The Pensions Ombudsman determined in this case that the principal employer and trustee of a defined benefit pension scheme failed to identify their separate obligations when considering a member for an ill-health early retirement pension. Instead, a process was designed that did not fit the rules of the scheme and which allowed for trustee decisions to be made apparently on their behalf and without their knowledge.  Interestingly, the Ombudsman also made the decision for the trustee concerning whether or not to award the member an ill-health early retirement pension.


Mrs Wallace complained that her application for an ill-health early retirement pension was wrongly refused.

The scheme rules for determining whether to award an early retirement pension were changed in 1996. However, as Mrs Wallace joined the Scheme before this change she was a protected member, subject to both the pre-1996 rules for her pre-96 benefits and post-1996 rules for the subsequent benefits.

The rules are as follows:

  • Pre-96 rules: a member is eligible for an early retirement pension if the trustee is satisfied that he is suffering from ill health which incapacitates him 'permanently or for an indefinite period' from doing his ordinary work, having regard to any qualified medical practitioner approved by the trustee if the trustee so chooses.  
  • Post-96 rules: the medical officer of the principal employer must certify that the member is suffering from a physical or mental incapacity that permanently or indefinitely prevents him from following both his normal occupation and any comparable occupation.

For a protected member, consideration as to qualification for benefits on incapacity is dealt with under both sets of rules at the same time. A member who qualifies under the post-96 rules will receive the better of the benefits under the post-96 and pre-96 rules.  A member who qualifies under the pre-96 rules will receive the benefits under those rules.

The chief medical officer undertook a review of Mrs Wallace, and concluded that she met the test under the pre-96 rules, and he recommended a review in two years. He did not think she qualified under the post-96 rules. This certificate was rejected by an HR officer on the grounds that Mrs Wallace and the chief medical officer worked together.

The HR officer referred the matter to an independent health consultant, supplying him with a new certificate headed 'TO BE COMPLETED BY THE COMPANY MEDICAL OFFICER ONLY'. The consultant found that Mrs Wallace was not eligible under either set of rules as she was not "permanently incapacitated from doing her job or a comparable job on a permanent basis". Her employment was terminated a month later.

Mrs Wallace's subsequent appeal under the scheme's internal dispute resolution procedure was unsuccessful. It appears that at stage one of the procedure (though the timing is unclear), the trustee asked a consultant occupational health physician to review the medical evidence as "the individual appointed by the Company ... as the 'medical officer' under the Rules". The consultant occupational health physician confirmed the independent health consultant's conclusions.

Mrs Wallace complained that the trustee had not followed a fair procedure and that she had suffered unnecessary stress during a protracted appeal process.


The complaint was upheld against both the trustee and the employer.  The process which led to Mrs Wallace’s application being rejected was faulty in several respects.

The Ombudsman directed the trustee to pay Mrs Wallace early retirement benefits from the date her employment was terminated, subject to two-yearly reviews. He also directed the trustee and the employer to each pay the member £250 for her distress and inconvenience.

The defects included:

  1. Decisions that were for the trustee were made by HR without proper delegated authority and without the trustee's knowledge;  
  2. The pre-96 and post-96 tests had been confused, particularly in relation to the capacity in which various medical advisers were giving advice and to whom they were giving it; and  
  3. The trustee, which was apparently not involved until the internal dispute resolution procedure began, adopted an independent health consultant's opinion when it should have reached its own view under the pre-96 rules.

The Ombudsman was concerned whether the pre-96 rules were correctly interpreted and whether the independent health consultant's advice was consistent with them as they stand, or even as the trustee understood them.

He concluded that there was, right at the start of the process, a certificate from the chief medical officer which would normally have been regarded as sufficient to pay an early retirement pension under the pre-96 rules as it would perhaps have acted as a report to the trustee under these rules. The chief medical officer did not regard himself as being conflicted in giving that certificate and the trustee itself did not set it aside.

Therefore, given the lapse of time and the extent to which the process had already gone awry, the Ombudsman determined that it would not be just to instruct the trustee to consider, as if at the time, whether it should have regard to the opinion given by the chief medical officer.

Instead, the Ombudsman required the trustee to do as they normally would have – though perhaps by default – and accept the chief medical officer's certificate as a report which would justify them deciding to pay the pension for an initial two year period.

Therefore, the Ombudsman directed the trustee to pay the total instalments of benefits that Mrs Wallace would have received for the two years beginning on the date on which her service terminated. The Ombudsman further directed that within 56 days of this decision the trustee was to consider whether Mrs Wallace would have qualified for continuation of that pension at the end of the two year period, under the pre-96 rules.

In addition, the Ombudsman ordered compensation to be paid for the injustice to Mrs Wallace of being taken through a faulty process.


Ill health pension awards are always challenging and it is important to follow the correct process.  This case is also a departure from usual practice in the remedy.

We would have expected the Ombudsman to consider whether the correct process had been followed, and upon determining that it had several defects to have reverted the decision back to the trustee to determine whether Mrs Wallace should have been entitled to an early retirement pension at the time. However, what we saw here was the Ombudsman making the decision to award Mrs Wallace on behalf of the trustee as he concluded it was unjust to allow the trustee its discretion. The result was a significant cost to the scheme and a decision outside the trustee's hands.