The Pensions Ombudsman (PO) has recently ruled that an employer was not required to tell an employee that ceasing to contribute to the employer’s pension scheme would result in a lower death benefit being payable. In reaching its decision, the PO considered the House of Lords case of Scally from 1992, in which the Lords set out the circumstances in which an employer has a duty to provide employees with information about their employment and benefits.
The complaint was brought to the PO by Mr N, the widower of a deceased member of the Scottish Teachers’ Superannuation Scheme (the Scheme) and was directed against the member’s employer, Dundee City Council, and the Scheme’s administrator.
Mr N’s complaint was that his wife would not have opted-out of active membership of the Scheme, which she did less than a year before her death, if she had known that this would have reduced the death benefits payable from the Scheme. In particular, he claimed that:
- the terms of the opt-out form had led Mrs N to believe that the death benefits would remain unchanged; and
- the Council, as her employer, had a duty to advise her of the impact that opting-out would have on the death benefits.
As a result of the opt-out, the death benefit payable from the Scheme was £67,453 rather than the £132,063 that would have been payable if Mrs N had been an active member of the Scheme on her death.
The PO’s decision
The PO dismissed Mr N’s complaint saying that the administrator’s duty was to administer the Scheme in accordance with the rules applying to it, which it had done. The administrator and the employer had met their statutory duties for supplying information to Scheme members. The opt-out form was sufficiently clear and in it Mrs N had confirmed that she had read ‘the guidance’ and elected to opt-out in ‘full knowledge’ of the benefits available to her under the Scheme. Other information explaining the consequences of opting-out was available to Mrs N via the Scheme’s website and member guide and all available information was consistent. As a result, the employer did not have a duty to advise Mrs N of the implications of opting-out.
The employer’s Scally duties
In reaching its decision, the PO considered whether the Council had a ‘Scally’ duty to advise Mrs N of the implications of opting-out of the Scheme and decided that it did not.
Scally concerned a group of doctors who were entitled to enhanced pension rights under provisions in a collective agreement. They weren’t informed of this right and so failed to take advantage of it. The House of Lords implied a term into their contracts to the effect that their employers were under a duty to take reasonable steps to inform them of their right, which was a contractual term of which they could not be expected to be aware.
The Court held that such a duty will only apply in certain, limited circumstances. The key requirement is that the employee could not reasonably have been expected to be aware of the particular term unless it was drawn to his or her attention. Since Scally, the implied duty has been narrowly defined. The PO did not apply the duty in the circumstances of this case.
This decision of the PO is another example of the courts and other adjudicators’ reluctance to rule that a Scally duty has been breached in the pensions context. This hesitancy is likely due to the difficulties in meeting the conditions set out by the House of Lords and also to concerns about opening the floodgates to a range of similar claims.
The PO did not express a view as to whether the option to opt-out of the Scheme was a contractual right, a condition necessary for a Scally duty to apply. The establishment of a contractual right will be a common hurdle to many possible pensions complaints seeking to rely on the employer’s Scally duty.
The balance for employers in deciding how much information or advice to give its employees about their pension rights and benefits is a tricky one and is becoming increasingly topical given the recent changes to the pensions tax regime impacting higher earners. This decision gives comfort that employers should generally be able to assume that their employees understand the key terms and conditions of their pension arrangement (where these have been consistently communicated to employees).