Pensions Ombudsman Focus. December 2009 to February 2010

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1 April 2010 Pensions Ombudsman Focus. December 2009 to February 2010 Welcome to the 24th edition of the Pensions Ombudsman Focus for the period December 2009z to February Our aim is to provide you with a quarterly review of important determinations of the Pensions Ombudsman and alert you to Ombudsman-related issues of practical relevance. When restructuring benefits there was no requirement for future salary linkage on closure to further accrual in this case Mr L Barton and the Trustees of the SAB WABCO Pension Scheme Mr Barton ( B ) was employed by Faiveley Transport Birkenhead Limited ( Faiveley ) and was a member of the SAB WABCO Pension Scheme. In mid-2005, Faiveley undertook a restructuring exercise and reduced pension costs by closing the Scheme to future accrual. In August 2005, Faiveley and the Scheme Trustees made a joint announcement which, amongst other things, said that active members would be treated as leavers from the scheme from the date it closed and benefits would be based on your earnings and service to the date of closure. At a Trustee meeting on 9 September 2005, it was decided that the scheme would close to future accrual from 30 September 2005 and a Deed of Amendment was entered into on 20 April 2006 to amend the rules to that effect. B (along with 42 other Scheme members who submitted identical complaints) complained about the method which the Trustees would use to calculate his Scheme pension. The Trustees would use his salary as at the date the scheme closed as his final pensionable salary rather than his salary as at the date on which he would retire, leave employment or die (if in service). It was argued that by removing the link to final pay, benefits would be reduced and that as the power of amendment under the Scheme rules prevented such an amendment as it prevented any amendment being made that would reduce benefits, and reliance was placed on Re Courage Group Pension Scheme [1987] 1 WLR 495. Contents When restructuring benefits there was no requirement for future salary linkage on closure to further accrual in this case...1 When exercising discretion trustees can favour one class of members over others...2 Pensions Ombudsman time limits 3 Trustees owe duties to members in arranging open market AVC quotations...5 In exercising their discretion to reduce dependants pensions, Trustees should have regard to the original basis of the award...6 Six year time limit on recovery of overpayments from members...8 Maladministration over incorrect information but no reliance by member...9 The Scheme administrator should clarify with members prior to their selected retirement dates, how they wish to take their benefits...10 Schemes cannot be compelled to either accept a transfer-in without an indemnity, or to give an indemnity when transferring-out.12 A decision as to whether a pensioner is no longer unfit and so no longer entitled to an ill-health pension must be made on a proper consideration of all the evidence 13 A distinction must be made between Scheme service and transferred in service for these to be treated differently. A power of amendment cannot be used to affect accrued rights...15 Pensions Ombudsman Focus 1

2 The Trustees submitted that B s complaint, made on 16 September 2008, was made after the deadline for such complaints. It should have been submitted within three years following the Trustee meeting of 9 September The Ombudsman disagreed and said that the date on which the act complained of occurred was 30 September 2005, which was the date the Scheme closed, and so his complaint was made within three years of that date. The Ombudsman dismissed the complaint. In the light of Courage the Ombudsman agreed that the wording of the restriction on the amendment power meant that no amendment could be made to the Scheme that would prevent a member s accrued benefits being calculated by reference to his final pay. However, the key issue was what constituted final pay in the context of B s complaint. Faiveley, with Trustee consent, did have the power to amend the Scheme. The Deed of Amendment meant that a member would cease to be an Eligible Employee when the Scheme closed on 30 September 2005 and would become entitled to a deferred pension. As soon as a member ceases to be an Eligible Employee their benefits had to be calculated by reference to pay leading up to the date of leaving, ie 30 September The Scheme Rules did not allow Trustees to apply future pay to benefits accrued to 30 September 2005 and such an arrangement would have negated the costsaving reason of closing the Scheme to future accrual. When exercising discretion trustees can favour one class of members over others Mr MJ Watkins and The Trustees of the High-Point Rendel Pension Scheme Mr Watkins ( W ) was employed by Rendel, Palmer and Tritton (the Firm ) and was a member of the High-Point Rendel Pension Scheme. The Scheme was a money purchase scheme in which investment returns above a fixed percentage were accumulated as a surplus. The Scheme rules contained an augmentation rule: the Trustees at the request of the Firm shall be at liberty to grant increased pensions from the Fund When an additional pension is so granted such additional contributions shall be payable by the Firm to the Fund as shall be certified by the Actuary as being sufficient to cover such increase. W was a member of the Scheme from April 1963 until he left service of the Firm in December 1969 with deferred benefits. The Scheme actuary conducted valuations every five years quantifying the amount of the surplus and presented a report to the Employer and Trustees recommending how this should be distributed amongst the membership. The Actuary said that there was a 180,000 valuation surplus as at March 1970 and set out how this could equitably be distributed amongst the classes of members. Pensions Ombudsman Focus 2

