Liability in contract 2

United Kingdom

Reference: K00158

The member’s employer was taken over by another company. One of the terms of the sale and purchase agreement was that the new company would provide pension benefits on a basis "substantially equivalent overall... to the benefits.. provided" under the former employer’s scheme which was a final salary scheme. The administrator of the new employer’s scheme wrote to the member saying that a new scheme had been designed along the same lines as the former scheme and that benefits were based on service up to retirement. The member joined the scheme. The new employer never made the required contributions and the member was subsequently informed that the scheme was in fact a money purchase scheme.

The member complained to the Ombudsman who held that the new scheme had been represented to the member as providing benefits similar to those as her old scheme, or in other words on a final salary basis. This had induced her to make contributions to the new scheme and had created contractual rights. The employer was directed to make sufficient contributions to ensure the member’s rights were equivalent to those provided under the former scheme.

Comment
The Ombudsman is increasingly keen on finding enforceable contractual rights between members and scheme administrators or trustees. Often a problem with finding a contract is that the member will have failed to provide any value or "consideration" for it. However, here the member had contributed to the scheme on the basis of what had been represented to her, so there is arguably consideration.