The opdu Report - Issue 20, June 2006

Advisory Service Forum
Ombudsman Determinations
Mark Grant

Rogers (N01041)

Making good loss from delay in handling ill health early retirement
The member would have received a higher level of benefits if the decision to pay her ill health benefits had been made before her 60th birthday.  The Ombudsman held that there was an unreasonable delay in making the decision and that the trustees had not handled the case with sufficient urgency. Therefore, he ordered that the trustees pay the benefits that would have been payable had the decision been made before her 60th birthday.
 
In general, on the matter of what date the benefits ought to be backdated to once the decision has been made, the Ombudsman has held that (depending on the terms of the scheme rules) payments should be made from the date that the trustees/employer have sufficient evidence to make the decision. This is sometimes the date of the application and sometimes much later (especially when there is conflicting medical evidence).

Trouton (N00812)

Decision making in ill health cases and weighing medical evidence
This case highlights that when considering an application for an incapacity pension, it is very important to ensure that when seeking medical advice, the medical practitioner is asked the right questions. If the correct questions have been addressed, as long as there is enough evidence to support the decision made by the trustees/employer, the Ombudsman will not challenge it. 

In this case the Ombudsman reviewed the way that the decision-maker had dealt with the medical evidence obtained as follows: “As is not uncommon, the various medical opinions which have been obtained by one or other party are not unanimous either as to the diagnosis or, more significantly as to the prognosis. For the decision maker to favour one doctor's opinion over that of another is not in my judgement evidence of any perversity in the decision, but simply represents the weighing of one set of evidence against another.”

White (P00925)

Burden of proof in Ombudsman cases
The member complained that he was wrongfully refused his application for injury benefits.  For the member to be entitled he had to have suffered an injury solely in the course of official duty.  The argument in this case was whether his condition was caused purely by an incident at work or whether it was caused in part by a pre-existing condition. The Ombudsman considered the issue of burden of proof.  He stated:

“An Ombudsman does not expect an applicant to bear a burden of proof in the same way as the Court does of a Claimant.  The applicant to an Ombudsman makes a complaint or a reference.  It is then for the Ombudsman, using his statutory powers if necessary; to investigate the matter and obtain such evidence as is necessary and obtainable.  Unless the Ombudsman can be satisfied, on the balance of probabilities, of a particular fact, which is key to making a finding against a Respondent, then such a finding cannot be made; in that sense the burden of proof can be seen as falling on the Ombudsman.”

The Ombudsman decided that the decision taken in this case had not been on the basis of the balance of probabilities but instead had sought to impose an even higher standard of proof than that beyond reasonable doubt. The Ombudsman thought the Government department administering the scheme should have erred on the side of giving the benefit of doubt to the member and quashed the decision as a result.

Molnar (N01222)

Member should be shown covert surveillance evidence before decision is reached on ill health retirement 
The member made an application for ill health retirement. She complained that the medical appeal board had considered issues other than those concerning her medical condition.  The employer arranged for covert surveillance of the member and submitted the video to the medical advisers who considered the member’s case. The Ombudsman decided that it was maladministration for the member not to have been given the opportunity to see the evidence and respond.  However, he went on to say that while he had identified maladministration he did not consider the decision to decline her application for ill health retirement as being perverse.

Gander (N01128)

No contractual right to an unreduced transfer value
The member alleged maladministration when the transfer value quoted to him and which he had accepted was not paid in full. Only 80% of the transfer value was actually paid. The Ombudsman held that, as regards his statutory rights, the member’s acceptance of the transfer value did not give him a right to a benefit greater than that to which he was entitled under the winding up priority list.
The member had claimed there was an offer in the form of the transfer value quoted to him, which he accepted by returning the signed acceptance form. He argued that consideration existed as he had given up his right to benefits under the scheme, thus relieving the scheme of its liability to provide those benefits, and from this an intention to create legal relations could be inferred.

The Ombudsman referred to Read v Croydon (1938) in which it was held that a contractual relationship was not formed where one person was bound to supply and another entitled to receive. Thus the member was exercising a statutory right rather than entering into a contractual relationship. The "guarantee" element of the transfer value quotation was accordingly to be interpreted within the context of the statutory framework relating to pension transfers.