3 A decision was made by the Trustees not to adopt the Actuary s report in full but to augment by 25% both active members benefits and the benefits of pensioner members who had retired directly from the Firm since March After a formal resolution by the Trustees at their meeting of 22 September 1972, these distributions went ahead. It was also resolved that the residual balance should be carried forward and that, if it were later distributed, it should only go to the same two classes of member. It was argued by W that the Trustees decision to exclude deferred members from the pension increases under the augmentation rule constituted maladministration and was illegal. The Ombudsman dismissed the complaint. He said that W was not an active member and did not benefit from the surplus. In this context the term active member did not refer back to the rules of the Scheme or any definitions. It was clearly intended to mean, in the ordinary way, a member who was actively participating in the Scheme (ie earning benefits). The Ombudsman said that scheme rules must be interpreted purposively (that is, so they were workable in practice). The relevant provision was capable of meaning that contributions were only payable by the Firm to the extent that the Actuary certified them as necessary. As the events occurred nearly 40 years ago, it is not surprising that full records of the Trustees deliberations are not available. The Trustees were required to exercise their powers in the member s best interests. The Ombudsman said that it is recognised that what may be in the best interests of an individual member or group of members may not be in the interest of others but, as long as the Trustees considered the claims of all classes of members, they can act in favour of one class of beneficiary over another class. The Ombudsman also noted that, whilst excluding deferred members such as W from the augmentation might seem unusual now, at the time they were excluded in this case it would not have been. It was not until 1975 that pension scheme members who left pensionable service before normal pension age had any statutory rights to deferred benefits and pensions schemes were often regarded as a reward for long-serving employees retiring from active service. It is a notable aspect of this complaint that no limitation defence was raised by the Trustees as in Arjo Wiggins see the next case contributed. Pensions Ombudsman time limits ARJO Wiggins Limited v Henry Thomas Ralph [2009] EWHC 3198 (Ch), 2009 WL Mr Ralph ( R ) was made redundant in He was a member of the defined benefit Wiggins Teape Pension Scheme. Shortly before he left he transferred his pension to an insurance company predicting benefits vastly in excess of his Scheme pension and lump sum. These projections later fell Pensions Ombudsman Focus 3

4 dramatically and R s pension proved to be considerably lower than his Scheme pension would have been. R complained to the Pensions Ombudsman in July 2007, more than 20 years later, saying that he had been given negligent advice in 1986 and that he would, but for that advice, have retained his benefits in the Scheme. The Ombudsman upheld the complaint, directing the Principal Employer, ( AW ) to pay the cost of restoring R to the Scheme or to pay for equivalent benefits. The Ombudsman decided that the Limitation Act 1980 had no application to him, and he could therefore justify hearing the complaint. AW appealed, arguing that the Ombudsman should not have determined the complaint in the way that he did so long after the events that gave rise to it, and more than three years after the date on which R became aware of the issue. AW argued that: > the Ombudsman could not entertain a complaint which would have been statute barred if the same complaint had been made in court proceedings; > even if he could, then he should not do so as a matter of discretion; and > if the Ombudsman has a discretion to investigate a complaint and does so, he cannot make an award or give substantive directions in a case where a court could not do so because the claim would have been statute barred. The judge said that the Ombudsman must decide disputes in accordance with established legal principles rather than by reference to what he himself considers to be fair and reasonable, since: > pension funds must operate within the law; > the Ombudsman and the court are intended to be mutually exclusive alternatives; and > the power to refer a question of law to the High Court and the right of appeal on a point of law show that legislation does not intend the Ombudsman to act otherwise than in accordance with legal principles. The judge said that the Ombudsman has power to investigate and determine a complaint or dispute which would, if brought in the courts, be statute barred, and is entitled to make a determination in relation to such a complaint. However, where the Ombudsman is deciding whether actions infringe an individual s legal rights, which is an area in which the Ombudsman and the courts share jurisdiction, the Ombudsman is bound to give effect to a limitation defence. It is important that the result of a dispute does not differ according to whether it is decided by the court or the Ombudsman, since the existence of the Ombudsman and his ability to determine complaints does not oust the jurisdiction of the courts. Pensions Ombudsman Focus 4

