Ombudsman s Determination Applicant Scheme Respondents Mr E The Forth Ports Group Pension Scheme (the Scheme) Forth Ports Limited (the Principal Employer) The Scheme Trustees (the Trustees) Outcome 1. I do not uphold Mr E s complaint and no further action is required by the Principal Employer or the Trustees. 2. My reasons for reaching this decision are explained in more detail below. Complaint summary 3. Mr E s complaint is that the index used for pension increases for TCS Members of the Scheme has been changed from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). Background information, including submissions from the parties 4. Mr E s pension commenced in payment from 1 March 2011. 5. Mr E is a TCS Member of the Scheme. The TCS Pension Scheme merged into the Scheme on 1 April 2015. 6. In 2016 the Principal Employer and the Trustees of the Scheme jointly agreed, from 6 April 2016, to adopt CPI as the index to be used to calculate increases to future pensions in payment and in deferment for former TCS Pension Scheme members. 7. The change was implemented by a Deed of Amendment registered on 22 March 2016. 8. The wording of the amendment was corrected, by the Trust Deed and Rules dated 19 June 2017, to future increases to pensions in payment. 9. Under the Scheme s Trust Deed and Rules the Principal Employer, with the agreement of the Trustees, may at any time and from time to time alter or modify or add to all or any of the provisions of this Trust Deed or of the Rules or make any new 1
provisions or rules to the exclusion of or in addition to all or any of the existing provisions of the Scheme. 10. An Announcement issued to Pensioner Members of the TCS Pension Scheme said, Your benefits (including survivors benefits) will be unchanged on the Transfer Date except they will be payable under a TCS benefit section of the Forth Ports Scheme from then onwards. The transfer of assets and liabilities of the TCS Scheme to the Forth Ports Scheme will not have any effect on the level of your benefit entitlement (including benefits payable to dependents in the event of your death. 11. Mr E says:- There was no consultation with Members. The change from RPI to CPI has not been applied to all Members of the Scheme. The Announcement to Pensioner Members of the TCS Pension Scheme stated that there would be no financial loss to members. But by changing to CPI this means there will be a loss and over years this will be compounded. 12. In their joint response the Principal Employer and the Trustees say:- The case of Arcadia Group Ltd v Arcadia Group Pension Trust Ltd confirmed that it is permissible for the Employer and Trustees to agree to adopt a different basis for calculating inflation for pension increases, where increases are determined by a definition, such as that in the TCS Pension Scheme, which gives flexibility for an alternative index to RPI to be used. They agreed to adopt CPI as the index to be used to calculate future increases to pensions in payment and deferment for TCS Members, with effect from 6 April 2016. The agreement followed each party taking legal advice. The Trustees agreed the change in accordance with the power available to it under the definition of RPI contained in the TCS Trust Deed and Rules, not under section 68 ( Power of the trustees to modify schemes by resolution ) of the Pensions Act 1995. During October 2015, the change was subject to consultation with active TCS members, in accordance with the 2006 Consultation Regulations. Pensioners were formally notified in January 2017. The basis for pension increases was confirmed and restated in the Trust Deed and Rules dated 19 June 2017. 2
The change from RPI to CPI was wholly reasonable. It was unable to make the equivalent change for all sections of the Scheme as RPI had been hard-coded in respect of past service benefits. Therefore, the change from RPI to CPI only applies to pensions accrued after 5 April 2016. Adjudicator s Opinion 13. Mr E s complaint was considered by one of our Adjudicators who concluded that no further action was required by the Principal Employer or the Trustees. The Adjudicator s findings are summarised briefly below:- From 6 April 2011, the Secretary of State changed statutory revaluation from RPI to CPI. Whether a scheme could base future increases on CPI depended on the rules of the scheme In the case Arcadia Group Ltd v Arcadia Group Pension Trust Ltd [2014] EWHC 2683 (Ch) (31 July 2014), the sponsoring employer argued that it was implicit in the definition of RPI that there was a power to select another index. The case concerned the Arcadia Group Pension Scheme and the Arcadia Group Senior Executives Pension Scheme. Both schemes used similar definitions of RPI. The first defined RPI as the Government s Index of Retail Prices or any similar index satisfactory for the purposes of [HMRC]. The second had the same definition but with Inland Revenue mentioned in place of HMRC. Mr Justice Newey:- o Concluded that both definitions did confer powers to select an alternative index. He reasoned that there had to be some power of selection in case, for example, RPI was discontinued. Furthermore, the definitions expressly allowed for the possibility that another index be adopted and did not state that this would only be permissible if RPI was discontinued or replaced. o Concluded the power to make the change was vested in the Employer and Trustees jointly. o Noted that HMRC had confirmed that CPI would be a satisfactory index for pensions in payment and could not see any basis on which HMRC could consider CPI to be anything but satisfactory for their purposes as regards revaluation. o Section 67 of the Pensions Act 1995 did not preclude the selection of CPI for use in connection with benefits derived from past service. The Scheme Rules define RPI as the Government s Index of Retail Prices or any similar index satisfactory for the purposes to the Inland Revenue (the Adjudicator s emphasis). 3
