In Barton [74532] the Pensions Ombudsman (PO) held that a member’s accrued Defined Benefits (DB) should be calculated according to the member’s final pay at the date the pension scheme was closed to future accrual.

In this case the employer, with the trustees’ consent, sought to close the DB scheme to future accrual for all members. They calculated members’ DB benefits on the basis of salary at the date of closure, not (for example) retirement.

The member complained that a fetter in the scheme’s amendment power required the trustees and employer to maintain the link between his accrued DB benefits and his final pay at the date on which he retires, leaves employment or dies (if in service).

The scheme’s amendment power allowed the employer and trustees to close the scheme to future accrual but stated that no alteration shall be made which in the actuary’s opinion would:

“…reduce the aggregate value of the retirement benefits payable under the Scheme to any Member of the Scheme not being at the effective date of any such alteration or modification entitled to a pension under the Scheme in respect of contributions already received by the Trustees except with the consent of any Member of the Scheme affected by any such alteration or modification.”

The PO agreed with the member that, in light of the decision in Courage, the fetter in the amendment power required the member’s accrued benefit to continue to be calculated by reference to final pay.

However, the PO held that the member’s final pay, under the scheme’s rules, was calculated by reference to pay leading up to the date of leaving pensionable service, ie the date of closure (not retirement etc). He determined that in these circumstances the scheme’s rules did not require DB benefits accrued on a specific date to be calculated by reference to some other future level of earnings. So the amendment to close the scheme was not caught by the restriction in the amendment power.

The PO dismissed the member’s complaint.

Comment

Perhaps a surprising outcome, with not a vast amount of legal reasoning. In practice, employers and trustees will remain cautious about adopting the same approach as in this case.