The Deputy Pensions Ombudsman recently upheld a complaint by a pensioner member of the Universities Superannuation Scheme (USS). This complaint concerned the trustee's refusal to accept a cash equivalent transfer value (CETV) of so called "Preston benefits", which amounted to a breach of duty of care in the circumstances.

Whilst there is no legal obligation for a pension scheme to accept a transfer of benefits, this determination highlights that past conduct in relation to transfers could be relevant when assessing whether trustees are being reasonable in refusing to accept a transfer.

What are "Preston Benefits"?

The case of Preston and others v Wolverhampton Healthcare NHS Trust and others involved a large number of female part-time employees who claimed that their exclusion from their employer's pension scheme was unlawful sex discrimination. Part-time workers were historically denied access to some occupational pension schemes; this disproportionately excluded women and thus was held to be indirect discrimination. Benefits awarded to part-time workers which were previously excluded are known as "Preston benefits".

Pensions Ombudsman Complaint by Mrs N

The case of Mrs N involved pension benefits from both the Teachers' Pension Scheme (TPS) and the USS. Mrs N had been a member of both schemes, working in several full-time and part-time roles.

She had first been a member of the TPS and later joined the USS. Following an initial transfer of her benefits from the TPS to the USS, an employment tribunal awarded her Preston benefits under the TPS in respect of previous part-time service. The TPS therefore made a second transfer to the USS of Mrs N's Preston benefits.

The benefits were subsequently transferred back to the TPS upon Mrs N’s request and the TPS later tried to return the Preston benefits back to the USS following a related Ombudsman determination which had concluded that the Preston benefits should have followed Mrs N’s original transfer of her TPS benefits to the USS.

The USS argued it was unable to accept the transfer because there was no express power in the scheme rules to accept transfers for a deferred member. Mrs N therefore submitted a further complaint to the Pensions Ombudsman.

The Pensions Ombudsman upheld Mrs N's most recent complaint, finding that the USS breached its duty of care towards her by refusing to accept the transfer into the scheme. The Ombudsman directed the USS to request a transfer of Mrs N's CETV from TPS and to pay Mrs N £1,000 for the serious distress and inconvenience caused.

Implications

This case is unusual in that the benefits in question were transferred back and forth between the schemes a number of times; however, the decision highlights the potential administrative difficulties associated with Preston benefits, particularly in cases where secondary top up transfers may be required.

Decisions of the Pensions Ombudsman are not binding in future cases and, as noted above, there is no statutory requirement for a scheme to accept a transfer-in. However, this case also demonstrates that there may be circumstances where past behaviour could establish a duty of care towards a member and refusing to accept a transfer might breach that duty. This could therefore have wider implications for schemes carrying out Guaranteed Minimum Pension (GMP) equalisation exercises, particularly in situations where schemes are asked to receive top-up payments following earlier transfers. To learn more about GMP equalisation and top-up payments, please see our previous blog here.

If you would like to discuss anything raised by this blog, please get in touch with a member of the team.

Contributors

Jennifer Crawford

Senior Associate

Juliet Bayne

Partner

Sarah Keir

Trainee Solicitor