5 However, in cases of pure maladministration (where a person s legal rights are not infringed), there is no applicable limitation period, and the Ombudsman can award whatever remedy is appropriate even if the claim is stale, although the staleness of the claim will no doubt be relevant to the exercise of his discretion. This is because only the Ombudsman can investigate claims of pure maladministration. The judge allowed the appeal on the grounds that the Ombudsman had no power to award substantive relief to a complainant whose complaint would have been defeated by a limitation defence had it been brought by action in court. Trustees owe duties to members in arranging open market AVC quotations Dr Archer and BWE Ltd and the Trustees of the BWE Ltd Pension Scheme The BWE Ltd Pension Scheme was established in 1989 for employees of BWE Ltd ( BWE ). Dr Archer ( Dr A ) was employed by BWE and due to retire on 26 September Dr A paid AVCs under the Scheme to a policy established with Equitable Life and was considering whether to use the proceeds of the policy to provide an Equitable Life annuity or an annuity with another insurer. The Scheme rules provided for the Trustees to determine the amount of benefit provided by AVCs on actuarial advice or based on the AVC provider s rates. On 17 August 2005, Dr A wrote to the Trustees in relation to his AVCs asking whether he could delay buying an annuity until April 2006 when the pensions tax legislation was due to change. He also asked when an annuity quotation would be available via the administrator, Capita Hartshead. In addition, he asked if he were to choose an open market option, when the decision and related information needed to be available to organise the transfer of funds from the policy. The Trustees replied saying they were checking with Capita about deferment, the Scheme quotation would be available three weeks before retirement and Equitable Life would not pay over any funds until after his retirement. The Trustees said that the timescale given to Dr A was based on a conversation with Capita. The Trustees chased Capita for a response to Dr A s request about deferring his AVC annuity on 15 September. On 20 October, at Capita s request, the Trustees sent them a booklet relating to a predecessor scheme. Based on its contents, Capita informed Dr A that his benefits could not be deferred. Dr A retired on 26 September 2005 and obtained annuity quotations from Norwich Union dated 4 October 2005 and guaranteed until 18 October. On 6 October, Capita chased Equitable Life for details of the benefits from the policy and, on 10 October, received Equitable Life s annuity quotations. Pensions Ombudsman Focus 5

6 Capita contacted the Scheme s actuary on 17 October requesting a quotation of the annuity that the Scheme could provide in return for the proceeds of the policy. Dr A finally received the Scheme quotation on 15 November, at which point he decided to buy the Norwich Union annuity. Dr A said he was concerned about the delay and asked for the movement of the AVC fund to be expedited as he had ruled out Equitable Life as the provider of his annuity. As the earlier quotation with Norwich Union had expired, Dr A bought an annuity based on a lower revised quotation. The Pensions Ombudsman decided that Dr A had made enquiries about his options a reasonable time before his retirement date and the Trustees had properly referred Dr A s requests to Capita. The Ombudsman concluded that Capita were primarily responsible for the delay and that, without their maladministration, Dr A would have been able to accept the Norwich Union quotation on time. Capita were ordered to contact Norwich Union and make good any difference required to increase Dr A s annuity in payment to the same amount as the notional annuity quoted on 5 October, backdated to his retirement date. In addition, the Ombudsman held that the Trustees failure to keep Dr A informed of the progress and follow up on his requests amounted to maladministration. The Trustees were ordered to pay 150 to compensate him for the distress and inconvenience caused. The claim against BWE was not upheld, as it was not involved in any of the events that took place. In exercising their discretion to reduce dependants pensions, Trustees should have regard to the original basis of the award Master Leo Bissex (a minor) represented by his mother, Ms S Bissex and the Trustees of the European Steel Sheets Executive Pension Scheme Mr O ( O ) was a member of the European Steel Sheets Executive Pension Scheme a small self-administered scheme. Ms Bissex ( B ) said that although O was married, he was separated from his wife ( Mrs O ) and had been living with her (B) prior to his death in B also claimed that her son, Leo Bissex ( LB ), who was born shortly after O died, was O s son. O died without leaving a will or statement of wishes. The Trustees decided after making extensive enquiries to pay pensions of 40,000 a year to Mrs O for life and 20,000 a year to LB until he reached 18. The Trustees noted that if the actuary determined that the Scheme s assets were insufficient to pay these benefits at these levels in the future, the payments could be reduced. The value of the fund decreased substantially and the Trustees decided to reduce LB s pension to 8,000 a year from 2007 and then to 2,950 a year from Mrs O s pension was maintained at 40,000 a year in 2007 and in 2008 was increased to 40,766. Documentation showed that the actuary had Pensions Ombudsman Focus 6

