Advisory
Service Forum:
Pensions Ombudsman Determinations
by Mark Grant
Mark Grant is a partner and Head of the Pensions Ombudsman
Unit at CMS Camerom McKenna
It has been another busy year for the Pensions Ombudsman. Here is a summary of a selection of his decisions on issues ranging from very difficult legal questions to examples of administrative practice which did not come up to scratch.
Horwood v Trustees of the Dixons Retirement & Employee Security Scheme (J00013)
A member died and the trustees decided to pay one third of the lump sum to his mother despite having sight of a draft will found on his computer which made no provision for the mother. The member's wife com-plained. The Ombudsman held that it was perverse for the trustees not to have taken the draft will into account in their deliberations. In addition, the member's mother and others had made various adverse comments about the wife and the trustees were criticised for not giving the wife a chance to respond to these comments.
Williamson v Sedgwick Group Pension Scheme Trustee (H00177)
A former employee complained about a transfer value. The complaint included an argument that GMPs under the scheme had not been equalised between men and women. The trustees argued that under section 63(4) of the Pensions Act, only an industrial tribunal or court can deal with equalisation cases. The Ombudsman did not believe that this was the case as he had jurisdiction over any dispute of law.
The trustees argued that the exception to the general equal treatment rule in section 62 of the Pensions Act where the inequality arises as a result of differences in state pension age applied. They went on to argue that the Ombudsman could not rely on Hansard to determine what section 62 was intended to mean. The Ombudsman disagreed and said that he could rely on Hansard and, in the course of the Pensions Act's passage through Parliament, Lord Mackay had said that GMPs should be equalised but the then Government was not going to dictate solutions to schemes. Therefore in the Ombudsman's view, section 62 did not apply to equalisation of GMPs.
The Ombudsman also said that in Coloroll, discriminatory provisions in domestic legislation were not found to be a defence to discrimination and ECJ rulings take precedence over national legislation.
In addition, as a matter of construction, section 64(2) (which permitted differences in prescribed circum-stances) only applies to bridging pensions: it is not specific enough to apply to GMPs. The trustees also argued that GMPs and SERPS interact in a way that achieves overall equality, because the more GMP a member has, the less SERPS benefit. However, the Ombudsman pointed out that SERPS is in itself discriminatory and it was not the overall package which should be considered for the purposes of discrimination, but each separate component. The trustees also tried to argue that GMPs were not pay.
The directions given by the Ombudsman were to equalise GMPs in a way which did not adversely affect any member i.e. levelling up benefits. The trustees appealed and the case was heard in December 2000. Judgment is awaited at time of going to press.
Jones v Kent County Council (J00213)
Kent County Council reduced the member's pension because of an error in the original calculation. The member claimed financial loss on the grounds that he entered into a contract for work to be done on his house on the basis of the unreduced pension figure.
The Ombudsman did not accept the member's claim that he had suffered financial loss as there was insufficient evidence to show that had he been receiving his correct pension entitlement from the outset, he would not have had the work in question done to his house.
Thomas v British Alcan Pensions Trustees (J00276)
The member alleged maladministration on the basis that his applications in 1995 and 1996 for an ill-health early retirement pension were wrongly refused, because a later application in 1997 was approved without any further medical evidence having been obtained.
The Ombudsman held that he was unable to interfere with the exercise of a discretionary power by the trustees unless the wrong question had been asked, or if the decision maker had misdirected itself in law or if the decision was perverse, and none of those circumstances applied.
Hancock v Trustees of the Air Products Pension Plan (J00351)
A member was told that he did not qualify for a disability pension. The member asked to see the scheme rules, which said that all active members qualified for consideration for disability benefits. However, the trustees argued that the member had been in a separate section and there was no intention that members in that section should qualify for such benefits and all the literature reflected this. The trustees sub-sequently obtained a Section 67 certificate and amended the rules accordingly.
The Ombudsman held that the trustees could have gone to court for a rectification order and that was the only proper thing for them to have done in the circumstances. The Ombudsman said (without explanation) that his statutory remit did not extend to rectification of rules. The member was therefore eligible to be considered for disability benefits.
Kelly v Railways Pension Trustee Company (J00618)
The definition of ill-health referred to a member being incapacitated "other than temporarily". The Ombudsman held that this wording did not amount to a requirement for permanent incapacity but, rather, incapacity that was "other than for a limited time".
Gaskin v Trustees of the Becker Pension Scheme (J00597)
The scheme rules contained no definition of incapacity so the trustees used the Inland Revenue definition which is:
"physical or mental deterioration which is sufficiently serious to prevent the individual from following his or her normal employment, or which seriously impairs his or her earning capacity. It does not mean simply a decline in energy or ability."
The Ombudsman thought that using this definition was acceptable but held that the Revenue definition did not require any evidence of permanent incapacity, it only required that the member be unable to do their own job. As the medical report said that the member was "not able to follow her normal occupation currently", the trustees must reconsider the matter.
Hadley v South Yorkshire Pension Authority and others (J00552)
The scheme had paid a transfer value to a New Zealand arrangement by cheque which took some weeks to arrive. The member claimed loss of investment return and loss arising from currency fluctuations. The member had specifically asked that the transfer payment be sent by wireless transfer. The Ombudsman said that sending the transfer payment overseas by cheque was maladministration. It would have been perfectly appropriate to ask the member to bear the extra cost of making the transfer by electronic means.
