UK: Pensions Ombudsman Round-Up

Last Updated: 13 November 2012
Article by Mark Howard and Judith Donnelly

In this round-up

Mistakes in communications – What happens if you misinform your employees or members about their pension rights?

Ill health cases – Employers and trustees must follow procedures scrupulously

Overpayments – The Ombudsman allows wrongful payments to be recovered from members

Mistakes in communications

Giving incorrect information to a pension scheme member about their benefits can be a serious mistake. If the member relies on the information to their detriment, the Pensions Ombudsman may be prepared to require the employer and trustees to honour the incorrect quotation. On the other hand, not all miscommunication cases are equal. In particular, the Ombudsman will generally award only nominal compensation where the member cannot show that s/he has relied detrimentally on the incorrect information.

This is illustrated by two recent cases:

  • Crake (85839/1) – C took flexible early retirement from the NHS in July 2009, taking up a new NHS role. He bought a new house using his retirement lump sum. He was told that his pension would be reduced if his new salary was over an annual earnings margin (AEM). His new salary was under the AEM quoted to him. In 2010, C was informed that his true AEM was less than his new salary. In 2011, the scheme agreed to write off the resultant overpayments of pension that had been made up to that time. The scheme quoted another incorrect AEM to him in 2011. C claimed that he had originally been given the wrong AEM in 2009 before he purchased his house, and that he had acted in reliance on it. The scheme disputed this sequence of events. The Ombudsman preferred the scheme's case to C's on this point. He found that the scheme's write-off had compensated C for the AEM mistake in 2009, and he awarded £250 in recompense for the 2011 mistake.
  • Wallace (80185/3) – W was made redundant in 2006. He was informed in writing that he would be entitled to favourable early retirement terms in the future. In 2010, he was refused early retirement on those terms. W claimed that he would have made extra pension provision if he had known that the terms would not be applied. The Deputy Ombudsman found that W had not in fact relied on the promise of the favourable terms. His claim about extra pension savings was no more than "a comment as to what he might have done", and in any case he could not realistically have done much to increase his pension in the time remaining before his retirement. W was awarded compensation of £250.

Ill health cases

A consistent theme from the Ombudsman's determinations is the importance of following proper procedures scrupulously when employees seek to retire on the grounds of ill health. Errors can result in cases being sent back to the employer or scheme trustees, or in directions to pay benefits that have been wrongly withheld.