7 initially recommended reducing both Mrs O and LB s pensions, but following representations by Mrs O, the recommendation was revised. The Trustees did not give B any reasons for the reductions. The Trustees stated that Mrs O and a former member of the trustee board had pressed them to maintain, and subsequently increase Mrs O s pension. B sought the assistance of the Pensions Advisory Service ( TPAS ). TPAS s adviser asked why the Trustees had not secured pensions by purchasing annuities. The Trustees stated that they were not obliged to do so and B should have asked for an annuity if she wanted LB to have one. B complained to the Ombudsman about the decision. She said that the Trustees never explained why LB s pension was reduced by a substantial amount and did not tell her she had to request an annuity. None of the individuals who made the decision to pay the pensions on O s death were still in office at the time of the complaint. B accused the Trustees of bias against her because of her relationship with O and stated that Mrs O had undue influence over the Trustees as her sister controlled European Steel Sheets Limited. Mrs O was also invited to comment, although she was not party to the proceedings. She denied that O had stopped living with her and that LB was O s son. She also argued that as new Scheme rules had come into effect between O s retirement and his death, the original rules should apply, which she argued would prevent LB from receiving a pension. The Ombudsman upheld B s complaint. The Trustees were correct to use the Scheme rules which were in force at the time of O s death when considering whether a dependant s pension was payable. There were no grounds to interfere with the decision the Trustees had made that LB was entitled to a pension. However, the Pensions Ombudsman held that the Scheme rules had not been correctly followed, as they required widows and dependants pensions to be secured by purchasing annuities. Neither Mrs O s nor LB s pension had been paid in accordance with the Scheme rules. Therefore, the decision of the original trustees not to buy LB an annuity constituted maladministration, as did the failure of the new trustees to correct the situation. Had the annuities been purchased as required by the rules, the complaint would never have arisen. The Ombudsman did not accept the Trustees suggestion that B should have asked for an annuity if she wanted LB to have one. It was held that none of the Trustees actions resulted from wilful neglect or default, but rather lack of understanding and inadequate advice. The Trustees were therefore protected by the indemnity provisions in the Scheme rules. The Ombudsman held that in exercising their discretion in relation to reduction of benefits, the Trustees must have regard to how they originally allocated the benefits. The Pensions Ombudsman directed the Trustees to reconsider the allocation of funds from 2007 onwards having regard to relevant factors and to the fact Pensions Ombudsman Focus 7

8 that the assets should be used to buy annuities. Once this decision was made, the Trustees must buy an annuity for LB for the amount of pension that they determined he should receive. Six year time limit on recovery of overpayments from members Mr Armitage and Guinness Peat Group plc and Staveley Industries plc Mr Armitage ( Mr A ) received two pensions from his former employer, Staveley Industries plc ( Staveley ), a pension from the employer s scheme and a top-up pension from Staveley. Staveley was a wholly owned subsidiary of Guinness Peat Group ( GPG ). The dispute concerned Mr A s top-up pension, which GPG pays on behalf of Staveley. The increases in Mr A s top up pension were the subject of a court order in July 2005 (the Order ) which stated that the annual increase should be the lower of: (a) 5% or (b) the higher of (i) 3% compound calculated from the date the pension came into payment, less previous increases or (ii) the increase in RPI over the RPI at the date the payment came into payment, less previous increases. In March 2008, GPG wrote to Mr A informing him that the Scheme administrators had incorrectly interpreted the Order and as a result, Mr A s top-up pension had been overpaid since The overpayment was calculated to be 2,816 as at 28 February GPG apologised for the error and proposed reducing Mr A s monthly payments by one-twelfth of the overpayment over the next 12 months to resolve the issue. Mr A complained to the Ombudsman on the grounds that GPG had not been calculating the pension increases in accordance with the Order. He argued that the Order required the annual increase to be calculated and applied to the previous year s pension level. Mr A did not believe an overpayment had occurred as he said the Order required a comparison of RPI and 3% (less or taking into account previous increases) which would produce an annualised figure of 3% to compare with the year on year increase in RPI. Mr A argued that even if Staveley and GPG are correct in their interpretation of the Order, he should not be liable to repay the overpayment. In any case, Mr A said that the limitation period had ended for recovery of some of the sum claimed. GPG said that the administrators of the scheme had previously interpreted the Order as requiring a simple annual increase of the greater of the increase in the RPI for the previous year or 3% (with a 5% cap) which did not correctly reflect the wording of the Order. GPG argued that it was plainly stated in the order that the calculation of both the 3% compound increase and the RPI increase must be by reference to the date the pension came into payment. GPG said that if the calculation was limited to a one year time period, this would ignore the Order. In fact, they argued that Mr A s interpretation required much of the wording of the Order to be ignored. Pensions Ombudsman Focus 8