Royal Society for the Prevention of Accidents v William M Mercer (J00226)
RoSPA wanted to change investments. The actuarial firm instructed to effect the change delayed doing so. RoSPA complained that the firm's delay in carrying out this task amounted to maladministration. The Ombudsman agreed and ordered the firm to pay compensation for any consequential loss of investment return over a two month period which constituted an unacceptable delay. heme.
Guise v Equitable Life Assurance Society (H00468)
The complainant alleged maladministration by a trustee and administrator of a personal pension plan. The complainant had been the member's partner for a number of years and the member had signed a nomination form in her favour. She claimed that the trustee had acted perversely and contrary to the member's wishes in paying half the proceeds from the pension plan to the member's wife (from whom he had been separated for 9 years).
The Ombudsman held that both the complainant and the member's wife qualified for consideration as potential beneficiaries and he therefore had to consider if the trustee had acted improperly or perversely in coming to the decision it did. He referred to Edge v Pensions Ombudsman and found that the decision was perverse as the trustee received and considered prejudicial allegations about the complainant without testing their truth or giving her an opportunity to respond.
Simmonds v Trustees of the Municipal Mutual Insurance Superannuation Scheme (J00313)
The complaint concerned the distribution of scheme surplus on a winding-up. The trustees had discretion to augment members' benefits with the balance going to the employer. They decided to augment benefits by 30%, but one member did not benefit from this as his benefits had reached revenue limits. He complained that the trustees should have been more imaginative in formulating their proposals. The Ombudsman rejected the complaint.
Holmes v Barclays Bank (H00530)
Subsidising money purchase section from final salary section surplus Barclays had set up a money purchase section of their scheme for new mem-bers from 1 July 1997. There were no clear cross subsidisation provisions in the rules, which allowed the final salary surplus (of over £1 billion) to be used to fund employer contributions in the money purchase section. However, this was clearly the intention when the money purchase section had been set up.
The Ombudsman relied upon the decision in Kemble v Hicks to find that, in the absence of an express provision on cross subsidisation of the two sections, funding employer contributions to the money purchase section from a surplus in the final salary section was not acceptable. The Ombudsman's determination would require Barclays to retrospectively pay employer contributions into the money purchase section.
The Ombudsman, reiterating Hillsdown Holdings, said that in certain circumstances, a trustee may be guilty of maladministration even if acting on the advice of an appropriately experienced solicitor. However, in this case the trustee took legal advice on two occasions and here the Ombudsman found that it was reasonable for the trustee to rely on the independent legal advice it received.
Barclays successfully appealed to the High Court.
Grindrod v Community Health South London NHS Trust (J00106)
An employee became eligible to join the NHS Scheme in 1975 but did not do so. He claimed that he should have been told that he was eligible. The trustees said that they had told the employer to inform the employees and the employer claimed that it had done so. The Ombudsman was convinced that on a balance of probabilities the employee had never received the relevant information and was therefore entitled to have backdated scheme membership if he paid the relevant arrears of contributions. The employer was not able to provide adequate evidence in relation to what it had or had not communicated to employees.
Allen v Capita Business Services (J00112)
The member's pension was overpaid and the scheme tried to recover the overpayment shortly after. The member argued she had spent the money on a new car and washing machine and a visit to a relative in South Africa.
The Ombudsman found that there was no maladministration in seeking to recover the overpayment. Such recovery is a legal entitlement as confirmed in Scottish Equitable v Derby. The member would have to demonstrate that there was a causal link between the overpayment and the expenditure. No such evidence was produced and the Ombudsman found that whilst the member's expenditure might be a reason for allowing her time to repay, the scheme was entitled to recover the full amount of the overpayment.
Mangum v Trustees of the Adams Limited Pension and Assurance Scheme (J00405)
The trustees had thought that employer consent was required to pay a deferred pension before normal retirement date when in fact it was not. In practice the scheme had never granted early retirement pensions and it would have represented a significant drain on the funding to do so. The Ombudsman held that it was relevant and proper for the trustees to consider the interests of the employer and funding of the scheme and it would not in any event have been appropriate for them to make the decision without considering the employer's interests.
As a matter of best practice, letters to members should have contained a warning that early retirement was subject to trustee consent.
Duffus v TSB Group Pension Trust Limited (J00454)
Lloyds TSB allowed active part-time employees to buy back benefits to 1976. A former member asked why the option was not open to them. The Ombudsman held that the backdating was in the nature of an augmentation. It was not a legal requirement or in satisfaction of a legal liability. Therefore it was open to the scheme to limit as it had done the benefit of this option to active members.
Gurney v Elsevier Science (J00249)
A part-time employee claimed that he had not been told he was entitled to join the scheme. The scheme was unable to demonstrate to the Ombudsman's satis-faction that it had communicated with the member. Even though they had found announcements dating from the relevant period, they failed to show that the announcements had actually been sent to or were seen by the member.
Thomas v Rio Tinto Pension Fund Trustees (J00540)
Following a scheme merger, the member wrote in and asked whether he would have been better off under his old scheme. He had been told on the merger that he would not be adversely affected in any way. His old scheme provided discretionary increases only, but had a reasonable track record of such increases. The new scheme pro-vided for LPI (i.e. RPI up to 5%). The Ombudsman held that the change to the pensions increase provisions did not amount to something which adversely affected the members' benefits.
Mark Grant
Pensions Ombudsman Unit
CMS Cameron McKenna
Tel 020 7367 3000
msg@cmck.com
