Earlier this year (23 January 2024), the Pensions Ombudsman (the “PO”) issued a determination concerning a claim from a pensioner of the NHS Pension Scheme (the “Scheme”). The claim revolved around the administrator of the Scheme originally treating the pensioner as an active member (whilst receiving a pension from the Scheme), and then later seeking to retrospectively revoke this treatment when the administrator realised that it was contrary to NHS Regulations. 

This is yet another interesting determination from the PO in relation to public service pension schemes. Please see our colleague, Louise Pettit’s, earlier article regarding contrasting PO approaches in two earlier PO determinations concerning the NHS Pension Scheme. 

Background

  • 1985 – ‘Professor G’ became a deferred member of the Scheme.
  • 2000 – reached retirement age and began receiving benefits. 
  • 2001 – re-enrolled into the Scheme after taking a new job with an eligible employer (though doing this was actually prohibited by the relevant regulations governing the Scheme, due to his pension at that point being “payable”).
  • May and July 2002 – NHS Business Service Authority (the “Administrator”) issued letters to Professor G and his IFA explaining that his enrolment into the Scheme had been made in error as his preserved benefits had become payable. The letters also advised that Professor G could either choose to take his preserved benefits from age 60 and receive a refund of his contributions, or continue to pay contributions to the Scheme "on an exceptional basis". Professor G opted to continue his employment and contributions.
  • 2004 – the Administrator issued an estimate of Professor G’s pension benefits, which showed him to be an active member that was accruing benefits in the Scheme. 
  • 2006 – employee contributions ceased. PO’s view was that this was a mistake (as opposed to it being evidence that the Scheme was making Professor G an early leaver), citing benefit statements continuing to refer to him as an active member accruing benefits in the Scheme. 
  • 2014 – the Administrator discovered the error and informed Professor G that he had been incorrectly re-enrolled from 2001, that his contributions between 2001 and 2006 should not have been accepted, and that his employee contributions would be refunded. 

Arguments made by Professor G

Broadly speaking, he argued that he had suffered financial loss because he would have made alternative pension arrangements had he known he was not eligible for further pension accrual under the Scheme. His claims were both contractual (breach of contract and estoppel) and negligent misrepresentation (via the repeated representations by both employer and Administrator that he was able to be an active member).  

The Scheme’s internal dispute procedure did not provide Professor G with a satisfactory outcome – he was initially awarded £250 for distress; and then later, a further £1,000 for loss of expectation and an offer to refund the contributions, plus interest. The Administrator did not offer to honour the pension promised to Professor G. 

PO’s Determination

As regards the claims against the employer, the PO determined as follows:

  • Contract claims – citing that his contract of employment provided an unequivocal statement that he was entitled to membership of the Scheme and that refusal to honour the terms constituted a breach of contract by the Employer. This claim was rejected by the PO as the contract was vitiated by common mistake, on the basis of information provided by the Administrator. 
  • Negligent misrepresentation – citing the Employer's representation that he was entitled to membership and a pension from the Scheme. This claim was also rejected, with the PO citing that it was “not unreasonable” for the employer to have relied on the information provided by the Administrator. Note, though, that this observation was secondary to the fact that the 2001 representation was outside the 15-year limitation period. 

As regards the claims against the Administrator, the PO determined as follows:

  • Contract claims – were rejected by the PO as there was no intention to enter legal relations when the Administrator issued the member benefit statements (in addition to the vitiation by common mistake). 
  • Negligent misrepresentation – this claim was accepted by the PO, due to there being a duty of care owed (the PO cited that it was accepted precedent that the manager of a public service pension scheme owed such a duty to the members of the scheme) and the incorrect unequivocal statements being negligent. The inability of the Administrator to comply with the information was not relevant, and the limitation period was extended due to Professor G only later becoming aware of the full facts (judged to be 2014). 
  • Legitimate expectation (Human Rights Act 1998) – PO accepted this claim, as Professor G had a legitimate expectation created by the unequivocal promises by the Administrator. This expectation was not voided upon the ceasing of his contributions, due to continuing communications from the Administrator that he was an active member. This claim was accepted under section 8 of the Human Rights Act, which places liability on public bodies where they have breached a citizen’s rights under the ECHR – here, Article 1 of Protocol 1 (which protects “peaceful enjoyment of possessions”). The PO interpreted “possessions” to include a legitimate expectation as to the future enjoyment of existing property rights. 

It is also interesting to note that the PO did not find Professor G to have been contributorily negligent for not noticing the ceasing of his own contributions from 2006. 

Compensation awarded

For the successful claims against the Administrator, PO ordered the following settlement:

  • Negligent misrepresentation – the Administrator was to put Professor G in the same position that he would have been in had he been told that he could not rejoin the Scheme (ie. taking into account the alternative pension arrangements he would have made). 
  • Legitimate expectation – the PO concluded that this breach warranted no further award, as the damages for the misrepresentation provided “just satisfaction… in the circumstances of the case”. 

The PO placed the burden on the Administrator to provide calculations for the loss within 30 days, which must then be paid within 14 days. 

Professor G was also awarded £4,000 for the “exceptional distress and inconvenience caused, in this particularly egregious case”. 

Points to takeaway

  • For administrators of public sector pension schemes – schemes have strict eligibility criteria which you should consider taking legal advice on when interpreting and applying. Failure to properly apply the rules may result in negligent misrepresentation and claims under the Human Rights Act, along with damages for distress and inconvenience.
  • For employers – whilst it was held here that it was “not unreasonable” to rely upon the representations made by the administrator, it is advisable for employers to remain vigilant when relying on third-party representations. This is especially so when an employer makes its own representations which rely on third-party information, as doing so may expose an employer to the risk of being held jointly and severally liable for the overall impact of the series of misrepresentations. 

 

Written by Callum Duckmanton