9 Whilst GPG acknowledged that the overpayment was maladministration, they argued it was not maladministration to seek repayment and the repayment did not constitute an injustice. The six-year limitation period does apply to recovery of the overpayment but GPG argued this did not commence at the first overpayment in GPG argued the limitation period should not start until action is taken to correct a mistake (ie March 2008), or in the alternative, at last at the point when the Order was made and the terms of the agreement with Mr A made clear (July 2005). Further, GPG argued that the relatively small value of the overpayment in relation to Mr A s overall income precluded him from arguing that he had relied to his detriment on the overpaid sum. The reasonable nature of the 12 month repayment plan was also stressed. GPG argued that it would be inappropriate for the Ombudsman to award anything for distress and inconvenience in this case. The Ombudsman did not uphold Mr A s complaint. He agreed with GPG s interpretation of the valuation increases. The Ombudsman held that it was maladministration for GPG not to ensure the calculation of Mr A s pension correctly followed the Order. However, he did not think this precluded GPG from seeking to recover the overpayment. The limitation period that the Ombudsman applied started on the date the Order was made (July 2005), so the overpayment could still be reclaimed. The Ombudsman did not believe Mr A had relied to his detriment on the overpayment. As a result, and in view of the relatively small amount of overpayment, the Ombudsman held GPG could recover the overpayment and that the 12 month recovery plan proposed was not unreasonable. Maladministration over incorrect information but no reliance by member Mr C Catchpole and the Trustees of the Alitalia Airlines Pension Scheme (the Trustees) B, the long term partner of C was a member of the Scheme. B wrote to the Scheme secretary in March 2004 asking whether she and C would need to be married in order for C to be eligible to receive death benefits should she die in service. The response came that the definition of Spouse included a person who is living with the member as his spouse. This was incorrect. The Rules only provided for a pension to be paid to a person who was legally married to the member, to a person who was wholly or mainly dependent on the Member for maintenance and support. C said that as a result of this advice, he and B decided not to marry. He said that had they known that they needed to marry for him to have an entitlement they would have done so. B died in September Pensions Ombudsman Focus 9

10 In October 2007, C applied to the Trustees for a spouse s pension. In February 2008, C received a letter from the scheme administrators saying that he had no right to a spouse s pension but that the Trustees did have a discretion to award a dependant s pension. He was asked to provide documentary evidence to demonstrate his dependency on B in order to claim such a pension. C told the Trustees that he had been dependant on B as they both lived in her house, and she had paid all the bills. At their meeting in June 2008, the Trustees noted that although they requested details of C s earnings, no information had been forthcoming and based on the evidence to hand, they could not be satisfied that he qualified as a dependant. In August, the administrators told C that he did not qualify as a dependant under the Rules and that they would therefore not be able to pay him a dependant s pension. The Ombudsman held that the information in the March 2004 letter was incorrect and this constituted maladministration. He had to decide what would have happened if B had been given the correct answer, since the Trustees would be required to put him in the position he would have been in if he had known that he had to be married in order to qualify for a spouse s pension. Taking into account the fact that C and B had been living together for 20 years in a relationship that they regarded as permanent without any need for marriage, that C said that he and B would not have regarded getting married as a particularly significant matter, that B s illness was not identified as serious until very shortly before she died and that inheritance tax could have been avoided by being married the Ombudsman concluded that B and C would not, on the balance of probabilities, have married in order to secure entitlement to a spouse s pension on her death. The maladministration had not caused C a loss that required compensation. To qualify for a dependant s pension, C would have had to have shown that at the date of B s death he was wholly or mainly dependent upon her for maintenance or support. C was either unable or unwilling to provide the information requested by the Trustees and they concluded that, on the basis of available evidence, C did not meet the requirements for a dependant s pension. The Ombudsman did not uphold the complaint. The Scheme administrator should clarify with members prior to their selected retirement dates, how they wish to take their benefits Mr M D Evans and Sun Life Financial of Canada Mr Evans E retirement date was 8 December In July 2007, E was sent a pack of forms to complete. It did not include any information about triviality. In September 2007, E partially completed and returned the pack with his birth certificate, and a cover note giving his new address in the Philippines, as his old address would not be valid from 1 December. On the Transfer Out/Open Pensions Ombudsman Focus 10

