Norman v Clarke and others 1

Reference: (1997) OPLR 85

The member was in a Small Self Administered Scheme. All the Scheme members were managing trustees of the Scheme, including the member. Over a number of years, significant payments were made to the member from the Company which the member claimed were salary payments but others argued were advances against profits. The Company became concerned and the member was persuaded to sign a document charging his interest in the Scheme to the Company. The member subsequently left the Company and asked for a transfer of his benefits. The Trustees refused on the basis that under the Scheme rules he had forfeited his benefits by charging them to the Company. The member complained to the Pensions Ombudsman.

The Ombudsman held that under the Scheme rules, the member's benefits were forfeited if he attempted to charge them, whether or not the charge was effective. In addition, as a trustee of the Scheme he could not plead ignorance of the rules. The member also argued that he had been subject to undue influence to make him sign the charge. The Ombudsman disagreed, the member had made no complaint about it at the time and although he had sought legal advice, had not raised this issue. The Ombudsman decided against the member who appealed.

The forfeiture rule referred to an entitlement to benefits. It was argued by the member that this limited its application to benefits where there was an immediate or vested entitlement, the judge disagreed. Part of his benefits in the Scheme derived from a transfer payment and it was argued that section 79 Pension Schemes Act 1993 provides that a scheme cannot allow an employer to exercise any charge against short service benefit to the extent that it includes transfer credits. The Court said that the charging agreement was not part of the Scheme and was therefore outside the scope of section 79. The Court upheld the Ombudsman's determination and agreed that the member’s benefits had been forfeited whether the charge was effective or not. Leave was given to the Trustees to meet their costs out of the member's share of the Scheme assets.