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Case law round-up – Pensions Matter, March 2014

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05/03/2014

An overview of key pension cases and their practical implications:

McCoy (P-2319) – death benefits, reasonable for trustees to require discharge of liability before making payment.

The Pensions Ombudsman (PO) held that it was reasonable for the trustees of a self-invested personal pension to require the beneficiary of a lump sum death benefit to complete a form of discharge prior to paying out the discretionary benefit.

In reaching its decision, the PO referred to authorities that indicated upon the trustees making final distribution of the lump sum death benefit, a trustee will naturally want to ensure for itself the maximum security against possible future litigation.

This determination gives comfort to trustees, in that it is entirely reasonable to trustees to be discharged of their liabilities prior to paying out lump sum death benefits.

Yeshooa (PO-1719 and 1720) – assignment of retirement annuity contract to a third party is not possible.

This determination highlights that it is reasonable for a provider of an annuity contract to refuse to act on a purported assignment of the policy to a third party.

The PO threw out a complaint by the sisters of a policy holder, who in 1994 entered into a deed of assignment in favour of the sisters of the policy holder. Under the policy, the payment of benefits by way of an assignment would have breached a provision in the policy, which prohibits assignment.

The key point to note is that for retirement annuity contracts and also personal pensions, there is, under statute, no equivalent to the statutory prohibition on assignment or forfeiture in regard to occupational pension schemes. However, the PO was content to rely on the policy wording to conclude that the purported assignment was invalid.

Bradbury (PO-636) – imposing pensionable pay cap outside scheme rules did not breach implied terms.

An employer’s decision to cap pensionable salary increases in a final salary scheme to 1 per cent. through a contractual agreement instead of amending the scheme rules did not breach the implied duties of trust and confidence or good faith, arising from an employee’s contract of employment.

The PO commented that given the substantial deficits in the applicable scheme and its overall financial sustainability, the capping of pension salary increases through a contractual agreement was not irrational or perverse. Nor, given its situation, were they actions that no reasonable employer would make.

The outcome of this determination will give confidence to employers, in that they can legitimately amend benefit changes to DB schemes, without breaching their implied duties to their employees.

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