Engineering Training Authority v Pensions Ombudsman 2

Reference: (1996) OPLR 167

The complainant, Mr Stubbs, was informed in March 1993 that he was to be made redundant with effect from 28 May 1993. On 22 April 1993 Mr Stubbs wrote to his employer pointing out that his 50th birthday was on 25 September 1993. Under the rules of the pension scheme, it would have significantly affected his pension rights if he was made redundant before his 50th birthday as he would not qualify for an enhanced early retirement pension. He met with his employer's Chief Executive to discuss this matter, following which meeting a letter was written to him by the Chief Executive outlining what was agreed. This letter stated that Mr Stubbs would continue in employment until 30 September 1993 although he would not return to work after 14 May 1993. He would receive a pension of "slightly in excess of GBP 10,000" and an ex-gratia lump sum of GBP 30,000. Mr Stubbs countersigned a copy of this letter to indicate his acceptance of its terms. On retirement, Mr Stubbs received a pension of GBP 10,164.80.

Mr Stubbs complained to the Ombudsman alleging that he had been coerced into signing away his entitlement to an enhanced early retirement pension and a substantial percentage of his lump sum redundancy payment. Under the scheme rules, being made redundant subsequent to his 50th birthday, he was entitled to an increase in his accrued pensionable service of 6 2/3 years. Mr Stubbs claimed that he was forced to give up this entitlement when agreeing to the terms set out in the letter from his employer. The employer argued that the scheme rules stated that such an enhancement was only available where the employer made such payments to the trust fund as are required to secure the additional benefit. The employer had refused to make such a payment and therefore the trustees were not able to fund the additional benefit.

The Ombudsman found in favour of Mr Stubbs. He found the employer guilty of maladministration and directed it to make payments to the fund necessary to provide the enhanced pension. In the Ombudsman's view, the trustees had an obligation to pay the enhanced benefits to Mr Stubbs as his employment had continued beyond his 50th birthday. In addition, the employer was directed to pay GBP 250 in respect of non-pecuniary loss suffered by Mr Stubbs.

The Ombudsman's determination was set aside. Carnwath J held that Mr Stubbs' entitlement under the scheme rules was based upon the position following the agreement reached with his employer. Whilst this agreement entitled him to remain in employment until 30th September 1993, it did not give him an immediate right to the full early retirement pension to which he might have been entitled under the scheme rules.

The agreement, resulting in his retirement after his 50th birthday, gave him a prima facie right to payment of a full pension. However, that right was conditional upon a payment being made by the employer in order to finance that enhanced pension. In view of the agreement, the employer could not be compelled to make any such payment. Given that the employer reasonably decided not to make any such payment, the trustees had no power to pay an enhanced early retirement pension to Mr Stubbs.

The judge rejected argument that the case should be remitted to the Ombudsman for determination based on alternative grounds that the employer had acted in breach of its implied obligation of good faith. He held that the Ombudsman's jurisdiction was limited to complaints under or in relation to a pension scheme. There was no jurisdiction to investigate complaints arising out of the ordinary contractual relations between an employer and its employees.