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The opdu Report - Issue 20, June 2006 Shortly after my appointment I expressed surprise on finding that it was by no means unknown for scheme members to be told that they did not qualify for payment of an ill-health pension without being given any reason as to why that view had been taken. Nor was it unknown, when I queried the lack of reasoning, for me to be told that it was settled law that Trustees did not have to give reasons for decisions which lay within their discretion. That did not seem to me to be fair to members whose lives might be significantly affected by such decisions. I took the opportunity to flag up my concern in a number of speeches and articles. In a decision issued in March 2002 I wrote As a matter of good administrative practice Trustees should provide reasons for their decision to those with a legitimate interest in the matter. I have been pleased to note that Pension Schemes have generally taken note of my views so that it is much less common (but regrettably still not unknown) for me now to find that members who have been denied an ill health pension have not been given a reasoned explanation for the decision. That reasoned decisions should be provided may also be a position which the Courts are now adopting. Earlier this year Mr Justice Morrison dealt with an application from a defendant bank to strike out a claim that they had been irrational and perverse in deciding what level of discretionary bonus to award the claimant. This was not a case involving a Trust but the parties were apparently agreed that there was a duty of good faith to be observed. The Bank had given no reason for deciding on the level of bonus to grant. The Judge said: “The Bank's position appears to be that if it said nothing then the claim would be struck out. The logic of the position taken by the Bank is that… the Bank are not obliged to say how their decision was made; it is for the employee to show that the decision was perverse. In effect, this would mean that the decisions about bonus would be unchallengeable: if there were no specific criteria behind the decision, and no information as to exactly how the decision was made, how could the court conclude that the decision was irrational or perverse? The right to challenge the decision on grounds of irrationality or perversity is empty, at least where some bonus has been paid. The Judge did not accept the validity of that proposition and ordered that the matter should go to trial. More directly relating to Pensions Schemes, when Mr Justice Park dismissed an appeal from one of my determinations, he commented several times on the absence of any reason having been given by the Trustees for their decision that the member did not qualify for an ill-health pension. He concluded: I have said on several occasions already that the Trustees never gave to (the member) any explanation of the reasons for their decision. That seems to me to have been most unsatisfactory ….A reasoned case had been put to the Trustees on his behalf… He could reasonably have expected something more than a “ Sorry, no” which was all he got from the Trustees. In the course of his judgement, Mr Justice Park recited the principles, endorsed by Lord Justice Glidewell which should apply when Trustees make decisions: (b) They must direct themselves (c) They must not arrive at a In the absence of any reasons for a decision it is difficult to establish whether trustees have asked themselves the right questions. Mr Justice Park said: …in my view the Trustees cannot realistically complain when the Ombudsman tries to identify the questions they asked themselves, given that they themselves never gave either to (the member) or to the Ombudsman even the most cursory of explanations of the thought processes which led them to their decision. The Saffil case also illustrates another common error made when ill health applications are being considered. As the judge commented, it appeared that the Trustees thought they were exercising a discretion as to whether to allow the member to receive a pension. But both I and the Judge took as our starting point an examination of the Rules of the Scheme and these showed that that a member had an entitlement to a pension if he met the relevant criteria. As the Judge said “the pension…is not a discretionary pension which the Trustees can grant or refuse as they judge appropriate.” As Mr Justice Park noted, even where the issue is not a matter of discretion, if the trustees have to form a judgement on some question of fact which is relevant to whether a member of a scheme is or is not entitled to a benefit under the rules, a judge or an Ombudsman will generally not substitute his own judgement for that of the trustees. But there are limits to that general proposition, one being if the trustees decide a question in a way is perverse. In Saffil, the judge agreed with my view that the trustees had the right information before them but had come to a perverse decision that no reasonable body of trustees could reach and that it was therefore right for me to substitute the correct decision rather than remitting the matter back to the trustees for them to take a fresh decision. The latter course would have been the right action to take had the trustees not already obtained relevant information. Just as there is sometimes confusion as to whether they are being asked to decide a question of fact as opposed to exercising a discretion so trustees and managers of pension schemes are sometimes confused as to who has power to make the particular decision. There is no standard practice to be found: Common arrangements are for such decision to be taken:
Where both Trustees and Employer have roles to play the Rules need to be carefully examined to see whether there is a demarcation as to what aspects each party should be dealing with. It is by no means uncommon for Rules relating to ill health or injury benefits in effect to require one party (either Trustees or Employer) to decide whether someone should be allowed to pass through a turnstile before the other party then decides what benefit can then be provided. While that second party may have a wide discretion to exercise in relation to its own function it should not seek to usurp the position of the turnstile-keeper. A case which illustrates this involved a member of the Royal Air Force who was killed in a mountaineering accident. The first point to be decided was whether the death was due to service and that was a matter for the War Pension Agency, a role fulfilled at the time by the DSS. That matter was decided in favour of the Applicant. There was then a discretionary pension available via an Awards Panel acting on behalf of the Defence Council. That discretionary award was refused because the Panel took the view that the death had not been due to service. I found, and was upheld by the High Court and the Court of Appeal that the particular Rules meant that it was not open to the Panel to revisit a point which the Regulations provided to be determined by the War Pensions Agency. On the other hand, even where the Rules of a scheme may provide for a matter to be determined by an Employer, there may well be an obligation on the Trustees to satisfy themselves that the payment from the Scheme’s Fund is proper. Thus the Finance Act 2004 lays down rules as to when pensions can be paid from a Registered Pension Scheme. These Rules prohibit payment of a pension before the minimum age unless the ill health condition is met by the scheme administrator receiving evidence from a registered medical practitioner that the member is (and