The Deputy Pensions Ombudsman has partially upheld a complaint brought by Mr Parr (P) against the trustees of the Bank of New York Pension Plan and against the Bank of New York (the Bank) as employer.

P was employed by the Bank and was a member of the Bank’s pension scheme. Following ill health, P was refused long-term disability benefit (LTDB) under an insurance policy taken out by the Bank, but he subsequently took ill health early retirement as a deferred member of the plan. The rules of the plan permitted the trustees to reduce such a pension, having regard to actuarial advice. P complained that:

  • the Bank failed to inform him of his right to apply for an unreduced early retirement pension while an active member on the termination of his contract because of ill health; and
  • the trustees wrongly reduced the pension awarded to him as a deferred member and should not have taken into account the scheme’s funding position.

The second complaint was refused on the basis that the trustees complied with the scheme rule requiring them to have regard to actuarial advice. This necessarily required them to take into account the funding implications of early payment.

The Deputy Ombudsman upheld the first complaint, saying that the Bank should have told P that he could apply for ill health retirement as an active member, even if it would not necessarily be granted. The Bank should also have considered him for an ill health pension even if he had been refused LTDB. The Bank was directed to evaluate the medical evidence at the date it determined P’s employment and to reassess whether he qualified for an early retirement pension.

However, it is unclear how the Deputy Ombudsman’s determination in Parr fits with current case law.

In 2003, the Ombudsman determined in Vaughan [Mr S T Vaughan L00495] that, “there is no general duty on the part of the employer to advise scheme member employees as to their options or what might be the most favourable option to pursue”. By contrast, in Stevens [Mr A F Stevens M00251] in 2003, the Ombudsman determined that the employer was guilty of maladministration by not telling the member that he could request early retirement from active service and be given six months to make his decision.

In the leading case, Scally v Southern Health & Social Services Board & Others [1991], the House of Lords did recognise such an obligation but restricted it to situations in which terms (here, contractual terms in relation to the NHS Pension Scheme) had been negotiated by a representative body, rather than with individuals, and the employee could not be expected to know about action he needed to take to avail himself of a valuable benefit right.

In Eyett [G00582], the Pensions Ombudsman determined that the University of Nottingham, the employer, had been guilty of maladministration in not advising an employee of his retirement options. The employer appealed and the High Court then considered whether the implied duty of good faith towards an employee included a positive obligation on the employer to inform the employee of the most advantageous way of exercising rights under his contract of employment. The judge here distinguished Scally and held that the employee could have worked out for himself how best to avail himself of his retirement rights by reading the scheme booklet. The employer’s appeal succeeded as it was held it was under no implied duty to advise an employee of the financial repercussions of choosing retirement options.

Comment: Although the Deputy Pensions Ombudsman’s decision Parr is non-binding, it does suggest that employers may need to go to greater lengths to draw members’ attention to their ill-health early retirement options. However, previous decisions in higher courts do not support this approach.

View the determination.