Pensions snapshot - September 2020

This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:

• Guide published for communicating with members regarding GMP equalisation
• The Pensions Regulator’s advice to defined benefit trustees in light of COVID-19
• Mr S (PO-28262) ill-health early retirement: Failure to question contradictory medical opinions amounted to maladministration

Guide published for communicating with members regarding GMP equalisation

The PASA GMP Equalisation Working Group has published guidance to assist schemes in the early planning stages of GMP equalisation to communicate with their members about the process.

The guidance highlights the importance of not overwhelming or confusing members at this stage and reminds schemes that, unless they are starting to implement GMP equalisation, there is no requirement to say anything to members yet.  For some schemes, this may be the correct approach; for others it may be sensible to communicate with members now about GMP equalisation (for example, if something has already been said to members about the exercise, perhaps at the time of the Lloyds judgment).

The guidance provides:

• useful example wording that schemes may want to include in their communications;
• standard answers to some typical FAQs members may ask on the topic;
• a checklist of communication documents that trustees should check for references to GMP equalisation to ensure that the topic is dealt with consistently throughout all scheme literature; and
• a list of jargon terms and a layman’s explanation of those terms which schemes should consider using in communications.

The guidance makes clear that communications should be clear, well-targeted and free from jargon. This should be the case with all member communications, but it is especially important in an area as complex as this one.

PASA will be publishing further guidance in due course targeted at member communications during the implementation stage of GMP equalisation.

The Pensions Regulator’s advice to defined benefit trustees in light of COVID-19

In its recent blog, the Pensions Regulator (TPR) highlights the proactive role that trustees of defined benefit pension schemes will need to be prepared to take during the economic fallout from the COVID-19 crisis.

TPR is expecting more COVID-19 linked insolvencies of sponsors in the autumn and during the course of 2021, as well as increasing numbers of companies looking to restructure. TPR highlights that, in such situations, trustees continue to be the first line of defence for members as TPR will not have the capacity to become involved in every scheme affected. TPR is therefore looking to trustees to take a proactive role in situations of scheme sponsor distress.  In particular, trustees should:

• engage in early dialogue with scheme sponsors in order to understand any flexibility that can be offered to distressed employers, where appropriate;
• use TPR’s guidance to empower them to have the right conversations at the right time with sponsors, rather than relying on TPR intervention;
• be open to reasonable requests to support restructuring plans of a struggling sponsor. Trustees must, however, make an informed decision about whether it is in members’ best interests to agree to such a restructuring. In these situations, TPR states that it expects trustees to have a robust plan which may include appointing experts to the trustee board and/or seeking professional advice (in particular about the options available, which may extend beyond covenant advice). Careful management will also be needed of any conflicts of interest; and
• seek appropriate mitigation if they agree to a reduction or suspension of sponsor contributions. The blog lists a number of mitigation options that trustees may consider for these purposes.

TPR will be issuing messages applicable to other types of pension scheme in due course and we will let you know about these as and when they appear.

Mr S (PO-28262) ill-health early retirement: Failure to question contradictory medical opinions amounted to maladministration

Mr S was employed as a pilot by British Airways plc (BA) and was a member of the New Airways Pension Scheme (the Scheme). He had been absent from flying duties on grounds of ill-health since April 2016, after being diagnosed with General Anxiety Disorder by Dr Arkell. In April 2017, British Airways Health Services (BAHS) reviewed Mr S’s condition and decided that he was unfit to return to work. In July 2017, BA terminated Mr S’s contract of employment on grounds of medical incapacity and authorised the Scheme administrators, British Airways Pension Services Ltd (BAPSL), to pay Mr S an ill-health retirement pension from September 2017.

In August 2017, Mr S attended another appointment with a BAHS doctor, Dr Caddis, to assess his eligibility for ill-health early retirement. Dr Caddis subsequently concluded that Mr S did not meet the criteria for ill-health early retirement as it was likely that he would recover within a “reasonable time frame” (i.e. two years). Although Mr S provided further opinions from his GP and Dr Arkell, Dr Caddis did not change his mind and Mr S’ pension payments stopped. Dr Caddis’ decision was later reviewed and supported by an external physician, Dr Emslie.

Mr S unsuccessfully appealed BAHS’ decision under the Scheme’s internal dispute resolution procedure before bringing his complaint to the Pensions Ombudsman. Mr S submitted that BAHS had not reached its decision fairly on all the relevant medical evidence, particularly as Dr Arkell and his GP considered him unfit to return to work. Mr S also argued that BAHS had incorrectly applied Rule 14 of the Scheme rules, which provided guidance for the award of ill-health pensions. He maintained that, as a pilot who had had his employment terminated due to ill-health, he satisfied the necessary eligibility criteria under Rule 14. He argued that there was no discretion not to award an ill-health early retirement pension when employment had been terminated in such a circumstance.

The Ombudsman had to determine whether BAHS had acted in a “proper manner” in coming to its decision on Mr S’ eligibility for ill-health early retirement. It was accepted that Mr S met the first two conditions (he no longer held a licence and had lost that licence due to medical reasons).  However, it was the manner in which the third condition was determined which was the matter before the Ombudsman. This involved consideration of whether Mr S was, more likely than not, going to recover sufficiently to resume flying duties within the foreseeable future.

The Ombudsman determined that BAHS’ doctors’ reports were “confusing and contradictory”; they differed significantly from Mr S’ previous doctors, one of which was a specialist in Mr S’ condition. Dr Caddis failed to provide a clear explanation as to why his decision differed, and BAHS proceeded to a final decision without asking for further clarification from either doctor. BAHS therefore failed to reach its decision in a proper manner. Mr S’ complaint was upheld.

The Ombudsman directed BAHS to reconsider its decision about Mr S’ application for ill-health early retirement after obtaining additional medical evidence from Mr S’ doctors. BAHS was also directed to pay Mr S £500 for the significant distress and inconvenience caused by its failure to reach a decision in a proper manner.