The Pensions Ombudsman has given his determination in a complaint by Mrs E D F McQuade against Faceo FM UK Limited (“Faceo”)  and the trustees of the Faceo 2007 Pension Scheme. The case concerned a member’s request for a  discretionary unreduced pension on redundancy in light of statutory protection afforded to her  following privatisation in the electricity sector. The Pensions Ombudsman considered the  circumstances in which employers and trustees could depart from past practice and custom.


In 1979, Mrs McQuade joined the South of Scotland Electricity Board Pension Scheme and, on  privatisation in 1990, became a “protected person” under the Electricity (Protected Persons)  (Scotland) Pensions Regulations 1990. Mrs McQuade’s protected person’s status meant that she could  continue to participate in the scheme and accrue benefits on broadly the same basis as she had done pre-privatisation. By virtue of the regulations, this protected person’s status and the rights that  went with it were transferred to successor schemes when she changed employer.

Following the transfer of her employment to new employers, Mrs McQuade’s past benefits were  transferred to the Scottish Power Pension Scheme and then to the Alstom Pension Scheme as she moved  between successor companies. In 2002, her employment was transferred from Alstom to Cegelec Limited. Cegelec and its scheme trustees refused to accept a bulk transfer on  cost grounds and therefore Mrs McQuade became a deferred member of the Alstom scheme.

Mrs McQuade began accruing benefits in the Cegelec scheme from 2002. The benefits that she accrued  in the Cegelec scheme were transferred to the Faceo 2007 Pension Scheme (the “Scheme”) when her  employment was transferred to Faceo in 2007.

An unreduced early retirement pension was not an absolute right in any of the pension schemes that  Mrs McQuade had participated in, and the granting of such a pension was only possible with trustee consent. The Scheme rules echoed this position and stated that consent was needed in cases of early  retirement, and pensions paid early would be reduced if the trustees so decided.

However, the past practice in Scottish Power and Alstom was slightly different: if an active member  who was a protected person under the Regulations and over the age of 50 was made redundant, then an  unreduced early retirement pension would be granted. The previous employer, Cegelec, followed a  similar practice which was set out in its scheme booklet and provided that,  in the event of early  retirement of a protected person under the Regulations, a reduction would not be applied to that  person’s pension.

In February 2011 Mrs McQuade was made redundant by Faceo at the age of 54. She applied for an unreduced early retirement pension  from the Scheme. However, the Scheme was in deficit and the employer used this as the basis on  which to refuse consent. In light of Faceo’s position, the trustees refused Mrs McQuade’s  application.

Mrs McQuade complained to the Pensions Ombudsman that she was entitled to an early retirement  pension without reduction because this had always been awarded in the past in the earlier schemes.  The complaint was brought against Faceo as the employer and the Scheme trustees. The Pensions  Ombudsman invited Faceo to respond to the complaint in July 2012, however, no substantive response  was received until October 2013 – fifteen months later.

Pensions Ombudsman’s decision

The Pensions Ombudsman partially upheld the complaint against Faceo, but dismissed the claim  against the trustees.

The Pensions Ombudsman concluded that, despite clear evidence that unreduced pensions had been  provided to members following redundancy in the past, “it does not necessarily follow” that the  Scheme is required to do so. The trustees and employer “were entitled to take the Scheme’s  financial condition into account” and could decide to exercise their discretionary right to reject  Mrs McQuade’s application for an unreduced early pension. However, the Pensions Ombudsman ordered Faceo to pay £200 to Mrs McQuade for the distress and inconvenience caused to her as a  result of its 15 month delay in responding substantively to the complaint.

Lessons to be learned

This decision is a reminder to trustees and employers that they are not necessarily bound by past  custom and practice when making discretionary decisions regarding the granting of benefits. This  applies in particular to decisions in the context of cases concerning protected persons under the  Regulations, but also more generally. It provides further guidance that one of the principal  factors trustees and employers can rely upon to depart from past practice is the financial health  of the scheme.

It also provides a salutary reminder that the Pensions Ombudsman will not tolerate delay on the  part of respondents (which are most commonly trustees, employers and administrators) in  substantively responding to a complaint. However, one could question whether the £200 penalty imposed in this case will cause respondents much concern.