Law Debenture Trust Corporation plc v Pensions Ombudsman 2

United Kingdom

Reference: (1997) OPLR 31

In March 1992, when the principal employer went into receivership, the appellant was appointed as independent trustee of the Burlington International Group Pension Scheme. It subsequently became clear that the scheme was insolvent and the appellant therefore terminated the scheme and suspended the making of transfer payments.

Trustees were obliged to pay a transfer value within 12 months of a member exercising their right to a cash equivalent. The Occupational Pensions Board had a discretion to extend this time limit. Four scheme members who had applied for transfer payments before the principal employer became insolvent made complaints to the Ombudsman on the grounds that their transfer payments had not been made. One of these members had applied for a transfer more than one year in advance of Law Debenture's appointment. The other three had each been given a quotation which was guaranteed for a fixed period and which they accepted within the guarantee period. Law Debenture obtained retrospective approval from the OPB for its refusal to make transfer payments within the 12 month period.

The Ombudsman found that the OPB had no power to give retrospective approval to the non-payment of statutory transfer values. In addition, he rejected the argument of Law Debenture that the statutory rights to a cash equivalent did not continue once a scheme went into winding up. The acceptance of the guaranteed value of a transfer payment formed a binding contract between the trustees and the member. This contract was assigned to Law Debenture upon their appointment as independent trustee. Law Debenture was found guilty of maladministration despite the fact that it acted at all times on the basis of legal advice.

Blackburne J upheld the appeal and set aside the Ombudsman's determination. The judge agreed with the Ombudsman that a member's right to a cash equivalent continued during the winding up of a scheme. In addition, he held that once the 12 month period for making the transfer payment had expired, the OPB had no power to give retrospective approval to an extension of this period. However, the fact that a member requested a cash equivalent did not in itself improve that member's priority on the winding up of the scheme. The calculation of a cash equivalent inevitably included an adjustment for their position in the winding up list of priorities. The scheme winding up rule gave no priority to members whose requested cash equivalents remained unpaid. The character of the entitlement remained in the form of a benefit and the complainant's position in the list of priorities was unchanged.