Keen (N00935)

Provision of incorrect information does not of itself create any entitlement to benefits of the amount stated
The member was made redundant at the age of 50 and became a deferred member. A few months later, the trustees wrote to him enclosing a ‘certificate of entitlement’ which certified that, subject to the provisions governing the scheme, he would receive a deferred pension (payable at normal retirement date) of £8081.52 per year (inclusive of guaranteed minimum pension if applicable).

The trustees wrote to the member again seven years later, informing him that an administrative error had resulted in his pension being described incorrectly as a fixed amount. Instead, the amount of his pension could not be calculated with certainty until he was nearing retirement, because the amount of the pension depended upon inflation over the period up to his retirement.

The member claimed that the ‘certificate of entitlement’ should be honoured as he was entitled to rely on a document described as a ‘certificate’. However, the Ombudsman held that that was not his legal entitlement. Where incorrect information had been provided, the member should be put in the position in which he or she would have been, had correct information been given.

Thomas (N00673)

Ex gratia payments can be regarded as an unfunded, unapproved occupational pension
The member retired in 1991 and from that date the employer paid him an ex-gratia pension each month. On the later sale of the employer, the warranty and indemnity agreement contained the following statement:  "None of the Companies nor any of the Companies' Schemes are making any ex-gratia payments to or in respect of any of the employees or officers of the Companies save for those ex-gratia pensions specifically disclosed against this paragraph in the Disclosure Letter."

The disclosure letter listed the member amongst the names of employees to whom ex gratia payments were being made.  After the sale, the member continued to receive this sum each month and in 1999 the payment was marginally increased. However, in 2003 the employer wrote to the member to inform him that they were no longer able to continue with these payments and that they would cease.

The Ombudsman held that the employer had decided to offer retiring employees like the member, who had been of long service and who were not members of the employer’s occupational pension scheme, either a lump sum payment or a pension for life. He was satisfied that the member had been offered a pension for life. On the sale of the employer, the details of the monthly payments had been made known to the purchaser in the disclosure letter and had been recognised by it for many years.  The Ombudsman concluded that the use of the words "ex gratia" did not automatically mean that the employer was not legally obliged to make the payments.  The arrangement constituted, in effect, an unfunded unapproved occupational pension scheme established by the employer for the benefit of the member.

Pritchard (N00208)

1.1 Trustee liability for fees of financial advisers instructed by member to handle complaint
The member had a complaint against the trustees for delaying the transfer of his AVCs from Equitable Life to L&G, which meant that the transfer occurred after Equitable Life had instituted a policy of imposing a 16% penalty on such transfers.  The member claimed from the trustees the cost of instructing financial advisers for work carried out in connection with his complaint.

The financial advisers conducted the member’s complaint on his behalf and eventually the trustees agreed to make good the loss suffered, to include the 16% deduction in the transfer and an amount to take account of adverse movements in annuity rates during the delay.  The trustees refused to pay the invoice of the financial advisers for the additional work incurred in dealing with the complaint.

The Ombudsman held that while it was not strictly necessary, it was not unreasonable for a complainant to seek professional advice. "The reasonable costs so incurred can be seen as a consequence of the maladministration and thus an expense for which redress should be provided."  However, he also concluded that not all the costs were reasonably incurred, so he only awarded the member part of the financial advisers’ fees.  As the member could have engaged the free services of OPAS to assist him with completing the IDR forms, the Ombudsman decided that the trustees should not bear this cost, although he noted that "they fell short in failing to expressly refer the Applicant to OPAS."

Craythorne (N01352)

1.2 Battle of the annuity providers’ forms
The member sought to transfer his personal pension fund from Prudential to Halifax. Both Prudential and Halifax insisted on their own standard warranty form being used.  The delay between the two providers meant that when Halifax received the transfer value it had fallen by £11,000.

The Ombudsman concluded that Prudential could not reasonably insist on only its own form being used as the documentation supplied by Halifax provided it with the warranty it sought. He also held that "there is no contractual liability on the policyholder arising from the wording of the policy to use Pru's own warranty forms. It is a nonsense that a customer of each company should suffer because neither would accept the validity of a form issued by the other, despite both forms containing the information which the other needed.”

Halifax and Prudential were each ordered to pay half of the member’s loss and to give him £75 for distress and inconvenience.

