The Pensions Ombudsman has found that a clause allowing monies unclaimed for six years to be applied for the purposes of the scheme did not amount to a forfeiture clause despite being headed “Forfeiture” (CAS-85140-P4M5).
Background
The case involved a complaint brought by the personal representative (PR) of a deceased beneficiary (Mrs P). Mrs P’s husband had died in 1996 whilst an active member of the scheme and Mrs P had started to receive a spouse’s pension of £8311 pa. In around 2001 Mrs P had moved to Turkey. At this point the scheme had stopped paying Mrs P’s spouse’s pension. The information before the Ombudsman was that, despite extensive enquiries, it had not been possible for the trustees to establish why payment of Mrs P’s pension stopped on her move to Turkey.
Mrs P died in 2020. Enquiries by her PR following her death drew attention to the fact that payments of Mrs P’s pension had ceased for no obvious reason almost 20 years before her death. After taking legal advice, the Trustees agreed to make a one-off payment of £52,181.56 representing eight years of GMP payments and six years of excess over GMP payments in respect of the period immediately prior to Mrs P’s death. However, they purported to forfeit any earlier arrears of pension, based on a scheme rule that provided, “Any monies payable out of the Plan and not claimed within six years from the date on which they were due to be paid may at the Trustees’ discretion may be used for any of the purposes of the Plan.”
The law on forfeiture
There is a general statutory prohibition on forfeiting pension scheme benefits, but legislation allows schemes to forfeit GMP payments that have not been claimed within eight years of falling due and other pension payments that have not been claimed within 6 years of falling due. Benefits can only be forfeited if a scheme’s trust deed and rules contain a forfeiture clause.
The Ombudsman’s decision
The Ombudsman noted that this wording of the scheme’s “forfeiture” clause was strikingly similar to a “forfeiture” clause which had been considered by the court in a case concerning the Axminster Carpets Group Retirement Benefits Plan. The judge in that case had noted that the clause did not expressly provide for benefits to be forfeited or expressly say that members were barred from claiming benefits after six years had elapsed. On that basis the judge held that the clause did not allow for benefits to be forfeited. Following the judgment in Axminster, the Ombudsman found that the scheme’s “forfeiture” clause was not effective, so could not be used to forfeit any arrears of Mrs P’s pension.
The Ombudsman noted that there was a material distinction between the Axminister “forfeiture” clause and the scheme’s purported forfeiture clause. In the Axminister case the heading to the clause had not contained the word “forfeiture” whereas in the case before the Ombudsman the clause was headed “Forfeiture”. There was nothing in the scheme rules to say that clause headings should not be considered when interpreting the rules. The Ombudsman acknowledged that the heading added “some weight” in favour of the draftsman intending the clause to be a forfeiture clause. However, the almost identical operative wording in the body of the two clauses persuaded the Ombudsman that he should follow the Axminster judgment and hold that the clause was not a forfeiture clause.
Our thoughts
On the face of it, the conclusion that a clause headed “Forfeiture” is not a forfeiture clause is a surprising result. However, the Ombudsman clearly believed that the similarity to the wording in the Axminster “forfeiture” clause meant that he was bound to reach the same conclusion as in that case. This decision illustrates that when interpreting the meaning of a purported forfeiture clause, the exact wording of the clause is critical.
