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Benefit certificates and contribution holidays – trustees not liable if scheme cannot fund its members’ benefits on wind-up 1

United Kingdom
22/12/2005
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Reference: N00952

The member complained that the trustees had failed to secure his preserved benefits (by purchasing a deferred annuity) and to honour his pension entitlement stated in the ‘benefit certificate’ he had received prior to the winding-up of the scheme. The member also complained the trustees had failed to account for the best interests of the members by allowing contribution holidays to continue in the five years preceding the wind-up. When wind-up commenced, the scheme was funded above the MFR level. The member had understood his entitlement to be guaranteed by the benefit certificate, as the accompanying letter had said that his accrued pension was "preserved."

 The Ombudsman concluded that the trustees had not committed to secure the member’s benefits by purchasing an annuity. The trustees were only required to provide benefits to the extent that there were funds available. However, the Ombudsman noted that a reference in the benefit certificate to the members’ benefits being dependent on the availability of funds would have been helpful. He accepted that the fact that a scheme was fully funded on the MFR basis did not necessarily mean the members’ full benefits could be met, and the trustees could only ask participating employers for those contributions necessary to maintain the MFR level of funding.

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