Lewys Curteis contributed to the writing of this blog post
The Pensions Ombudsman has ruled in favour of an employer’s decision to withhold their consent for a member to take early retirement.
The requirement for company or trustee consent is a common feature of many defined benefit pension scheme rules. This recent ruling emphasises how important it is for employers and trustees to understand the powers that they have under the rules of their scheme.
"Trustees and employers should communicate clearly with members regarding benefits involving discretionary powers, to avoid damaging the relationship and potentially leading to future complaints."
In a recent case, a scheme member lodged a complaint as she believed that she should have been granted an unreduced early retirement pension. The company had decided to withhold consent to the member’s early retirement, due to the funding strain that this would place on the scheme.
The Pensions Ombudsman did not uphold the complaint against the company as the company was entitled, under the rules of the scheme, to withhold consent. The Pensions Ombudsman said it was clear that in withholding consent, the company was entitled to have regard to its own financial interests.
This ruling should prompt companies to look in detail at the rules of their defined benefit schemes, to be sure of the discretionary powers they have. Companies may also wish to consider reviewing any discretionary practices currently in place, particularly if the funding position of the scheme is a concern.
With many companies expected to see an increase in their liabilities when the next valuation comes around, discretionary powers may be a useful tool in helping to negotiate a funding strategy with the trustees of the scheme. For example, if an allowance is currently being made for members to retire early on terms that are unfavourable to the scheme, a company could argue that no such allowance should be made if early retirement is subject to the consent of the company.
Trustees and employers should communicate clearly with members regarding benefits involving discretionary powers, to avoid damaging the relationship and potentially leading to future complaints.