The Pensions Ombudsman has upheld a complaint against the Royal Mail Statutory Pension Scheme for refusing to pay a deferred pension, providing a salutary lesson for employers who fail to keep adequate records.
Mr Y, who was employed by the Royal Mail Group more than three decades ago between 1979 and 1986, complained to the ombudsman that the scheme had improperly denied him a full deferred pension on retirement, instead paying only his guaranteed minimum pension.
Convicted twice in court for charges brought against him by RMG, Mr Y paid a fine for criminal damage to RMG property in 1985 and also received an imprisonment sentence of one year suspended for theft in 1986.
While undertaking a GMP reconciliation exercise in April 2017, the RMG Pensions Service Centre found that, according to the National Insurance Contributions Office, Mr Y was entitled to a GMP of £6.29 per week from age 65, although it had no pension records for him.
The approach is usually to just pay the GMP, but this determination could open up schemes to claims for excess benefits too
Max Ballad, Arc Pensions Law
Because RMG no longer had any employment records for Mr Y and he himself had no documentary proof of his employment, he was told he could only receive GMP benefits and not a deferred pension. The Royal Mail’s practice was to retain these records for six years after an employee had left service before destroying them.
After exhausting internal dispute procedures, Mr Y took the case to the ombudsman. In her determination on January 13 2020, deputy pensions ombudsman Karen Johnston held: “In the absence of any justified reason why Mr Y would have lost his entitlement to a deferred pension, this leads to me to conclude, on the balance of probabilities, that Mr Y is entitled to a deferred pension.”
She also said RMSPS should pay him £500 for his “significant distress and inconvenience”, and that the revalued deferred pension available to Mr Y should be based on his pensionable service between March 23 1979 and April 12 1986, and paid within 28 days.
Follow procedures to the letter
This decision shows the importance of scheme trustees and employers following the right statutory processes if they want to forfeit an employee’s pension benefits for misconduct, stressed Penny Cogher, partner at Irwin Mitchell.
She said the fact that it was then mandatory for employees over 18 to be a member of RMG’s pension scheme had helped in Mr Y’s claim: “It might be more difficult for an individual to win this type of case now without there being some documentary evidence of the individual’s actual membership of a pension scheme.”
Sponsors and trustees should make sure they have explicit powers written in the scheme rules, according to Malcolm McLean, senior pension consultant at Barnett Waddingham.
“What constitutes gross misconduct is not always clear”, and offences and the punishment dished out by the courts can vary greatly by degree, he said. “Where the power does exist, it will often only be possible in the rarest of circumstances.”
Stephen Scholefield, partner at Pinsent Masons, said: “Forfeiting pension benefits is highly regulated now by the Pensions Act 1995. It is only possible where the employee owes money to the employer due to a criminal, negligent or fraudulent act.
“If the amount owed is disputed, then a court order is required. The employee must also be given a certificate, showing the amount forfeited and the effect on his or her benefits.”
Do not discard employment records
The determination also shows the importance of keeping records – even for decades. Max Ballad, legal director at Arc Pensions Law, emphasised: “Shredding employment files after six years can leave an employer exposed.”
He said the decision showed “that it is reasonable to keep [employment records] while there is any possibility of a claim from the member or his dependants – in this case, the employee left service more than 30 years ago”.
He added: “This decision has wider implications as it is fairly common for GMP reconciliation and rectification exercises to result in a list of members that HM Revenue & Customs says has a scheme GMP, but of whom the scheme has no record.
“The approach is usually to just pay the GMP, but this determination could open up schemes to claims for excess benefits too.”