The decision to change the index used for pension increases from RPI to CPI was jointly agreed between the Principal Employer and Trustees. This is in accord with clause 4.1 ( Alterations of the Scheme ) of the Scheme s Trust Deed. Mr Justice Newey s judgment makes it clear that CPI can be used and that its selection is not unreasonable. The employer duty to consult on changes that affect a pension scheme is set out in: o sections 259-261 of the Pensions Act 2004; o the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006 (the main regulations), and o the Occupational Pension Schemes (Consultation by Employers) (Modification for Multi-employer Schemes) Regulations 2006. The employer is required to consult with affected members or their representatives. Affected members are defined in legislation as the active or prospective members of the scheme to whom the proposed change relates. The consultation requirement does not extend to scheme pensioners or deferred members. The Principal Employer says it consulted with the affected members during October 2015 and pensioners were subsequently formally notified of the change in January 2017. Mr E s benefits / the level of his entitlement did not change on the Transfer Date. The definition of RPI under the TCS Scheme allowed the use of any similar index. Consequently, before the transfer of the TCS Scheme assets and liabilities to the Scheme a change from RPI to CPI, as a similar index, could have been effected. It is not unusual for pension schemes to have different classes of membership. There is no evidence that Mr E, and other former TCS members, are being discriminated against by the index change from RPI to CPI for pension increases. 14. Mr E did not accept the Adjudicator s Opinion and the complaint was passed to me to consider. Mr E has provided no further comments. I agree with the Adjudicator s Opinion. 4
Ombudsman s decision 15. The decision to change the index used for pension increases from RPI to CPI was jointly agreed between the Principal Employer and Trustees. The amendment was made under clause 4.1 ( Alterations of the Scheme ) of the Scheme s Trust Deed. 16. CPI comes within the definition of Retail Prices Index in the TCS Pension Scheme documentation, the Government s Index of Retail Prices or any similar index satisfactory for the purposes to the Inland Revenue. CPI is a similar index, it is an index used to measure price increases and is accepted as an appropriate index for pension increases in payment by HMRC. 17. The Announcement reasonably informed Mr E of the change. 18. While I sympathise with Mr E s position as I appreciate that he feels his pension has been devalued, he is only entitled to the benefits provided in accordance with the Scheme Rules. The Rules allow pension increases to be measured by use of CPI, there is no guarantee of any particular index, so this is actually a loss of expectation. However, I can only direct redress for financial loss where the respondent has made an error, which has directly led to the applicant s financial loss, and I am only able to correct an error in order for the applicant to receive their correct entitlement under the rules. It is not appropriate to direct redress for financial loss in Mr E s case as he is receiving the benefits to which he is entitled under the rules of the Scheme. Therefore, I do not uphold Mr E s complaint. Anthony Arter Pensions Ombudsman 11 June 2018 5
Appendix The TCS Pension Scheme Trust Deed and Rules, dated 1 March 2010 19. Rule 9, Pension Increases, says, 9.1 A pension or child allowance will be increased in payment or deferment under this Rule 9 on the 1 st April in each year, Increases do not apply to any part of a pension which represents the GMP of a widow or widower or civil partner or, after State Pension Age or later receipt of pension, the GMP of the Member. (Increases to GMPs are applied in accordance with Rule 13). 9.2 The rate of the increase for a pension or allowance which has been in payment or deferment for at least a year as at which the increase will be granted will be: (a) for and in respect of Pensionable Service other than as described in (b) and (c), 5% per annum; (b) for a pension or allowance in payment, for and in respect of Pensionable Service after 14 May 2006, 2.5% per annum; (c) for a pension or allowance in deferment, for and in respect of Pensionable Service after 6 April 2009, 2.5% per annum, or if less (in respect of (a) to (c) above) the percentage increase in the Retail Prices Index over the review period. The review period means at any date the latest period of one year up to the September before the relevant date. 9.4 The Trustees may, at the request of the Principal Company, make further adjustments to pensions (whether in deferment or payment) and allowances if in the opinion of the Principal Company it is appropriate to do so having regard to changes in the Retail Prices Index. 9.5 Increases to pensions in payment under this Rule will not be less than required under Section 108 of the Pensions Schemes Act. 20. Rule 13.7 covers increases in payment of GMPs. It says, GMPs will, insofar as they are attributable to earnings in the Tax Years from and including 1988/9, be increased in accordance with the requirements of Section 109 and 110 of the Pension Schemes Act and to the extent of any order made thereunder. Such increases shall be additional to any increases under Rule 9. 21. Appendix 1, Definitions and interpretations, Retail Prices Index means the Government s Index of Retail Prices or any similar Index satisfactory for the purpose to the Inland Revenue 6
