The opdu Report - Issue 22, May 2007

Advisory Service Forum
Booklet Ruled Offside
Peter Shave

Peter Shave of Wragge & Co LLP considers the impact of the decision in the Steria Limited v Hutchison on the responsibilities trustees could have for inaccuracies in scheme booklets.

Background

Mr Hutchison commenced employment with Bull Information Systems Limited (“Bull”) in 1974 joining the final salary pension scheme.  Upon his promotion to a management position within Bull, Mr Hutchison was given the opportunity of transferring his accrued benefit to, and becoming a member in respect of future service of, the Information Systems Management Plan (“the Scheme”). 

Following this promotion, Mr Hutchison received a letter from the Pensions Manager of Bull together with a copy of the explanatory booklet.  The booklet was expressed to give clear and concise information about the Scheme.  It stated that Mr Hutchison had the right to inspect the Trust Deed and Rules governing the Scheme on application to the pensions department.  The Trust Deed and Rules were stated to prevail over the booklet on any question of the interpretation. 

The booklet defined normal retirement date as being age 65 and the section on early retirement provided that a member could retire early with the consent of the company at any time from age 50.  It went on to say that the pension was reduced because it was paid early  but that members who had completed 20 years’ service or more might retire early from age 62 onwards without the application of the reduction factor that would otherwise apply.

At the time that Mr Hutchison joined the Scheme the relevant provisions of the Trust Deed and Rules stated that normal retirement date was aged 65 for male members and that members could, with the consent of the principal employer, retire on pension before normal retirement date but after the age of 50 but with a pension that would be actuarially reduced for early payment. 

There was no provision in the Trust Deed and Rules entitling a member with 20 years’ pensionable service to retire early from age 62 on an unreduced pension. 

In 2002 as a result of the sale of part of the UK business of Bull, Mr Hutchison became a deferred member of the scheme.  In subsequent correspondence he queried his pension benefits claiming he was entitled to a reduced pension from age 62.

Key Features of the decision

The Court of Appeal decided that as the invitation letter referred to the explanatory booklet and that the two documents had to be read together.  Although the letter was sent out on company notepaper, its statements were binding on the trustees.  The letter had been sent out by the company’s pensions department to whom the trustees had outsourced administration of the Scheme.  The statements in the letter had been made with the trustees’ actual or ostensible authority.  The statements derived from the booklet were ones made from a document for which the trustees were responsible. In the circumstances, the Trustees were responsible for the information given to members. 

The whole of the letter and the booklet had to be considered, however, in determining what was said.  Read as a whole, the letter and the booklet made clear that early retirement required employer consent and neither document promised the member that his normal retirement date was his 62nd birthday nor that consent for early retirement at that age would be forthcoming. The unambiguous representation needed for the claim to succeed did not therefore exist.  The disclaimer notice in the booklet made it impossible for the member to establish reliance on the booklet and the letter.  Neither, on the facts, had the member suffered any detriment.

Practical Issues for scheme booklets

Although there had been concerns that the court might be quite prescriptive as to the formal content of scheme booklets, these concerns proved unfounded. The court’s decision imposes relatively little formality.  Provided the statement is clear in its terms (in other words in the way that it is expressed) and clear in its location (in other words not tucked away in small print and/or in a footnote) it will be very hard for a member to rely solely on the terms of a booklet to override the Trust Deed and Rules.  The use of different type settings, the positioning of the disclaimer statement at the front of the booklet and a forensic consideration of the language used will not be necessary for the disclaimer statement to be effective. 

Some care still needs to be taken. A more modern communication style which just sees a reference to the full terms and conditions of the scheme being in the rules, for example, would not be sufficient to be an effective disclaimer statement.  Equally, it will be difficult for trustees to distance themselves from statements issued by the company where they relate to the administration of the scheme and are likely to be perceived by members as having been issued with the trustees’ actual or ostensible authority. This aspect highlights the value of collaboration between trustees and employees in member communication exercises going forward. 

With schemes increasingly relying on intranet or web based sites, the implications of the decision need consideration in that context also. No additional issues affecting the content of the statement arise in this context but there are questions on how the disclaimer is communicated and how evidence that it has been communicated is retained.  Given that there is no way of knowing in advance which page a member will alight on, simply having the disclaimer statement on a single page may not be effective to bring it to the member’s attention. Accepting terms before progressing to another screen is something which members are likely to be familiar with from commercial websites. A solution built on this principle following liaison with the IT team is likely in many cases to be the preferred solution rather than having the disclaimer appearing on every web page. 

Keeping evidence that the disclaimer has been communicated will be very important. This will include deciding on the length of time for which evidence of the use of the disclaimer might need to be retained, deciding the retention period for historic web based material and making sure that any changes to the online booklet do not severe the links built to the disclaimer statement.

For some, the decision in the Steria case may bring into sharp focus the acceptability of member communications being issued in circumstances where neither the trustees nor the sponsoring employer might have any responsibility for any inaccuracies.  For any trustees or sponsors tempted to be that cavalier, there is what could become an important distinction drawn between simple mistakes and mistakes of inaccuracy or omission.  There is a suggestion in the judgment that mistakes of inaccuracy or omission are more likely to be excused where made in a booklet containing a disclaimer than mere simple mistakes in such circumstances. The distinction between the two may not be easy to draw in some cases (is a reference to early retirement being possible without highlighting the need for trustee/employer consent a simple mistake or a mistake of omission?) and it remains to be seen whether this will be the cause of disagreement between the courts and the Pensions Ombudsman going forward. 

Subject to this latter point, the decision in the Steria case is one which the trustees and employers will welcome

Peter Shave
Partner
Wragge & Co LLP
0870 903 1000
peter_shave@wragge.com
www.wragge.com/pensions