Edge v Pensions Ombudsman 3

The long awaited Court of Appeal decision in this case arrived on 29 July. You may remember that the case concerned use of surplus in an ongoing scheme. The trustees had decided to augment benefits for active members and to reduce member and employer contributions. A member who had left service complained to the Pensions Ombudsman.

The Ombudsman held that in failing to improve the benefits for pensioners, the trustees had breached their duty to act impartially between all classes of members.

In upholding the decision of the High Court, the Court of Appeal decided that the duty of impartiality referred to by the Ombudsman is no more than the ordinary duty for trustees to exercise their powers fairly for the purpose for which they are given, giving proper consideration to relevant matters and disregarding irrelevant ones. Having done that, trustees cannot be criticised if they come to a decision which appears to prefer the interests of one group (including employers) over another. In the circumstances of this case therefore, the trustees had exercised their discretion properly.

The Court also suggested some of the factors which it would be proper for trustees to take into account when exercising a discretion in this type of case. These included:

• the circumstances in which the surplus has arisen;
• consideration of the impact their decision would have on the employers; trustees must “be careful not to impose burdens which imperil the continuity and proper development of the employer’s business or the employment of the members who work in that business. The main purpose of the scheme is not served by putting an employer out of business”;
• the market norm for benefit levels in comparable schemes; trustees “should ask themselves whether the scheme is attractive to the members whose willingness to continue paying contributions is essential to its future funding”;
• whether the benefits are seen by the members to be good value in relation to their contributions; and
• whether the benefits enjoyed by pensioners have kept up with increases in the cost of living.

The Court said that beneficiaries have no right to insist on an increase in benefits. Their right is to have the matter properly considered. This means that the trustees must act in a manner that is fair and equitable in all of the circumstances. However, this might in turn give rise to a reasonable expectation among beneficiaries of what course of action should be followed.

The Court also reviewed the jurisdiction of the Pensions Ombudsman and decided that he cannot investigate class action cases where the success of one set of members’ claims would have an adverse impact on another. However, although the Court did not consider the question, class actions that have scheme-wide effects but do not set one group of members against another may still be within the Ombudsman’s jurisdiction.