Two recent Pensions Ombudsman decisions illustrate that the question of whether the Ombudsman will award interest in relation to late payment of benefits will be dependent on the facts of the case.
The case of Mr L involved a member's claim for ill-health early retirement following a car accident in which he had been seriously injured. The member was entitled to payment of an ill-health pension as of right if his reason for leaving service was "Incapacity" as defined in the scheme rules. The scheme managers initially refused the member an ill-health pension, asserting that following other treatment options could lead to the member being able to undertake other suitable duties, meaning that his condition did not fall within the definition of Incapacity. Following the pursuit of a complaint by the member, the decision was taken to defer a decision on the member's ill-health pension for a year, during which the scheme managers made clear they expected the member to explore further treatment options with his doctors. Just over one year later, the decision was made to award the member an ill-health pension, notwithstanding that there was no evidence that the member had explored further treatment options.
The Deputy Ombudsman considered that the eventual decision to award the ill health pension could equally have been made when the scheme managers considered the issue one year earlier. She awarded the member simple interest on the benefits payable from that date, as well as £750 for distress and inconvenience.
The case of Mr X concerned a scheme in a PPF assessment period following employer insolvency. The scheme had previously had different normal retirement dates for men and women. The trustees believed the "Barber window" (whereby benefits accrue with the more favourable younger NRD until equalisation) had been closed via an announcement made in 1994 that normal retirement age would be equalised at 62. However, on a review it transpired that the equalisation announcement had not met the amendment requirements of the scheme rules, having been signed by the company secretary rather than a director as the rules stipulated. This meant that the Barber window was not closed until 1999.
The failure to properly close the Barber window in 1994 resulted in a number of members receiving additional backdated benefits which they had not been expecting. Mr X received a payment of approximately £19,000. The failure to close the Barber window affected a number of members. The scheme rules did not provide for interest on late payment of benefits, and the trustees decided not to award such interest. They took into account that it was not clear whether the scheme had sufficient assets to secure benefits on a basis that would avoid it falling into the PPF, so any decision to award interest to the affected members might have had an adverse impact on other members.
The Deputy Ombudsman dismissed Mr X's complaint that he had not received interest on the back payment. She held that Mr X had no absolute entitlement to interest, either under the scheme rules or at law. Mr X had received benefits which he had not been expecting, and to which he would have had no entitlement but for the failure to correctly document the closure of the Barber window in 1994. The scheme had no recourse to an ongoing employer for contributions, so a decision to award interest to Mr X could potentially have a detrimental impact on the remaining membership. Taking these factors into account, she held that the Trustees' approach was entirely reasonable.
When considering whether a member is entitled to interest on late payment of benefits, trustees should firstly consider whether the scheme rules confer an express entitlement to interest. If the scheme rules are silent, there is no absolute right to interest. Whether the member would be likely to be awarded interest were he or she to pursue an Ombudsman complaint will depend very much on the facts of the case. The Ombudsman is likely to be much less inclined to award interest where such an award could detrimentally affect other members' benefits, and/or where the late payment of benefits is in the nature of an unexpected windfall for the member.