Ombudsman sides with Pilots’ trustee on accrual rate changes

Seven members of the fund — a multi-employer pension scheme for marine pilots working for port authorities — had complained that they were unhappy with several changes made by the trustees to the scheme rules. 

The applicants joined PNPF before 2002. Between that year and 2016, there were a number of changes made to the scheme that altered future benefits the members would accrue or receive under. 

These changes included lowering annual pension increases, lowering of the accrual rate from 1/60th to 1/70th for the post-2002 PNPF members, and increasing the normal retirement age to 65. 

The ombudsman quite rightly makes the point that it is not for him – or in fact anyone else – to make trustees’ decisions for them

Rosalind Connor, Arc Pension Law

Deficit forces scheme changes

The main reason why these changes were made was to address the scheme deficit. In December 2016, a fund valuation highlighted that higher contributions would be needed from all members in order to ensure future benefits could be paid. 

From 2017 to early 2018, the trustee conducted a consultation during which it invited members to give feedback on the proposed contribution increases, which went ahead in March 2018.  

In a trustee meeting in March of that year, it was noted that post-2002 members were subsiding the benefits of pre-2002 members, as all members were paying the same contribution rates but post-2002 members were accruing less benefits. 

This was because post-2002 members were on an accrual rate of 1/70th, whereas pre-2002 members were on an accrual rate of 1/60th. 

In the same meeting, it was also noted that some members were nearing their annual allowance limit and so they might have preferred to pay lower contributions. It was agreed that the contribution and accrual rates would be considered further at a later date. 

In October 2018, the trustee wrote to all PNPF members to inform them of the proposal to move pre-2002 members on to the accrual rate of 1/70th, so that all members were on the same rate. 

They emphasised that the change would result in lower contributions for all members, as well as highlighting that the changes could be beneficial to those members who were approaching their lifetime allowance.

The trustee received feedback from 32 per cent of post-2002 members and 24 per cent of pre-2002 members. The post 2002-members were broadly supportive of the proposed changes, whereas the pre-2002 members were largely against the changes. 

However, applicants raised further complaints regarding the changes, saying that the change was unfair because it meant they would no longer accrue the pension benefits they had expected. 

The applicants highlighted a series of changes that had been applied to their PNPF benefits dating back to 2000, and said this recent change removed all parity to the benefit they had originally signed up for. 

The ombudsman adjudicator was satisfied that the trustee had directed itself correctly in law and that no further action was required. 

It was noted that it was appropriate for the trustee to consider numerous options first, and then seek feedback on the option it considered most appropriate as part of the consultation.   

Trustees have a right to use their powers with discretion

In his decision, Anthony Arter, the Pensions Ombudsman, noted there was no evidence that the applicants were ever guaranteed to accrue benefits at a certain level until they had each retired. 

Although they hoped to continue accruing benefits at the 1/60th rate, they had no entitlement to do so. As they have now suffered a loss to which they are entitled, compensation is not appropriate. 

Arter said: “It is not for me to decide whether the trustee’s decision is the right one. The trustee has a wide level of discretion in the exercise of its powers.

“The question I have considered is whether the trustee reached its decision following a reasonable decision-making process.”

Rosalind Connor, managing partner of Arc Pension Law, noted that “this is another example of why it is hard to overturn a trustee decision”. 

“The ombudsman quite rightly makes the point that it is not for him — or in fact anyone else — to make trustees’ decisions for them.”

She noted that while members might disagree with a trustee’s decision and may feel it is unfair, “it is the choice of the trustees what decision they make”. 

“This shows again that if you want to complain about a trustee decision you need to show they did it wrong, not just that you don’t agree with it.”

Geoff McKenzie, senior trustee manager at Ross Trustees, said the decision showed that the “trustee firstly fully considered its powers under its trust deed and rules, and took relevant legal and actuarial advice from its appointed advisers on the options being considered”. 

“As was noted, the trustee then followed the required consultation requirements for benefit changes of this nature and considered the member feedback before reaching a final decision,” he said.

McKenzie noted that the trustee “also ensured that all options were fully considered and evaluated”. 

“Finally, and probably most key, the decision-making process throughout, including its deliberations and consideration of all options, was comprehensively captured and documented,” he said. 

“Although most trustee boards do get the relevant professional advice for these types of decisions, I think this case particularly highlights the need to document the process followed, in the event of a future challenge.”