UK: Pensions Ombudsman Round-Up - April 2013

Last Updated: 15 April 2013
Article by Mark Howard, Judith Donnelly, Jack Wheeler and Paul Hodges

In this periodic round-up of complaints from employees and pensioners to the Pensions Ombudsman, we look at:

  • Promises by the employer - If an employer tells its workers that it will give them certain pension benefits, is it legally bound to do so?
  • Ill health cases - How should requests for early retirement for ill health be handled?
  • Incorrect communications - What happens when pension scheme members are given incorrect pension quotations?

Promises by the employer

Employers often make statements to their employees about their prospective pension entitlements. Sometimes, in an unguarded moment, they end up making promises that they later regret. However, where an employer makes a statement that is not absolute and binding, and then departs from it for good objective reasons, a complaint to the Ombudsman will not succeed:

  • Hield (85394/2). The employer, S&N, was taken over by Heineken in April 2008. For the previous 15 years, S&N had increased portions of pension earned before 1997 at the level of the Retail Price Index, up to a cap of 5%. This practice was referred to in the pension scheme booklet. In March 2008, Heineken stated that its "intention" was to continue the practice, but noted that it was not binding. By the end of 2010, Heineken and S&N had decided to cease the practice, and the scheme trustees went along with this. However, the cessation was not permanent, and another increase was subsequently awarded in 2011. H argued that the decision to interrupt the practice was irrational or perverse, and that the trustees had not acted in the members' best interests. Ombudsman: Complaint rejected. The scheme was in deficit, and its future was under threat. Some weight was to be given to Heineken's statement of intention, but the decision to depart from it had been taken in a considered way, and the statement was not sufficient to disallow making the decision. The Ombudsman noted that the outcome might have been different if the employer had wilfully reneged on the statement without having regard to any other matters.

On the other hand, where an employer has given a binding contractual commitment, it will be required to honour it:

Ecart (85837/1). E was a member and trustee of the pension scheme and an executive of the employer. The employer agreed that E would have the right to retire early at 60 without any actuarial reduction in his pension. In 2004, the employer decided not to approve any more early retirements without reductions, but continued to make an exception for E. In 2008, the employer informed the trustees that E had given up his enhanced rights. He had not. In 2010, E discovered that his rights had purportedly been withdrawn and

complained. The employer stated that it had decided to withdraw his rights in 2008 and had informed him of this. E disputed this. The employer also claimed that the decision to grant the rights had been tainted by a conflict of interest on the part of E. Deputy Ombudsman: The enhanced terms were a contractual entitlement and E had never given them up. E should be granted the enhanced benefits, plus £250 for distress and inconvenience.

Ill health cases

As always, the key message emerging from Ombudsman cases on ill health is that the employer and trustees must be scrupulous in following the procedures laid down in the pension scheme rules:

  • Smart (88544/2). S went on sick leave in August 2008 due to knee and hip problems. She was dismissed in February 2010. In March 2010, an independent doctor, Dr D, certified that S was not permanently incapable of discharging her duties so as to be entitled to an ill health pension. Dr D did not examine S in person. S was accordingly refused a pension. S complained, and her case was referred to Dr Y. Dr Y was given diverging accounts of what S's duties comprised. He requested further information, but this was not provided. He ended up concluding that, in March 2010, there had been enough scope for future treatment to conclude that S was not permanently incapacitated from her duties. Ombudsman: The employer should have ensured that Dr D was clear about what S's duties entailed before relying on his opinion. Dr Y had likewise not been given the information on this point that he had asked for. Case remitted to the employer for another doctor's opinion to be obtained. Employer agreed to pay £250 to S for distress and inconvenience.
  • Carden-Jones (88851/1). C went on sick leave in May 2008. The criteria for an ill health pension required that she be permanently incapable of doing her job. C was assessed by Dr P, an occupational health doctor. In February 2009, Dr P stated that C's condition was not permanent and that she would be able to return to work. However, the employer had by now decided to dismiss her. C was told that she would not be paid an ill health pension and that she had the right to appeal this decision. She appealed. Dr P then pointed out that C had not been assessed by an independent doctor, as required by the scheme rules. She was therefore referred to Dr S. In April 2009, Dr S concluded that further treatment was possible and that C's condition was not permanent. The employer again refused to pay C an ill health pension and told her that she had the right to appeal. In August 2011, C wrote to the employer stating that she now had a firm diagnosis of Myalgic Encephalopathy/Chronic Fatigue Syndrome and asking for her case to be reopened. In January 2012, another doctor, Dr R, concluded that she was permanently incapacitated. C, however, wanted her ill health pension to be backdated to her dismissal. The employer replied that C had been told about her appeal rights in 2009 and that appeals had a 6 month time limit. C claimed that she was never told about this limit. Deputy Ombudsman: The employer had not obtained independent medical advice before its first refusal of the pension in February 2009. It was also questionable whether the second doctor, Dr S, was truly independent, and in any case the employer had simply adopted his opinion without considering it. In addition, the employer had failed to explain the appeal process in sufficient detail. Case remitted to the employer and £250 awarded for distress and inconvenience.