  • Cooper (82234/2) – C worked for West Yorkshire Police (WYP) as a traffic warden. She resigned in December 2005 and applied for ill health early retirement in June 2006. The medical examiner needed only to be satisfied that she was incapable of working as a traffic warden. WYP proceeded on the basis that she also needed to be incapable of working in any other comparable employment. It did not ask the medical examiner for a medical certificate (as required by the scheme's regulations), and it rejected her application. C complained, WYP's mistake came to light, and C was seen again by the medical examiner. His certificate, issued in May 2008, again failed to answer the appropriate question, and instead suggested what other work C might be able to do if she had surgery. Subsequent to this, WYP considered C's case once again. This time, the examiner certified that she was permanently incapable of working as a traffic warden. However, WYP again refused (in 2011) to pay her benefits on the grounds that the examiner considered that she would be capable of gainful employment in the future. The examiner had said no such thing, and no such requirement applied to C anyway. In 2012, WYP finally agreed to pay C her benefits, backdating them to 2011. C claimed that they should be backdated to 2005. The Ombudsman noted that WYP had applied the wrong ill health retirement criteria three times, in 2006, 2008 and 2011. It had failed to obtain a medical certificate in 2006, and in 2011 it had attributed to the medical examiner a statement which he had not made. The Ombudsman concluded that WYP had either been negligent or had been determined not to pay C her benefits. He ordered that C's benefits be backdated to June 2006 and awarded her £600 for distress and inconvenience.
  • Hall (86056/1) – H was injured in 2006. The criterion for ill health early retirement under the pension scheme was permanent ill health or infirmity. The employer referred H to Dr G, who stated that it was unclear whether or not her condition was permanent. H was refused ill health benefits and was dismissed in November 2007. In 2009, H applied again for ill health early retirement. The employer obtained further medical opinions, which were inconsistent. It concluded that H had been permanently incapacitated, but only since February 2009: it held that the appropriate date for assessing her condition for pension purposes was November 2007. H complained, and the employer reviewed her case. It again concluded that she had been permanently incapacitated in 2009, but not in November 2007, based on evidence that would have been discoverable at that time. Subsequently, the employer obtained another medical opinion. This found that Dr G had had enough information in 2007 to conclude that H would make a recovery. The Deputy Ombudsman found that the employer had been at fault both in 2007 and in 2009. In 2007, it had turned H down because of uncertainties about her prognosis. However, it was obliged to come to a firm view on her prognosis rather than simply being agnostic, and it should not have accepted Dr G's opinion without further enquiry. The Deputy Ombudsman further noted that, when applying for ill health benefits, H's condition was to be assessed at the time of the application. In the case of her 2009 application, her condition in November 2007 was irrelevant. The matter was remitted to the employer, and H was awarded £200 for distress.
  • One recent case does, however, give some comfort to employers and trustees. This decision affirms the principle (which has also been evident in past decisions) that the Ombudsman will not serve as a court of appeal where an employee wishes to contest a decision that has been taken on an ill health application by an employer or a board of trustees. The Ombudsman will overturn such a decision only where it is clearly wrong.
  • Brittain (85135/1) – B, who had epilepsy, applied for ill health early retirement in 2007. He was referred to a neurologist by his GP, but he claimed that he was unable to submit a report from the neurologist due to lack of time: an ill health early retirement application must be made within six months of leaving employment in order to obtain the most favourable terms. B was examined by an occupational health doctor, but his report was equivocal, in part because B had not yet seen the neurologist. The scheme medical adviser (SMA) concluded that not all treatment avenues had been explored, and B's application was rejected. B moved to Germany and obtained a report from a Dr M stating that he was unfit for work. He submitted a complaint to the scheme in 2010, but this was rejected when the SMA stated that it remained unclear what treatment B had been receiving. He persisted with his complaint, and submitted a further letter from Dr M. However, the SMA continued to maintain that it was unclear whether B had received appropriate treatment that might lead to his condition improving. The Deputy Ombudsman found against B. As in previous decisions, she stated: "I will not generally interfere in the exercise of a discretion unless I consider the decision process was in some way flawed or the decision reached was perverse, i.e. one that no reasonable body would have taken. I cannot overturn their decision because I might myself have acted differently." B had chosen to submit his original application without a neurologist's report, and the scheme had been entitled to reject it. Likewise, the scheme had been entitled to reject B's subsequent complaints.

Overpayments

The Ombudsman has been dealing recently with a series of complaints lodged by members of the Teachers' Pension Scheme (TPS). The terms of the scheme allow for members' pensions to be reduced in certain circumstances where members retire and take up new employment. TPS relied for a number of years on compulsory self-reporting from members. It seems that some members failed to report the necessary information, with the result that they have now been required to pay back considerable sums in overpaid benefits.

  • Black (77044/3) – B took early retirement in 1999. In 2003, she took up a position as a supply teacher. TPS was informed of this in 2003, but the information provided was inadequate. In 2008, TPS contacted B and told her that her pension was being withdrawn with effect from 2003. The overpayment was £26,643. The Deputy Ombudsman rejected B's complaint. She was not wholly satisfied by the scheme's explanations for the delay between 2003 and 2008, but the onus had been on B to inform TPS properly about her employment situation.
  • Webber (84498/1) – W took early retirement in 1997. He took up employment in 2001 and submitted a notification accordingly. His pension was not affected, but he was told to notify any future salary changes. In 2009, W was told that his rising salary level meant that his pension ought to have been reduced since 2002. The total overpayment was £36,282. W claimed that he had checked with TPS (by telephone) and his employer that his pension was not at risk. He also claimed that he had changed his position financially in reliance on being entitled to his previous level of pension. The Deputy Ombudsman found against W. W should have been aware that he had to submit the appropriate notifications. There was no contemporary evidence of his alleged conversations with TPS and his employer. The change of position defence failed because W should have been aware that his pension was being overpaid, and in any event the Deputy Ombudsman was not persuaded that he would not have undertaken the relevant expenditure anyway.

This last case highlights another important point. While a pensioner can resist a claim in respect of overpayments by establishing that s/ he has changed his or her financial position in reliance on overpayments, it cannot be assumed that the Ombudsman will accept such a defence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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