Lindsay (M01026)

1.3 No eligibility to join scheme where excluded by terms of employment
The employee was given conflicting information on whether he would be eligible to join the employer’s occupational pension scheme. At his interview for the position he was told he would not be eligible.  He believed he was not and had not joined the scheme.  He later became aware that some co-workers had been included in the scheme. The member complained and eventually brought his complaint to the Ombudsman against the employer and the trustees.

The Ombudsman stated that "at all times the parties involved, including Mr Lindsay, have fully understood that an entitlement to join the scheme has not formed part of his terms and conditions of employment. The relevant law indicates that an agreement binding an employer and an employee contractually overrides the provisions of a pension scheme Trust Deed, even if the deed is, on the face of it, more favourable."

The member acknowledged that the remuneration package he was offered and accepted did not include entitlement to membership of the scheme.  The Ombudsman concluded that there was no automatic right to membership for an employee who joins on terms which exclude membership. The member’s complaint that he was excluded from the scheme and denied benefits was not upheld.

Cameron (M00949)

1.4 Member’s right to disclosure of legal advice received by trustees
1.5 The member claimed that he was entitled to the disclosure of legal advice given to the trustees in relation to the early payment of his deferred benefits. 
The trustees did not agree and the member complained to the Ombudsman.  The member had a previous complaint about a transfer value but his case had been rejected as out of time. He subsequently complained to the Institute of Actuaries about the scheme's actuaries and, as a result, he became aware of legal advice given to the trustees.  He claimed that he had a proprietary right as a beneficiary to see that advice.

The trustees said the member was out of time again but the Ombudsman accepted the case, stating: "even if Mr Cameron knew that legal advice had been given as long ago as 1993, his present dispute about that advice did not arise until he has requested and been refused a copy of such advice."
The trustees argued for non-disclosure but the Ombudsman ruled that the advice related to the payment of benefits, which was not at the discretion of the trustees. Any discretion concerning the early payment of deferred benefits lay with the company and not the trustees.  Disclosure of the advice was ordered.

Hudson (N01058)

1.6 Acceptable for trustees to agree a contribution holiday where the scheme has a surplus on the MFR basis only
1.7 The power to set contributions lay with the trustees under the scheme’s rules.
A valuation in 1998 showed a surplus on the MFR basis but a deficit on the basis used in the previous valuation. The employer took advice that it would continue to meet the MFR it if it took a contribution holiday for two or three years.

The trustees learnt that the employer intended to wind up the scheme after two years, and sought advice.  They established they had the power to wind up the scheme immediately, but agreed with the employer not to do so.  Following this, the trustees agreed to a contribution holiday until the time when the employer intended to wind up the scheme.  Therefore, benefits continued to accrue even though no further employer contributions were made to the scheme.

The Ombudsman held that the requirement under legislation was for a scheme to be fully funded on the MFR basis only.  The trustees only agreed to the contribution holiday after the actuary confirmed that the MFR would continue to be met and that it would be reasonable to allow a contribution holiday. The trustees’ agreement not to wind up the scheme when they knew no further employer contributions would be made also did not constitute maladministration.

Bartlett (N00952)

1.8 Benefit certificates and contribution holidays – trustees not liable if scheme cannot fund its members’ benefits on wind-up
The member complained that the trustees had failed to secure his preserved benefits (by purchasing a deferred annuity) and to honour his pension entitlement stated in the ‘benefit certificate’ he had received prior to the winding-up of the scheme.  The member also complained the trustees had failed to account for the best interests of the members by allowing contribution holidays to continue in the five years preceding the wind-up. When wind-up commenced, the scheme was funded above the MFR level.  The member had understood his entitlement to be guaranteed by the benefit certificate, as the accompanying letter had said that his accrued pension was “preserved.”

The Ombudsman concluded that the trustees had not committed to secure the member’s benefits by purchasing an annuity.  The trustees were only required to provide benefits to the extent that there were funds available. However, the Ombudsman noted that a reference in the benefit certificate to the members’ benefits being dependent on the availability of funds would have been helpful.  He accepted that the fact that a scheme was fully funded on the MFR basis did not necessarily mean the members’ full benefits could be met, and the trustees could only ask participating employers for those contributions necessary to maintain the MFR level of funding.

Mark Grant
Partner
Pensions Ombudsman Unit
CMS Camerom McKennal
Tel: 020 7367 3000

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