Pensions Ombudsman awards compensation due to mix-up on NHS Pension Scheme eligibility

Mrs S was employed by the East Sussex Healthcare Trust (ESHT). She was also a member of the NHS Pension Scheme (the Scheme). In September 1996, her work was outsourced, and there was a TUPE transfer to a non-NHS employer.  In June 2001, Mrs S’s employment was transferred back to ESHT when the service was taken back in-house. ESHT submitted a form for Mrs S to re-join the Scheme which was accepted. However, as Mrs S was over the age of 60, she was ineligible to re-join the Scheme.

In August 2014, 13 years after she had re-joined, NHS Pensions notified Mrs S that she had not been eligible to re-join the Scheme. This was the result of a concerted effort by NHS Pensions to identify ineligible members of the Scheme. ESHT reimbursed Mrs S for the contributions she made between September 2001 and March 2015, and NHS Pensions paid her interest of £1,132.71 on these contributions. Mrs S was also permitted to claim pension benefits backdated to her 60^th birthday (27 January 2001), and NHS Pensions paid interest on the late payment of these benefits.

Mrs S made a complaint to the Pensions Ombudsman over the delay in NHS Pensions realising she wasn’t eligible, but NHS Pensions maintained that Mrs S had been ineligible to re-join the Scheme. However, NHS Pensions offered £1,000 compensation for the distress and inconvenience caused by its failure to realise that Mrs S was not eligible back in 2001.

The Pensions Ombudsman agreed that Mrs S was not eligible to re-join the scheme, and was not therefore entitled to receive benefits for the period in which she was ineligible. Mrs S argued that, had she known in 2001, she would have made an alternative pension arrangement. She then asked the Pensions Ombudsman to order that she be provided with pension benefits equivalent to those that she had lost. The Pensions Ombudsman decided that it was unlikely that she would have made alternative arrangements, given the higher costs of getting equivalent benefits to the Scheme in a personal pension scheme. The Pensions Ombudsman decided that Mrs S was entitled to the return of her contributions, less 20% tax and interest in addition. The Pensions Ombudsman also decided that Mrs S should be awarded £2,000 compensation for distress and inconvenience due to NHS Pensions’ maladministration, and stated that this was a higher award based on the lengthy period that NHS Pensions had failed to inform Mrs S that she was ineligible.

This case highlights the importance of ensuring that only eligible employees join pension schemes. Had the Ombudsman decided that Mrs S would have made alternative arrangements, NHS Pensions would also have needed to fund benefits equivalent to the Scheme benefits for 13 years, probably at a very significant cost. The level of compensation for distress and inconvenience was much higher than usual, no doubt influenced by the significant impact on Mrs S’ pension benefits.

The problem of allowing ineligible employees to join a pension scheme is not limited to the NHS Pension Scheme, it could also rear its head in the Teachers’ Pension Scheme and Local Government Pension Scheme. Employers and pension scheme administrators should ensure that they manage their pension administration carefully so that only eligible employees join to avoid significant awards for distress and/or having to fund equivalent benefits outside the scheme that could be costly.

For advice on the issues raised in this briefing or on public-sector pensions generally, please contact Doug Mullen. For more information about the work that we do at Anthony Collins Solicitors, please visit our website.

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