High Court ruling on disputed forfeiture provision

The High Court has construed a rule in the CMG UK Pension Scheme as being a forfeiture rule which included a six-year limitation provision.

The rule in question (Rule 5.11) provided that: “…if a benefit or instalment of benefits is not claimed by or on behalf of the person entitled to the benefit or instalment in accordance with these Rules within 6 years of its date of payment it shall be retained by the Trustees for the purposes of the Scheme.”

The scheme’s principal employer, CGI IT UK Ltd, argued that Rule 5.11 was a forfeiture provision and therefore any sums which fell due for payment more than six years prior were forfeited. However, the trustee, CMG Pension Trustees Limited, argued that the provision was intended to deal with missing beneficiaries and to prevent funds from being “orphaned or trapped within the Scheme”, thereby, not extinguishing the benefits of identifiable members or shortfalls where a lump sum or pension instalment had been repeatedly underpaid.

The judge concluded that Rule 5.11 was a forfeiture provision which should be interpreted on the premise that any benefit or instalment of benefits not claimed by the member within six years of the date on which payment fell due should be extinguished. This was irrespective of whether the claimant had knowledge of the claim. Looking at the language of Rule 5.11, the words “shall be retained by the Trustees for the purposes of the scheme” had the “same effect” as the word forfeit or forfeiture.

The judge also confirmed that Rule 5.11 applied to all unclaimed benefits (not just missing beneficiaries) once the six-year period had elapsed.

Pensions Ombudsman is not a competent court

One of the issues the judge also considered was whether the office of the Pensions Ombudsman was a ‘competent court’ for the purposes of section 91(6) of the Pensions Act 1995 and recouping overpayments. (Trustees are permitted to recoup mistaken overpayments from a member or beneficiary provided they comply with section 91(6) which requires that an enforceable court order is obtained in the event of a dispute over the amount).

The judge concurred with Arnold J in the Burgess v BIC UK Ltd case and agreed that the Pension Schemes Act 1993 which covers the Pensions Ombudsman’s jurisdiction did not ‘treat’ the Ombudsman as a court. This means that a Pensions Ombudsman’s determination does not ‘constitute’ an order of the court for the purposes of section 91(6) where a member disputes the amount to be paid back to the scheme by way of equitable recoupment.

This contrasts with the previously expressed view of the Pensions Ombudsman who issued a factsheet in April 2019 following the Burgess case explaining that the Pensions Ombudsman considered that he was a competent court (based on Arnold J’s comments being ‘obiter’ and not ‘deciding’ so not binding – however, the judge in the CMG case confirmed that Arnold J’s comments as to competency formed part of the rationale for the decision and are consequently binding). The Ombudsman is currently reviewing the factsheet.

Comment

This case is the latest in a recent series of cases concerning the interpretation of ‘forfeiture’ provisions which started with Lloyds GMP equalisation cases back in 2018. Please see our 2 November 2018 Insight, 21 July 2021 Insight, and 24 November 2020 Insight for more information.

^{*CMG Pension Trustees Ltd v CGI IT UK Ltd [2022] EWHC 2130 (Ch)}