11 Market Option form E indicated that he required tax free cash. On 14 September, Sun Life Financial of Canada ( SFLC ) returned E s birth certificate to his address in the Philippines. On 17 October, SFLC asked E to contact them so a quotation could be prepared. E replied that he had already advised them that he wanted to take the cash settlement on the maturity date and complained they had not returned his birth certificate. SFLC said that they had received E s letter of 14 September indicating that he wished to take the Open Market option and the relevant forms had been sent to him and that his birth certificate had been returned to his address in the Philippines, as requested. On 2 January 2008, SFLC sent E confirmation of his Plan s current transfer value and transfer and Open Market forms for completion. There was no triviality quotation or forms to select triviality. The next day, SFLC told E they had not received his completed forms and said that a new set had been sent to him. E complained to SFLC about the delay in settling his Plan s benefits and the loss of his birth certificate. On 8 January, E received his birth certificate. SFLC said that E s birth certificate had been sent to his new address in South Korea and that transfer quotations had been issued to him when requested. E completed and returned a second set of forms indicating that he required the maximum tax-free cash available. On the Transfer Out/Open Market Option form E chose Open Market Option and indicated that he wanted the maximum tax free cash lump sum to be paid. On 27 January, E complained to SFLC that they had originally sent his birth certificate and their subsequent letter to the wrong address and the papers they sent to him on 2 January were the first to contain anything about how to receive the money. He complained to the Financial Ombudsman Service who passed E s complaint to the Pensions Advisory Service ( TPAS ). TPAS concluded that there had been a failure in communication by SFLC; none of the forms issued to E had referred to the triviality lump sum option; and whilst E had completed the wrong forms he had consistently stated that he wished to take his benefits as a cash sum. TPAS requested SFLC to compensate E for the delay and inconvenience caused. SFLC disagreed, saying E had been sent the forms that he requested and that their policy was to provide only the information that the client asked for. No triviality quote was included because it was not specifically requested. It was not their policy to issue a triviality quote if the value of the policyholder s fund was below triviality limits. On 24 June, SFLC sent to E a fresh pack of forms, including forms relating to triviality. Having received these belatedly (they were sent to an old address), E returned his completed triviality acceptance in September. SFLC requested E to verify his identity and address. Whilst on other business in the UK, E visited SFLC s office and showed them his passport. On 13 November, E was paid his Plan s triviality cash sum of 2, The sum that would have been paid if it had been calculated on 8 December 2007 Pensions Ombudsman Focus 11

12 was 2, E claimed that he should receive the full value of his Plan at this date plus interest to the date of payment. SFLC argued that E completed forms for a transfer and Open Market option and an immediate annuity, for which quotations were provided. A triviality quotation and forms were issued when requested by E and his benefits were settled once E had verified his identity and address. The Ombudsman held that SFLC had a duty to notify E of his full options and provide the requisite forms in a timely manner and that as a member of the Association of British Insurers SFLC should have followed the guidelines on pension maturities and notified E originally that he may have been entitled to a triviality cash sum and the appropriate forms should have been issued. SFLC should have clarified with E, prior to his selected retirement date, how he wished to take his Plan s benefits. There was no evidence to suggest that the verification of E s identity and address was a valid reason for delay. The fact that SFLC belatedly provided E with a triviality quotation and forms resulted in the triviality cash sum paid being less than the amount E would have received if it had been calculated at his selected retirement date. The Ombudsman upheld E s complaint and ordered that SFLC should pay compensation to E for the difference between his triviality entitlement at 8 December 2007 and the sum he was paid on 13 November 2008, plus interest and 100 for the distress and inconvenience caused. Schemes cannot be compelled to either accept a transfer-in without an indemnity, or to give an indemnity when transferring-out Mr A S Barnett and The Trustee of the Allianz Retirement & Death Benefits Fund (the Fund ), Teachers Pensions ( TP ) and the Department of Children, Schools and Families ( DCSF ) Mr Barnett ( B ) was a member of the Fund. He changed jobs and joined the Teachers Pension Scheme. He sought to transfer his Fund benefits to the Scheme. TP stated that if benefits in excess of GMPs accrued since 17 May 1990 had not been equalised for male and female members, the Trustee must indemnify the Scheme to cover any loss if it were later found that the equalisation of GMPs was insufficient. The Trustee refused to provide this indemnity, and therefore B s transfer could not proceed as TP refused to accept the transfer without an indemnity. B argued that he was caught between the Fund and the Scheme, neither of whom was prepared to change its approach. This had caused him stress and inconvenience; he could be worse off financially if the transfer could not go ahead and he would end up with money invested in three separate pension schemes. Either TP should accept the transfer in without the indemnity or the Trustee should sign the indemnity. The Trustee accepted that if it gave the indemnity a liability would be unlikely to arise in practice, since B was a member of the contracted-in money purchase section of the Fund, which had always had equal retirement ages. Pensions Ombudsman Focus 12

