High Court allows appeal against the Pensions Ombudsman

20 / 12 / 2016

Police and Crime Commissioner for Greater Manchester v Butterworth and Anor 2016

Rewinding back

B was employed by the Greater Manchester Police Authority (the “Authority“) and was a member of its pension scheme (part of the Local Government Pension Scheme).  Pursuant to the regulations governing the Local Government Pension Scheme (the “Regulations“):

(i)        a deferred member could opt to take a pension from the age of 55 with the consent of the Authority; and

(ii)        the Authority had the power not to apply a reduction for early payment if they deemed “compassionate grounds” were satisfied.

Due to the worsening of the relationship between B and the Authority, they entered into a compromise agreement regarding B’s termination of employment.  A clause within the agreement (the “Pension Clause“) stated the following:

To the extent that it is and remains lawful for the Employer to do so and upon receipt of a written request from the Employee in accordance with the Regulations… the Employer will allow the Employee to access her pension without reduction…when she reaches 55…

When B reached age 55 in February 2014, she applied for an unreduced early retirement pension from age 55.  The request was declined.  The Police and Crime Commissioner for Greater Manchester (the Authority’s successor) (the “Commissioner“) held that the Authority was not obliged to grant an unreduced pension as the Regulations required not only the Authority’s consent, but that the Authority must also be convinced that there were suitable “compassionate grounds” to grant an unreduced pension.  B took her complaint to the Pensions Ombudsman.

Complaint to the Pensions Ombudsman

In April 2016 B’s compliant was upheld.  The Ombudsman found the Pension Clause of the compromise agreement to be void and unenforceable and was an unlawful fetter on the exercise by a public authority’s discretion.  The Ombudsman, however, held that contractual estoppel had arisen, and that the Authority could not go back on a promise it previously made, and so B was to be granted a bridging pension equivalent to the entire amount of her unreduced pension from when she reached age 55 (in February 2014).

The Ombudsman also provided an unusually generous award of £2,000 for maladministration.

The High Court overturned the Ombudsman’s decision

The High Court allowed the appeal on the grounds that:

  • the Ombudsman misinterpreted the Pension Clause, in that it still complied with the Regulations as it would only allow B to access an unreduced pension at age 55 to the extent that it was lawful for the Authority to do so (i.e. employer consent was required and there needs to be a finding of compassionate grounds);
  • the employer was under no contractual obligation to provide an unreduced early retirement pension (as the Regulations had to be satisfied prior to granting the unreduced pension); and
  • the Ombudsman’s finding of contractual estoppel was flawed and unsustainable because there was no binding agreement between the parties.

The Court further held that there had been no maladministration as the Ombudsman’s finding of maladministration was based on an “erroneous interpretation” of the clause of the compromise agreement.

Ombudsman’s argument

During the appeal the Ombudsman asked the Court to uphold its determination on a different ground, in that the compromise agreement was not contractually enforceable as a matter of private law.  Alternatively, the Ombudsman wanted the Court to remit the matter back to him to determine that B’s complaint should have been upheld on the basis of B having a legitimate expectation to receive an unreduced pension.  Both requests were refused by the Court.

Comment

The Ombudsman’s participation in the High Court reflects its more robust stance in making decisions where he considers that this would benefit the pensions industry.  This case, however, seems to only undermine the Ombudsman’s standing as the Court held that:

(i)        the Ombudsman’s initial decision was wrong;

(ii)        the arguments for contractual estoppel was flawed; and

(iii)        the clause within the compromise agreement was interpreted incorrectly.

Adding insult to injury, the Ombudsman made submissions to the Court accepting that the submissions were contrary to the original legal analysis of the complaint, and  requested for the case to be remitted back to him, providing arguments which did not form the basis of his original decision.  For some it will be reassuring that the Ombudsman in this case was protective of the individual (as awards and determinations do not usually penalise the trustees or employers so severely), though this case appears to be a rare and extreme example.