With lockdown restrictions further lifting on 4 July, charities have a lot to think about.
A recent case decided by the Pensions Ombudsman stands as a good reminder to employers to be careful when distinguishing between pensionable employment under a pension scheme’s rules and employment under a contract of employment.
Assuming that these are the same could be a costly error for an employer and upsetting and costly for an individual.
The key provisions of the Teachers’ Pensions Regulations 2014 (Scheme Regulations) relating to this situation are as follows:
- Regulation 23 – a member is not in pensionable employment once they receive less than half-rate sick pay;
- Regulation 127 – in service, death grant is only payable if a member dies whilst in pensionable employment or within 12 months of leaving pensionable employment; and
- Regulation 171 – a member in receipt of an ill-health pension is permitted to commute their benefits for a lump sum if their life expectancy is less than one year.
The Estate of Mrs S against St Paul’s Catholic Junior School, Liverpool City Council and Teachers’ Pensions considered the payment paid to Mrs S’s family following her death in July 2013. Prior to her death, when it became clear that she would not be able to return to work, Mrs S had not opted for ill-health retirement because she understood that she would receive a larger sum on her death if she remained an unpaid employee. This information was incorrect.
Mrs S was diagnosed with melanoma and had various periods of absence from work following her diagnosis in January 2010. On 16 October 2011, her entitlement to sick pay ended but it was agreed that she would remain on the payroll as an unpaid employee and would remain employed for the purposes of the Teachers’ Pensions Scheme. She received two letters from the Teachers’ Pensions Scheme in March 2012 and February 2013 respectively, informing Mrs S of the in-service death grant to which she was eligible. Based on these, once Mrs S’s illness was confirmed as terminal in March 2013, she chose the in-service lump sum death grant and not ill-health retirement as she felt it would provide more for her family.
However, when Mrs S passed away in July 2013, her family received substantially less than they expected to receive in view of her wish not to take the ill-health retirement option. Failing to reach a resolution with the school or council, Mr S appealed to the Ombudsman.
On examination of the events prior to Mrs S’s death, the correspondence she received and the information she was given, the Ombudsman held that the Council were at fault. The Ombudsman ruled that the Council should have known that as of 17 October 2011, when Mrs S exhausted her sick pay, that she was no longer in pensionable employment and should have notified the pension scheme to that effect. This failure resulted in the Teachers’ Pensions Scheme sending Mrs S incorrect benefit statements which she then relied on to make a decision. Had she not received those benefit statements, the Ombudsman said that they were satisfied Mrs S would have made a different decision.
The Ombudsman directed the Council to pay Mrs S’s estate the difference between the death benefits that had already been paid and the maximum amount of benefits she would have received had she taken the ill-health retirement option.
Lessons to be learnt
- The key issue here is that pensionable employment and continuing employment by an employer are not always the same. The former will follow the rules of the pension scheme and not what is agreed between employer and employee. Whilst they may run alongside each other for a large part of the employment relationship, this will not always be the case;
- Always seek clarification from the pension scheme rules when an employee nears the end of their paid sick leave – never assume that the pension will follow any agreement made between employee and employer; and
- Ensure as far as possible that an employee has access to the rules of the pension scheme and/or an adviser so that assurances can be made that they are receiving the correct advice.
For more information on this briefing, please contact Doug Mullen.
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