13 But the Trustee s policy was not to give indemnities, since this would involve the Trustee in an open ended commitment potentially to pay future unknown costs in addition to the possibility of legal costs in resolving the matter with the Scheme. The Trustee quoted an earlier decision which said that it was for each scheme s trustees to decide their own position with regard to giving an indemnity on a transfer out. It was not, therefore maladministration to refuse to give an indemnity. TP administered the Scheme of behalf of DCSF, whose policy was not to accept a transfer value unless the former scheme managers indemnified the Scheme against the risk of a future equality ruling which resulted in the Scheme being responsible for making up the deficit. The indemnity would enable DCSF to recover the costs of making up the deficiency from the former scheme managers. TP argued that the risk in this case was not negligible, since it was impossible to forecast whether a person might in the future obtain a legal ruling in their favour. DCSF considered the indemnity arrangement a reasonable and appropriate mechanism to safeguard the Exchequer. The Ombudsman said that to uphold B s application he would need to be able to say that there was maladministration by either TP/DCSF or the Trustee. As a member with more than two years service B, was entitled to have a cash equivalent transfer value available, but there was no obligation on the Scheme to accept it. Whilst the risk of some future liability arising might be remote, as a matter of law, the Scheme could not be compelled to accept a transfer. It was not maladministration by TP/DCSF to refuse to accept the transfer without the indemnity. Similarly, the Trustee could not be compelled to give an indemnity, so it was not maladministration to refuse to give an indemnity. The Ombudsman said that since the parties had reached decisions that were not perverse or completely unreasonable he could not interfere. A decision as to whether a pensioner is no longer unfit and so no longer entitled to an ill-health pension must be made on a proper consideration of all the evidence Mr D B Powell-Grabaskey and The Teacher s Pension Scheme and the Department for Children, Schools and Families Mr Powell-Grabaskey ( PG ) was a member of the Teachers Pension Scheme and started receiving an ill-health pension in PG started parttime work as a supply teacher in In a letter to PG dated November 2007, Teachers Pensions ( TP ) said he had undertaken a full week of teaching re-employment in the week commencing 9 June 2003, and that, as his ill-health benefits were granted on the grounds that he would be too ill to teach full time, he was no longer entitled to payment of them from 9 June The letter asked for repayment of the alleged overpayment of 40, Pensions Ombudsman Focus 13

