The Deputy Pensions Ombudsman (DPO) has held that an employer and the trustees of a scheme imposed an unlawful lien under section 91 of the Pensions Act 1995 (the Act) a breach of the rules of the relevant pension scheme after they decided to withhold a member’s benefits following accusations of fraud.

Broadly, section 91 of the Act contains a general restrictions against withholding a member’s right to a pension benefit. Section 91 of the Act allows such withholding, or liens, for purpose of enabling the discharge of some monetary obligation due to the employer or the scheme if it arises out of a criminal, negligent or fraudulent act or omission by the member. However where the amount is disputed, the charge, lien or set-off must only be exercised after the obligation in question has become enforceable under a court order or arbitrator’s award. The scheme rules included a similar provision.

In this case, although a court action was commenced, a consent order was made under which Mr Mills paid his employer £30,000 in full and final settlement of all claims.

However, when Mr Mills later applied for his pension the employer and the trustees refused to authorise its payment as they alleged that the fraud had involved sums greater than the £30,000 paid under the consent order.

The DPO held that, as the complainant disputed these claims, any lien on the member’s benefits could only be exercised after the debt had been established by a court order. In upholding Mr Mills’ claim, the DPO commented that the employer and the trustees had failed to show that they took any steps to establish that the complainant owed the company any further money or the circumstances in which such debt arose.

However, the DPO did not uphold the complaint against the insurance company because it was unable to release Mr Mills’ benefits in the absence of trustee authority. This case follows the decision of the Pensions Ombudsman in Dallas in May 2008 (see EPB bulletin 20 May 2008 where it was held that trustees had unlawfully withheld benefits from a member. Neither Ombudsman case considers an earlier High Court decision, Haque v Bevis Trustees.