Hogan Lovells

Key Dates

Determination issued on 18 September 2018. 


Summary

The Pensions Ombudsman has held that a member did not have a right to an unreduced early retirement pension as the terms of her settlement with her previous employer set out that she was being made compulsorily redundant. Members only had a right to an unreduced pension if they retired from service at the request of the employer.

Background

In 2003, the Court of Appeal held that a rule which gave a right to an unreduced immediate pension where the member "retires from Service at the request of the Employer and after his 50th birthday" applied where the member took voluntary redundancy but was not applicable in cases of compulsory redundancy (AGCO limited v Massey Ferguson Works Pension Trust Limited).

Mrs S was also a member of the Massey Ferguson Works Pension Scheme and claimed an unreduced pension under a rule identical to that considered by the Court of Appeal in 2003.

In 2014, Mrs S's employer announced an intention to reduce staff numbers. Mrs S was one of three HR managers and it was planned to replace the three managers with two alternative roles. The employer entered discussion with Mrs S about her leaving service without going through a redundancy process. It made clear that, if agreement could not be reached, the three HR managers would be invited to apply for the two roles and the unsuccessful candidate would be made redundant.

Mrs S signed a settlement agreement on 30 March 2015. Its terms included that her employment would terminate on 30 April 2015 "by reason of Compulsory Redundancy". The settlement did not contain any explicit waiver of rights to an unreduced pension.

Mrs S then claimed that she had volunteered for redundancy and was entitled to an unreduced pension. Following an unsuccessful complaint under the scheme's internal dispute resolution procedure, she complained to the Ombudsman.

Ombudsman's conclusions

It was accepted by all the parties that, following the 2003 case, compulsory redundancy was not retirement "at the request of the Employer".

Was the settlement agreement void under section 91(1) Pensions Act 1995?

The Ombudsman gave thought to the anti-alienation provisions of section 91 Pensions Act 1995, which provides that an entitlement or right to pension cannot be assigned, commuted or surrendered. If the settlement agreement amounted to the surrender of a right to accrued or future pension it could be void under section 91.

However, he noted that the Court of Appeal had held that section 91(1) does not prevent a settlement agreement from having effect when it relates to a bona fide settlement of disputed rights (IMG (UK) Limited v German). When Mrs S' employment ceased, any right she had to an unreduced pension was contingent on her having left service "at the request" of her employer, which was a matter of dispute. Section 91(1) did not prevent her from waiving any potential right to an unreduced pension under the settlement agreement.

Contractual estoppel

The Ombudsman agreed with the employer that a contractual estoppel prevented Mrs S from asserting that her employment was terminated for reasons other than compulsory redundancy.

He explained that a contractual estoppel can arise where the parties to a contract have agreed what a particular state of affairs will be the basis of their dealings with one another, even if they know that the agreed state of affairs does not exist. The courts will usually seek to uphold such agreements on the basis that contracting parties are entitled to agree whatever they like between them. Unlike other forms of estoppel, it is not necessary to consider unconscionability or to require any specific detrimental reliance upon the representation.

The Ombudsman considered that case law supported the principle that parties can agree that a state of affairs will be the basis of their contractual dealings with one another, even if they know this not to be true. In particular:

The Ombudsman therefore rejected her claim.



Date Accessed: 03/12/2021