TPO upholds complaint about pension increases promised 18 years ago

The Pensions Ombudsman has published its Determination on a complaint concerning a pension scheme member (Mr H) who transferred to the Olivetti UK Limited Pension and Life Assurance Scheme, with promises that his benefits would "mirror" those from his previous scheme.

The case, which was upheld in favour of Mr H, examines whether the employer had a contractual obligation to provide these mirror benefits, including pension increases, 18 years after the promise was made. 

Mirror benefits, including increases, were initially provided to Mr H, although no steps were taken to explicitly document these. The Trustees decided to stop payment of these increases after taking advice from counsel, believing that the lack of documentation meant they had no power to pay them. 

The Pensions Ombudsman found maladministration and breach of law by the employer in failing to properly document and maintain Mr H's contractual entitlements for almost 18 years after promising to mirror his previous scheme benefits.

The Pensions Ombudsman also found the Trustee was in breach of trust by failing to administer the scheme in accordance with the relevant Scheme Rules, including its own transfer-in provisions. 

As a result of these findings, the Pensions Ombudsman directed:

• Back payments with interest must be paid to Mr H to address historical underpayments.

• The employer must ensure future pension increases are calculated correctly.

• The employer must pay £1,000 compensation for serious distress and inconvenience.

This case is noteworthy as:

• Unusually, the Ombudsman found that the documentation issued to Mr H at the time of transfer, and the actions of the parties, were sufficiently clear to give rise to a continuing contractual obligation.

• The employer could not avoid liability by relying on a limitation defence, because (a) there was a continuing breach of contract and (b) limitation does not apply to an order for specific performance.

• Despite no formal amendment being made to the Scheme Rules, the benefits were granted under the ‘transfer in rule’, allowing the member to enforce this right directly against the trustees without a limitation defence.

This case provides important lessons for pension schemes about the importance of properly documenting benefits promised on transfers in and on scheme mergers.

The full Determination is available on The Pensions Ombudsman website.