The requirement of a member’s consent to changes under a pension scheme was explored in a recent case (White (PO-5304)). The Deputy Pensions Ombudsman held that a compromise agreement following a voluntary redundancy that waived entitlement to an unreduced early retirement pension was enforceable.
The complainant, Dr White, was an employee of Thames Water Utilities Limited (the Employer) and a member of the Thames Water Mirror Image Pension Scheme (the Scheme). The Employer released a re-organisation document on the company’s intranet announcing organisational changes which may result in compulsory employee redundancies, as well as an opportunity to apply for voluntary redundancy.
The document warned that entitlement to ‘immediate, non-discounted pension as outlined in the redundancy pay policy‘ would be removed in instances of voluntary redundancy.
Dr White successfully applied for voluntary redundancy in 2013 and signed a compromise agreement that same year. Before signing, Dr White discussed the terms with his solicitor and attempted to negotiate with the Employer, although the Employer rejected Dr White’s proposed changes to the agreement.
Dr White applied to the Pensions Ombudsman, arguing that his employer had sought to use the compromise agreement to circumvent the Scheme rules regarding the payment of an unreduced pension, (contrary to section 91(1) of the Pensions Act 1995) and that this rendered the agreement unenforceable.
However, the Employer submitted that the compromise agreement was enforceable* as it was a bona fide settlement of disputed rights under the Scheme. The Employer stated that it made clear that members would not be entitled to an unreduced pension where they took voluntary redundancy, but submitted that these members could apply for an immediate actuarially reduced pension.
The Deputy Pensions Ombudsman dismissed the complaint and held that Dr White had an accrued right to a pension but this payment was reduced as he had taken an early retirement pension voluntarily. The Pensions Ombudsman determined that Dr White had a prospective right to an unreduced pension but only if he fulfilled two conditions:
1) that he was over age 50 at the time (which he was); and
2) that he was compulsorily made redundant (which he wasn’t).
This meant that Dr White did not have an accrued right to an immediate unreduced pension.
Consequently, the claim amounted to a disputed entitlement which could be settled in a bona fide compromise agreement. The mutual consent of the parties meant that both sides accepted the compromise agreement in good faith (following the IBM case** explored in a previous post) and it was therefore enforceable.
The fact that Dr White had access to legal advice during the negotiation stage of the compromise agreement supports this outcome, as he voluntarily signed and accepted the agreement in full knowledge of the terms (this was not a ‘surrender’ of rights under Section 91 of the Pensions Act 1995).
Lessons to be learnt
Complaints are unlikely to be upheld by the Pensions Ombudsman where the member has voluntarily consented to changes under a pension scheme in full knowledge of their effect. Where sufficient consent is given, employers may rely on contractual terms within compromise agreements where they waive prospective rights of members.
This post was edited by Stuart Evans. For more information, email email@example.com.
*International Management Group (UK) Ltd V German and another  EWCA Civ 1349
**IBM UK Holdings Ltd and another v Dalgleish and others  EWHC 980 (Ch)