Incorrect communications

It is not unusual for trustees, employers or pension scheme administrators to give scheme members incorrect information about their benefits. The Ombudsman has continued to apply the principle that, where members have relied to their detriment on such information, they are entitled to compensation in respect of the benefits that they thought they were going to get. Where the member cannot prove such reliance, the Ombudsman usually awards only nominal compensation (<£1,000) for distress and inconvenience.

  • Hallard (84855/2). Between 2005 and 2007, H received various pension quotations, all of them stating a figure of around £10,000 p.a.. In March 2009, he received a further quotation of £13,970. He decided to quit his job. In February 2011, H was told that his pension was actually only £10,913. Ombudsman: H probably did leave his job in reliance on the incorrect quotation, but there was evidence that he would have left anyway in July 2012. H was awarded compensation of £23,540 in respect of the period up to July 2012.
  • Holt (84553/1). In 2006, the scheme wrongly told H that she had the right to draw a lump sum on retirement. In 2009, H booked a holiday. In January 2010, the scheme "confirmed" to H that she could draw a lump sum of £26,000. H paid the balance of the cost of the holiday and incurred additional related expenditure. Ombudsman: Complaint upheld; awarded compensation of £2,500, this being the sum required in order to put H in the position that she would have been in but for the error.
  • Most benefit statements contain caveats stating that they are not definitive statements of the member's rights. "Small print" defences generally do not succeed with the Ombudsman, but one recent case provides an exception to this rule. The Deputy Ombudsman was at least partially swayed by the existence of caveats in the documentation:
  • Bore (86345/1). In 2006, B incurred a pension debit, which gave his ex-wife a share of his pension benefits. His subsequent benefit statements were inconsistent in their treatment of the debit. B applied for voluntary redundancy. In April 2009, he was sent a pension quotation of £26,535 p.a., containing standard caveats. He was granted redundancy. He was then sent a further series of inconsistent statements, with pension figures ranging from £14,977 to £24,628. It eventually became clear that the true value of his pension was £18,159. By this time, B had sold his house and exchanged contracts on a new property. He accepted that he probably would have taken redundancy and moved house anyway, but said that he would have bought a smaller property. Deputy Ombudsman: B had suffered no financial detriment, since his property remained a marketable asset. He had known that a pension debit was in place, that there was a history of inconsistencies, and that the April 2009 quotation contained caveats. B had to accept the £1,500 that the scheme had offered him in settlement.

In one case, the Ombudsman took the step of turning down a complaint on the grounds not that the member's reliance on the incorrect information was not genuine, but that it was unreasonable for him to have relied on it:

  • Cormack (81498/1). C was entitled to retire at 60 in respect of the portion of his pension earned between 1990 and 1997. His benefit statements indicated that he could retire at 60 in respect of all of his service. He bought a property in 2005 in reliance on the statements. Ombudsman: C was only 48 in 2005, so it was unreasonable for him to rely on a projection of what his benefits would be if he remained in service with an unchanged benefit structure until 60. Compensation of £250 for distress and inconvenience.

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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