The Ombudsman has recently determined that an employer (the Police and Crime Commissioner of South Wales) (‘the Commissioner’) was in breach of its duty of care to inform three complainant employees1 of the tax implications of re-employment on their retirement benefits.
The context of the complaint was around the minimum age at which benefits may be taken under a registered pension scheme without them being unauthorised payments, which increased from 50 to 55 with effect from 6 April 2010. Certain members can have the benefit of a ‘protected pension age’ and take their benefits from age 50 provided that certain conditions are satisfied. This includes that the member has truly retired, though he can still later be re-employed for these purposes provided that, amongst other things, the new employment starts after one month and is materially different from the original employment.
The complainants had the benefit of a protected pension age, took their scheme benefits but then were re-employed by the Commissioner within one month, which meant that their pension benefits from age 50 to 55 would be unauthorised payments and subject to tax charges as such. The complainants argued that the Commissioner (and the scheme administrator Capita) should have told them about the negative tax consequences on their pension benefits as a result of their re-employment.
Although the Commissioner did not accept any legal liability in this case it did concede that the complainants had returned to employment to meet the needs of the Police Force and so agreed to meet any tax liabilities arising from the loss of the protected pension age.
The Ombudsman determined that, although the Commissioner had no legal obligation toadvise officers and employees about their tax and pension liabilities, as a ‘responsible employer’ it had a duty of care to provide the complainants with information about the tax implications of re-employment on their retirement benefits. So, the Ombudsman made an order against the Commissioner directing it to meet any tax liabilities arising as a result of the loss of protected pension age only, noting that although the Commissioner had agreed to indemnify the complainants in this regard this was not currently enforceable as a binding commitment and could be withdrawn later, so the complainants needed legal certainty.
On the one hand, this decision appears to turn on its facts: the Commissioner had received a Home Office circular which included information that was directly relevant to the complainants’ circumstances; it had a direct hand in the re-employment which gave rise to the issue; and in consequence of the fore-going, the Commissioner had already agreed to indemnify the complainants.
On the other hand, the Ombudsman’s determination appears to go further and be of wider potential application, in holding that the Commissioner owed the complainants a duty of care to provide them with relevant information about their tax position. However, that specifically was tax complications of the re-employment. We consider that the Ombudsman’s determination must be read as being limited to that special circumstance, else otherwise it would be in conflict with cases such as the House of Lords 1994 decision in Scally v Southern Health & Social Services Board (and may even be, notwithstanding them, although some support for the Ombudsman’s approach may be drawn from the 2003 Court of Appeal decision in Ibekwe v London General Transport Services Ltd). We also have the 2014 determination in Ramsey of the former Deputy Pensions Ombudsman in which the Deputy Ombudsman determined that the employer, trustee and scheme administrator did not have a duty to inform Mr Ramsey of either a change in the annual allowance or, as a result, any particular consequences for him or a result of an option he was intending to exercise.
Employers and trustees should still take note of these recent determinations by the Ombudsman and consider carefully what information (if any) should be provided to members about the tax or other implications of matters concerning their benefits particularly where employers and/or trustees are contacting members about anything that is not a ‘routine feature of the scheme’ – for example, an ‘incentive exercise’ (see above).