Ombudsman decision underscores record-keeping risk

In a complaint against Covidien UK Pension Plan, Mr Wood said the scheme had incorrectly ceased payment of discretionary increases to his pension.

The scheme informed Mr Wood in June 2012 that the discretionary increases had been stopped because they were inconsistent with other sections of the scheme and it would only provide guaranteed increases in line with its rules.

Mr Wood complained to the scheme about the decision and in October 2012 received a letter saying when considering discretionary benefits "reference must be made to the entire plan and not just specific sections, as discretionary benefits have a consequence on the plan’s funding position as a whole.”

The ombudsman found the scheme’s decision to not pay an increase in 2012 in isolation was allowed, but a decision to not pay them in perpetuity was not.

The determination describes quite a few decision-making "no-nos" for trustees, said Anne-Marie Winton, partner at law firm Nabarro.

“Discretionary increases for pensions in payment were supposed to be reviewed regularly, but yet the trustees here communicated to members a one-off decision never to grant future increases. This fettering of their future decision-making was a major error by them.”

The ombudsman found that a 2012 email from the administrators to the trustees indicated there would not be a funding issue if the discretionary increases were paid. He also found evidence of inconsistencies across sections of the schemes.   

Winton said: “A second procedural error was the apparent omission in the decision making process of the sponsoring employer and the actuary, who both had a role under the relevant increase rule. Following what the scheme's governing documents say is vitally important.”

The determination also found that there was no record of the reasons provided to Mr Wood – the wish to be consistent and the affect on scheme funding – for ceasing the increases.

James Bingham, associate at law firm Sackers, said this decision demonstrates the importance of good record-keeping by trustees. 

“Minutes of meetings will often need to be referred to and relied on to demonstrate that decisions have been taken properly and, without good records, it is very difficult to explain the decision-making process that the trustees have been through,” he said.

Bingham added it was interesting to note that while the member’s complaint was upheld, the decision was remitted back to the trustees for a new decision to be made on the discretionary increases.

“This confirms that it is not for the ombudsman to exercise discretion on behalf of trustees but instead he will point out failings in their process requiring the decision to be revisited,” he said. 

The scheme's sponsor, a Boston-based healthcare products manufacturer, could not be contacted for comment at the time of publication. The trustees could not be contacted.