The Ombudsman has dismissed a complaint from a member who complained his first pension increase was only a proportionate increase calculated to reflect that his pension had not yet been in payment for a full year (CAS-58659-G1Y9).

The scheme rules provided, “If on 6 April the Pension has been in payment for less than one year, a proportionate increase will be paid for the number of complete months in the year the Pension has been in payment for.” 

Under the heading "Will my pension increase in payment?", the scheme booklet said, "Yes; your pension will increase…each year in line with price inflation to a maximum of 5%..."  The introduction to the scheme booklet said, "…The Plan will operate in accordance with [the Plan Rules]…In the event of any conflict the terms of the [Plan Rules] will override the contents of this booklet…"  

When the member was sent a retirement pack, under the heading "Important Note" the accompanying letter said, " In preparing this pack, care has been taken to reflect the most accurate and up to date information available at the time of preparation. The final benefits payable will always be subject to the [Plan Rules]…"  Under the heading "Pension Increases", it said, " Your pension will be increased on 1 April each year. Please refer to the Plan literature for details of the increases”.

Following receipt of the retirement pack, the member asked the scheme administrator to put his pension into payment.  The scheme administrator then wrote to the member.  Under the section of the letter headed "Will my pension increase in payment?"  the letter said, "Your pension will increase on 1 April in line with the [RPI] up to a maximum of 5% and a minimum of 3%".  

The member retired part way through the scheme year.  The following April he received a proportionate increase on his pension which had been calculated to take account of the fact that his pension had not yet been in payment for the full year.  The member complained that neither the scheme administrator nor the trustee had warned him that he would only receive a proportionate increase, and that he would have delayed claiming his pension until April had he realised this was the case.

The Ombudsman did not uphold the complaint.  He said that as the member had not specifically asked whether he would receive a full increase to his pension from the first April after his retirement, there was no requirement for the administrator or trustee to set out the implications of the proportionate increase rule.  The Ombudsman also held that there was no requirement for the implications of the proportionate increase rule to be set out in the scheme booklet, as this was only required to provide basic information and stated that the scheme would operate in accordance with its definitive deed and rules.  The retirement pack had also spelled out that the final benefits payable would always be subject to the scheme rules.

Our thoughts

This case illustrates the importance of making sure that any member communications about benefits spell out that they are subject to the scheme's trust deed and rules.