Ellaway v IBC Pension Trustees Ltd 80200/1, 80201/1, 80202/1, 79406/1: showing your working

Slightly unusual one this time; not a Court case, but an Ombudsman case.  The Pensions Ombudsman.  Tony King holds the current role, which is to be a quasi-informal adjudicator of disputes involving pensions.  Pensions are complex things, legally.  There’s a chunk of money that needs to be used to give pensions to pensioners.  Who actually owns it?  Well, a pension is a form of trust; someone (usually an employer) sets up the trust, pays money into it, offers membership to people (usually employees) who will also contribute on the promise they will get a pension one day, when they retire or when they’re too ill to work, with maybe a surviving partner's or dependent's pension thrown in.  The hows and whens of getting a pension are set out in the trust document, and the trust takes the money paid in and invests it; the trust owns the assets, and the trustees control the trust.  That way, you have two layers of ownership.  The investments – usually stocks, gilts and property – are legally in the hands of the trustees who do the buying and selling; the beneficial interest is owned by, well, no-one’s quite sure, but it’s a mishmash of those receiving a pension, those who are paying into the trust – usually called a pension scheme or pension plan – and the employer.

If you have a problem with your pension scheme, you complain to the trustees (the people who “own” the pension scheme money and look after it for the pensioners past, present and future), they have to consider it, and if they reject your complaint you can take it up with the Ombudsman.  Quite an important tribunal, although it can be appealed – quite easily – to the High Court; that however puts you on a big costs risk if your appeal doesn’t win.  Unlike before the Ombudsman, which is free to consumers, and where there are no costs awards.

Many complaints are about maladministration; trustees not awarding paying out a pension properly, putting the scheme money on Saucy Sue in the 3.15 at Kempton Park, that sort of thing.  One thing the Ombudsman is keen to emphasize is that trustees give reasons for their decisions.  Trustees may have acted properly in what they do, but if they don’t show their working, how can you tell?

One previous Ombudsman, Dr Julian Farrand, was quite an interventionist chap.  Trusts often give quite a bit of discretion to the trustees as to investing and paying pensions.  And Dr Farrand often disagreed with how trustees did this sort of thing.  What’s more, he would use his position to impose his decisions on the trustees.  The High Court squished this; Dr Farrand may be quite right to think the trustees got it wrong, it said, but he cannot interfere unless the trustees’ decisions are completely mental.  The fact that Trustee A would refuse an ill health benefit, for example, and Trustee B would not does not make either trustee wrong. 

So it’s quite difficult to challenge trustee decisions.  But one way in which you can do so is if the trustees do not give reasons for their decision.  It’s not a big step to go from there to say “the decision MUST be mental, the trustees won’t tell me why”. 

And classically these decisions involve families.  The recent decision regarding Mr Ellaway’s pension is a case in point.  Mr Ellaway worked for IBC Vehicles and was a member of its pension scheme.  Sadly he never enjoyed a pension as he died whilst still working.  The IBC scheme’s trust said that, in these circumstances, the scheme would pay a lump sum to a beneficiary.  It was up to the trustees to decide who the beneficiary should be. 

The trustees had a choice; Mr Ellaway left his parents, a sister, brother and niece.  He was not married, but he was engaged; he had moved in with his fiancée just 8 weeks before he died.  So, on the face of it, a choice of six.

The trustees therefore looked at the evidence available to them of what Mr Ellaway would have wanted.  However there was no will.  There was also no “expression of wish” form, a document employees usually sign telling trustees where they would want a lump sum paid.  So the trustees did some digging, and found out about Mr Ellaway’s wedding plans.  They decided that the lump sum should go to Mr Ellaway’s fiancée.

Sensible enough?  Not for Mr Ellaway’s mother, siblings and niece.  They complained to the trustees and, when they rejected the complaint, to the Ombudsman.  The big problem was not the decision itself, but how the trustees had gone about it.  The trustees had investigated, true; they had even visited the other Ellaways and fiancée.  The problem was that the trustees did not tell the Ellaways why they were visiting – the Ellaways thought it was just to get bank details and so on for the payment.  Had they been told it was an information gathering exercise, they could have given some information that was relevant – such as the Ellaways being financially dependent on Mr Ellaway.

The Ombudsman looked at the decision-making procedure.  The trustees had not given reasons.  Not full ones, anyway.  They had not told the Ellaways what and why they were investigating.  They had not dug out much written evidence.  There was also a problem as to whether the fiancée fell within the category of beneficiaries; as she wasn’t family (yet), she needed to be financially dependent, and that was dubious, given they’d been living together for two months and kept bills separate.   The trustees had concluded that the fiancée was the best recipient, which is fair enough; but they hadn’t concluded she was an eligible recipient.  They’d taken that as read.

So the Ombudsman kicked it back to the trustees.  He didn’t overturn the decision, because the fiancée wasn’t part of the complaint (indeed she’d already received the money – such is the glacial pace of these things, she had received it back in 2007, in fact); he just said that the trustees had to work out whether she could be a beneficiary, and then, having done that, whether she was the best recipient.  And if not, to pay a lump sum to whichever beneficiary the trustees saw fit.  It may be that the trustees come to the same conclusion again, but they have to get the reasons right.  Had they shown their working – written down that the fiancée was dependent, giving the reasons why – they’d’ve gotten away with it.