The Forth Ports Group Pension Scheme Deed of Amendment, registered 22 March 2016 22. As relevant, Introduction, paragraph Y says, Under the TCS Pension Scheme documentation, Retail Prices Index is defined as the Government s Index of Retail Prices or any similar index satisfactory for the purpose to the Inland Revenue. Case law has held that where Retail Prices Index is defined in this way in a pension scheme it is possible for the scheme to adopt the Consumer Prices Index as the index to be used to calculate increases. The Principal Employer and the Trustees have agreed to adopt the Consumer Prices Index as the index to be used to calculate future increases to pensions in payment and in deferment for TCS Members, with effect from 6 April 2016. 23. As relevant clause 12, TCS Members Contributions, Revaluation and Pension Increases, says, 12.3 In exercise of the power conferred by the definition of the Retail Prices Index contained in the TCS Pension Scheme documentation (and of all other powers available to them), the Principal Employer and the Trustees agree with effect from 6 April 2016 to adopt the Consumer Prices Index as the index to be used to calculate increases to future pensions in payment and in deferment for former TCS Pension Scheme members. The Scheme s Trust Deed and Rules, dated 19 June 2017 24. As relevant the Trust Deed says, Introduction, paragraph F, By deed number 19 listed in Part 21 of the Rules and in exercise of the power conferred by the definition of the Retail Prices Index contained in the governing documentation of the TCS Scheme the Principal Employer and the Trustees agreed that with effect from 6 April 2016, CPI would be adopted as the index to be used to calculate future increases to pensions in payment and in deferment for TCS Members under Rule 9 of Part 17 4. Alterations of the Scheme, 4.1 The Principal Employer may at any time and from time to time alter or modify or add to all or any of the provisions of this Trust Deed or of the Rules or make any new provisions or rules to the exclusion of or in addition to all or any of the existing provisions of the Scheme. 4.3 No alteration, modification or addition shall:- 7
4.3.3 be made without the approval in writing of the Trustees, or 4.3.4 be made without complying with the requirements of Pensions Law. 5. Corrections, 5.1 The Principal Employer and the Trustees agree that in deed number 19 listed in Part 21 of the Rules: 5.1.3 Clause 12.3 states:- 12.3 In exercise of the power conferred by the definition of the Retail Prices Index contained in the TCS Pension Scheme documentation (and of all other powers available to them), the Principal Employer and the Trustees agree with effect from 6 April 2016 to adopt the Consumer Prices Index as the index to be used to calculate increases to future pensions in payment and in deferment for former TCS Pension Scheme Members., 5.1.4 In clause 12.3 the word future should have preceded the word increases and not the words pensions in payment and in deferment since, as stated in paragraph (Y) of the Introduction, the Principal Employer and the Trustees agreed to adopt the Consumer Prices Index as the index to be used to calculate increases to all pensions in payment and all pensions in deferment for former TCS Pension Scheme Members. The wording of Clause 12.3 is wrong to that extent. TCS Members Revaluation and Pension Increases : The Principal Employer and the Trustees, in exercise of the power conferred by the definition of Retail Prices Index in the documentation which governed the TCS Pension Scheme before the Effective Date, and by the same definition which is contained in Part 17 of the Rules, confirm and restate their agreement with effect from 6 April 2016 to adopt the Consumer Prices Index as the index to be used to calculate increases to pensions in payment and pensions in deferment for all TCS Members and all former members of the TCS Pension Scheme. 25. As relevant Part 17, TCS Members, says, Definitions : Retail Prices Index means the Government s Index of Retail Prices or any similar index satisfactory for the purpose to the Inland Revenue 8
Rule 9. Pension Increases, 9.1 A pension or child allowance will be increased in payment or deferment under this Rule on 1 April each year. Increases do not apply to any part of a pension which represents the GMP. Increases to GMPs are applied in accordance with Part 18. 9.2 The rate of the increase for a pension or allowance which has been in payment or deferment for at least one year at the date as at which the increase is granted will be: 9.2.1 in respect of Pensionable Service other than as described in Rules 9.2.2 and 9,2.3 of this Part, 5% per annum 9.2.2 for a pension or allowance in payment, in respect of Pensionable Service after 14 May 2006, 2.5% per annum, 9.2.3 for a pension or allowance in deferment, in respect of Pensionable Service after 6 April 2009, 2.5% per annum, or if less (in respect of Rules 9.2.1 to 9.2.3 above) the percentage increase in the Retail Prices Index over the review period. The review period means at any date the latest period of one year up to the September before the relevant date 1 The Trustees may, at the request of the Principal Company, make further adjustments to pensions (whether in deferment or payment) and allowances if in the opinion of the Principal Company it is appropriate to do so having regard to changes in the Retail Prices Index. 1 As per the deed of amendment dated 17 February, 2 March, 8 March and 10 March 2016 (as confirmed and corrected by Clause 6 of the Trust Deed to which these Rues are attached), the Trustees and Principal Employer in exercise of the power conferred under the definition of Retail Prices Index have agreed with effect from 6 April 2016 to adopt CPI as the index to be used to calculate increases to all pensions or allowances in payment and in deferment for TCS Members. 26. As relevant Part 18, Rule 6, Increase of GMP, says, 6.2 Increase after State Pensionable Age or Member s death. Any GMP to which a Member, Widow or Widower is entitled under Rule 4 above shall, insofar as it is attributable to earnings in the tax years from and including 1988/1989, be increased in accordance with the requirements of Section 109 of the Act. 9