In this case, the Deputy Pensions Ombudsman considered whether alleged statements made by an employer had created a "reasonable expectation" among members of a pension scheme that it would continue to allow discretionary inflation increases in relation to pension accrued prior to April 1997. The Deputy Ombudsman distinguished the facts in IBM UK Holdings Ltd and another v Dalgleish and others  EWHC 980 (Ch) (see here for our previous article on this case) and confirmed that in the absence of evidence of a promise or undertaking to do so, past practice is insufficient to give rise to a "reasonable expectation" that a benefit will continue to be awarded.
The trustees and the company were entitled to refuse future increases under the rules of the scheme and the complaint was dismissed accordingly.
Mr Thomson was a member of both the GE Pension Plan (the "Plan") and the GE Supplementary Pension Scheme (the "Scheme"). He brought his complaint to the Pensions Ombudsman in his capacity as a member, but he had served as a trustee for both the Plan and the Scheme for about 14 years from 27 May 1988 onwards.
The Plan rules provided that "[i]f the Principal Employer so agrees, the Trustee may make increases to all or some of the pensions [in payment attributable to pensionable service before 5 April 1997]" and that increases "must be reviewed by the Principal Employer at least once a year".
The Scheme rules contained similar provisions on increases to pensions in payment, except that they stated that "[i]f the Trustees so agree, the Principal Employer may make increases to all or some of the pensions..."
Inflationary increases ceased to be granted on pre-1997 service from 2010. Such increases were discretionary under the rules, however, from 1988 up until 2009 inflation related increases had consistently been given. Mr Thomson was one of a number of members who had complained about the decision not to grant increases on pre-1997 service and submitted that the past practice created a reasonable expectation among members that this would continue. He also submitted that a series of meetings took place in 2002, during which members were assured that the practice of paying discretionary increases would continue.
Mr Thomson's grounds for complaint were as follows:
- Prior to 2010, discretionary increases had always been allowed. Such increases should therefore be reinstated.
- In ceasing to allow discretionary increases the company had breached its implied contractual duty of good faith.
- The trustee had failed to properly exercise its discretion by not discussing increases.
The Deputy Ombudsman dismissed Mr Thomson's complaint. She distinguished the facts in IBM where it had been ruled that members had been given information which made them reasonably believe that certain benefits would be given on an on-going basis (at least for some time into the future).
The Deputy Ombudsman pointed out that Mr Thomson had not put forward sufficient evidence that the company did the same in relation to the benefit in question or in relation to the benefits as a whole. The assurances relied upon were said to have been made in 2002 – eight years before. There was also no evidence of the 2002 meeting and the Deputy Ombudsman could therefore not say whether the statements amounted to a promise or undertaking, or were merely statements of intention and therefore not binding.
As to whether the company had breached its implied contractual duty of good faith, it was determined that it had not. Companies are entitled to have regard for their own interests when exercising discretion. Both the Scheme and the Plan had significant deficits and therefore, any discretionary increases would have a commercial impact.
Regarding the point as to whether trustee discretion had been exercised property, the Deputy Ombudsman considered Rule G2(B): "If the Principal Employer so agrees, the Trustee may make increases to all or some of the pensions referred to in Rule G2(A)." The Deputy Ombudsman noted that in this, the Trustee is not obliged to negotiate or demand that the company grants discretionary increases.
The Deputy Ombudsman pointed out that it was unreasonable to assume that the Trustee had not given enough priority to obtaining company permission in relation to discretionary increases merely because its permission had not been secured. In fact, by Mr Thomson's own admission, at the time he was a Trustee, the matter was not given proper consideration. The current Trustee was effectively being accused of acting in exactly the same way, only in reverse.
This appears to be the first occasion since the IBM decision was handed down where an Ombudsman complainant has sought to rely on the concept of "reasonable expectation". It will be interesting to see the extent to which other complainants follow suit in the coming months and whether they have more success.