will continue to be) incapable of carrying on the member’s occupation because of physical and mental impairment and there also being evidence that the member has in fact ceased to carry on that occupation. Trustees always need to satisfy themselves that a payment from scheme funds (whether by way of a pension or for other purposes) is proper. If the Employer is purporting to authorise an ill health pension in circumstances where the Scheme Rules or the general law do not allow it then the Trustees may stand to be criticised. Whilst the Finance Act’s condition is satisfied by a certificate from any registered medical practitioner, scheme rules may themselves be more specific. The Local Government Pension Scheme for example requires a certificate from a doctor with specific qualifications and who has not been involved in assessing the member for other purposes such as deciding whether the employment should be terminated. Even where there is no legislative requirement principles of fairness may mean that in the particular circumstances of cases before them trustees should seek advice from a doctor who is independent of the employer. One example of where this was judged to be necessary related to an NHS employee where different doctors from the same firm were in my view persistently proceeding on a mistaken basis in advising on whether a particular incident was the sole cause of an injury to the member rather than considering (as the relevant Regulation provided) whether her condition had been caused by her employment. Both the High Court and Court of Appeal upheld my view that when reconsidering the matter following my determination the Secretary of State should seek medical advice from some different source than the Company with whom the NHS had a contract and whose doctors had consistently advised on the mistaken basis. In giving the judgement of the Court of Appeal, Lord Justice Gage said: (The Ombudsman’s) conclusion, with which I agree, was that each of the three medical advisers had adopted the same wrong approach. Where, as here, each of the doctors came from a small panel. I can see no reason why his decision can be said to be in any way irrational and every reason for concluding that it was justified. That is not to say that the Ombudsman must have concluded that any other doctor coming from (the same Company) would be biased. It is saying no more than that in all the circumstances of this case the perception of fairness and independence required a doctor from outside (the Company) to deal with the re-consideration of Mrs Suggett's claim. Where there are specific physical or mental qualities required to do a particular job then it will usually be appropriate for the Trustees to seek a view from their medical adviser as to whether the member is capable of doing the job particularly where the issue is seen to be in dispute. In order for that view to be given weight the doctor will need to have a proper appreciation of what the job entails. A practice which I have commended to schemes is that before a decision is taken on whether a member meets the criteria for payment of an ill health pension, the scheme should share with the member the information which will be taken into account by the trustees. Observance of that practice will bring to light any dispute there may be about what are the exact duties of the post and will also probably bring to light any misunderstandings as to what the criteria actually are. Trustees may well receive medical opinions from more than one doctor, not all of which they may themselves have sought. That does not mean that such advice should not be taken into account. If for example the advice which the trustees have themselves commissioned is clearly at odds with some other medical opinion, the trustees might reasonable be expected to do more than blindly accept the advice they themselves commissioned. Closer examination may show that the apparent difference of opinion is because one or more of the doctors involved has not properly understood either the criteria used by the particular scheme or the physical requirements inherent in the member’s employment. It is for the Trustees to assess the opinions before them. That is not usually a matter of being swayed by the number of doctors supporting either side of the particular dispute. Rather it needs the Trustees to look carefully at the Rules of their scheme and ascertain what the evidence is that bears directly upon the criteria in those rules. Doctors are of course the people to look to for diagnosis and prognosis. But in most schemes it is the Trustees and not a doctor who are then expected to set that information against the Rules of the scheme and reach a view as to whether or not the criteria are met for payment of an ill health pension. Trustees may have a particular difficulty when their own medical adviser disagrees with a view from a Specialist. Generally I see nothing amiss in an occupational health adviser offering a different view than the treating specialist as to whether a member meets the scheme’s criteria although, as I noted above it is not usually the opinion of either of those doctors that is important – it is the opinion of the Trustees. But if the occupational health adviser is casting doubt about what the Specialist is saying about the diagnosis or prognosis of a condition within the particular area of speciality then the trustees should be wary of accepting that advice without further enquiry. The occupational health adviser may of course be right in querying the particular specialist advice; but the safer course would be for the Trustees to ask another Specialist to confirm those doubts. The requirement in the Finance Act 2004 for certification that a member is unable to carry on his particular occupation does not mean that a pension is automatically payable if such a certificate is provided. Rather it would preclude a pension being paid if the certificate is not provided. But the scheme’s own criteria may impose a higher threshold for the member to cross. Many schemes for example have provisions to the effect that a pension will not be payable, even though the member is unable to undertake his own duties, if he might nevertheless be able to undertake some different employment. In reviewing decisions about such schemes I have tended to imply a requirement that the alternative employment under consideration should be such as to be suitable for the particular employee: it would be unreasonable to deny a pension to say a computer programmer whose health prevents him pursuing that occupation on the grounds that he could fulfil the role of a car park attendant. A criterion frequently found requires trustees to consider whether the member’s incapacity is such as not only to prevent him or her undertaking his normal duties but also or instead has the effect of impairing his earnings capacity. It is surprising how often Trustees or those advising them concentrate on the first part of the criteria and fail properly to consider the second. The main message I wish to get across to those charged with deciding whether pensions or other benefits should be granted on the grounds of ill health or incapacity is to look closely and carefully at what the Rules of the particular scheme say. Beyond that there is a need to act fairly toward someone whose ongoing financial viability may well be dependent on the decision. Those messages do of course have a more general application in other fields of pension administration and recur in the various chapters in the Guide which I produced last year. David Laverick |
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