14 PG appealed to TP claiming he did not deliberately transgress the rules. He gave multiple plausible explanations for why he inadvertently undertook a full week s teaching, and said he that 5 successive days teaching could not be construed as an ability to work full-time. TP decided at stage one of the Scheme s internal dispute resolution procedure ( IDRP ) to dismiss the appeal as regulations provided that a person who returns to full-time teaching, even temporarily, can no longer be regarded as unfit for teaching. PG s solicitors submitted a stage-two IDRP application for which PG obtained a medical report. The Department for Children, Schools and Families ( DfCSF ) dismissed this appeal, reasoning that PG undertook substantial part time re-employment in teaching, including a week working full time. The fact that he had worked at two establishments during the week in June 2003 was immaterial. PG complained to the Ombudsman that, after he returned to full-time employment for a week, TP and the DfCSF incorrectly stopped the payment of his ill-health pension in October 2007 and incorrectly sought repayments of the amount overpaid since June PG sought reinstatement of his illhealth pension to June 2003 and compensation for distress and inconvenience. He sought legal fees of 1,528, a medical fee of 70 in respect of medical evidence for stage 2 of the IDRP, overdraft fees of 834, loss of earnings of 1,360 per calendar month from November 2007 to date, a further payment for both him and his wife for distress and inconvenience, and for his tax arrangements to be reinstated with HMRC. TP responded that they took PG s health and employment record into account. They said that PG worked in excess of 50% for the five year period from 1 April to 31 March 2006 and had worked full time for the week beginning 9 June They said the DfCFS s medical advisors found in two reports that there is evidence of improvement but not resolution of symptoms, with only two days sickness absence. DfCSF responded that, given the duration of full-time employment was short, it was not certain he was fit to work full time. It had already reinstated PG s illhealth pension to June 2003 and paid him 250 for distress and inconvenience. However, DfCSF said they planned to undertake a review of his continued entitlement to ill-health retirement benefits. The Ombudsman upheld the complaint because, even if PG worked full time as a teacher for one week, TP and DfCFS were not necessarily entitled to regard him as no longer incapacitated. It was a matter of custom and practice that anyone working full time as a teacher was not incapacitated, but this was arbitrary, as a person working less than a full week but over a longer period may be no less fit to work. A proper decision must be made on the basis of overall working pattern and any other evidence including the kind of work. Full-time employment carried out successfully may not be conclusive. The Ombudsman made no award for legal costs as nothing necessitated them and the services of the TPAS and his office are free. 70 was awarded Pensions Ombudsman Focus 14

15 for the medical report as it was reasonably incurred and resulted from the wrongly based decision. Overdraft fees were not awarded as unexplained payments showed that loss of income did not cause a progressive worsening of affairs. Tax reinstatement was solely a matter for HMRC. No award was made for loss of earnings as PG did work when well and so there was doubt over potential earnings, and any work undertaken could have lead to a legitimate assessment that he was fit to work as a teacher. An award of 250 was made for distress and inconvenience. A distinction must be made between Scheme service and transferred in service for these to be treated differently. A power of amendment cannot be used to affect accrued rights Mr D Mills and Persimmon PLC, The Trustees of the Persimmon PLC Pension and Life Assurance Scheme, Northgate HR Pensions Limited (Administrators) Mr Mills ( M ) transferred pensions rights from two previous schemes into the scheme of his employer, Westbury. Northgate HR Pensions Limited ( Northgate ) were administrators. M was informed when promoted that he would receive an enhancement to his benefits. A letter from Westbury stated that his benefits would be calculated on the basis of the greater of the usual scale of benefit (a 60ths accrual rate) but by reference to a NRA of 60 or calculated in the normal manner but replacing 1/60ths accrual by 1/45ths accrual and reduced (as necessary) to take account of any retained benefits; again by reference to a NRA of 60. There was no mention of M s transferredin service credit being distinguished from the rest of his service. A subsequent amendment in 2003 purported to alter M s accrued benefits by excluding benefits in respect of any years of Pensionable Service credited to the Special member on a transfer from another arrangement. Persimmon PLC bought Westbury in January M was made redundant in March In March 2006, Persimmon wrote to M informing him that, following the merger of the Persimmon scheme and the Scheme, the Persimmon scheme administrators had told him that his benefits had been calculated incorrectly, and that the 45ths accrual rate and NRA of 60 should not have been applied to his transfer credit. Persimmon said that there had been an overpayment of 4, M complained that he was misled about his benefits and that his pension had been incorrectly reduced. He complained that the misinformation about his benefits, termination of his employment and his age led to him to take early retirement. Pensions Ombudsman Focus 15

16 The Ombudsman held that the complaint should be upheld against Persimmon and the Trustees because no distinction was made between Scheme service and transferred-in services in the original Special Membership agreement and the subsequent amendment to this was in breach of s67 of the Pensions Act 1995, which provides that the power of amendment in a scheme s rules cannot be exercised in a manner which would affect any accrued right. However, the Pension s Ombudsman that the complaint should not be upheld against Northgate because the information they provided was not misleading. Contacts If you wish to discuss these issues and how they might affect you, please contact: Mark Blyth Partner, Pensions Litigation Group (+44) mark.blyth@linklaters.com Author: Tom Luong This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2010 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP together with a list of those non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ or on and such persons are either solicitors, registered foreign lawyers or European lawyers. Please refer to for important information on our regulatory position. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. One Silk Street London EC2Y 8HQ Telephone (+44) Facsimile (+44) Linklaters.com Pensions Ombudsman Focus 16 A /0.1/29 Apr 2010