Buckinghamshire (2018, Supreme Court). 

Barnardo’s v Buckinghamshire (2018, Supreme Court). 

PNPF Trust Company Ltd v Taylor (2010).

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