Law Report: Decision by pensions ombudsman overruled

LAW REPORT v 12 February 1997 : Westminster City Council v Haywood and another; Court of Appeal (Lord Justice Kennedy, Lord Justice Millett, Lord Justice Swinton Thomas) 28 January 1997

The Pensions Ombudsman had no jurisdiction to entertain a complaint by a retired council employee over the alleged maladministration of his pension because the relevant payments came from the council's severance and compensation scheme, and constituted benefits for loss of employment through voluntary redundancy, and were not strictly speaking part of his pension, which came from the council's superannuation scheme.

The Court of Appeal allowed an appeal by Westminster City Council against the decision of Mr Justice Robert Walker, who ruled that the Pensions Ombudsman had had jurisdiction to hear a complaint against the council by Jeffrey Hawood, a retired employee, but set aside the ombudsman's direction that the council should restore Mr Haywood's benefits to their former level.

Mr Haywood had been told that on accepting voluntary redundancy at the age of 50 he would become entitled to immediate payment of (a) a pension of pounds 7,376 per annum and a lump sum of pounds 22,129 by way of superannuation benefits; (b) statutory redundancy of pounds 11,544; and (c) a lump sum of pounds 8,509 and an annuity of pounds 3,950 per annum as compensation under the council's severance and compensation scheme.

Ten months after retiring, Mr Haywood was informed by letter that the council had been advised that its severance and compensation scheme was unlawful in a number of respects (because it exceeded statutory limits on such payments) and that his "gross pension" would be reduced by approximately pounds 158 per month. The reduction came exclusively out of his compensation annuity payments .

The ombudsman, upholding Mr Haywood's complaint, found he had suffered injustice, in consequence of the council's maladministration, consisting in the reduction of his compensation payments. The ombudsman ordered the council to restore the payments to their former level.

Elizabeth Slade QC and Charles Bear (Westminster City Solicitor) for the council; Andrew Arden QC and Jonathan Manning (Paisner & Co) for the ombudsman.

Lord Justice Millett said that under section 146 of the Pensions Scheme Act 1993 the ombudsman had jurisdiction to investigate and determine any complaint made by an "authorised complainant", being a person who was or had been "in pensionable service" under an occupational pensions scheme, who alleged that he had sustained injustice in consequence of maladministration in connection with any act or omission of the trustees or managers of administrators of the scheme.

Mr Haywood had been "in pensionable service" (as defined by section 70 of the Act) under the council's superannuation scheme. But he had not been "in pensionable service" under its severance and compensation scheme. He was not therefore an "authorised complainant" under that scheme considered on its own.

The judge held that the words "scheme" and "arrangement" in the definition of "occupational pensions scheme" in section 1 were of the widest scope and that the council's severance and compensation scheme and its superannuation scheme, though differently funded, should be regarded as forming a single scheme or arrangement.

His Lordship disagreed. The two schemes had been originally established as distinct schemes, at different times, under different statutory powers, subject to different statutory regimes, for different purposes, and had always been separately funded. That the two monthly payments were paid together and charged in the first instance to the council's payroll was purely a matter of administrative convenience. They were separately calculated and must have been separately accounted for in the council's books.

It followed that the ombudsman had no jurisdiction to hear a complaint about the administration of the severance and compensation scheme.

Even if the ombudsman had had jurisdiction, he should not have directed the council to restore the monthly payments to their original level. While the reduction in the monthly payments to the maximum the council could lawfully pay undoubtedly caused Mr Haywood loss, it could not be said to constitute maladministration.

Paul Magrath, Barrister