The danger of Cherry- picking pensions information

Posted on February 5, 2016
The danger of cCherry -picking pensions information

This week’s post concerns whether an employer has a duty to inform employees and members about their pension rights.

The Pensions Ombudsman recently decided that the Police and Crime Commissioner of South Wales (the Commissioner) had a duty of care to an employee to inform him of the adverse tax implications of re-employment on his retirement benefits.[1]

Duty to inform

Employers are not legally obliged to advise employees or pension scheme members about their tax and pension liabilities. However, a previous case (Scally[2]) established that, in certain limited circumstances, the employer does have an implied contractual duty to draw to an employee’s attention a particular term which provides a valuable right where that right depends upon the employee taking steps to obtain it. The obligation applies where the employee could not reasonably be expected to be aware of the right unless it is drawn to his attention.

Facts

Mr Cherry was employed as a police officer by the Commissioner from 1 February 1982. He retired from the Police Pension Scheme in June 2011 and was then re-employed. Mr Cherry complained because he said his employer had failed to inform him of the tax penalties which applied to his retirement benefits after subsequently being re-employed by the Commissioner.

Certain members have a protected pension age which means that they can receive benefits before the usual normal minimum pension age of 55 subject to certain conditions. One of these conditions relates to re-employment. Members with a protected pension age don’t have the same freedom to take flexible benefits i.e. to take pension benefits and continue working as other members might have.

Mr Cherry lost his protected pension age as a result of re-employment and past and future pension payments up to age 55 were subjected to punitive tax charges as a result.

A Home Office circular had been published on 6 April 2006 regarding the tax changes which were introduced at that time. This provided links to HMRC’s website and loss of protected pension age status.

The Ombudsman agreed with the Commissioner that it did not have a legal obligation as an employer to advise officers and employees about tax and pension liabilities. However, he decided that the Commissioner did have a duty of care to inform Mr Cherry about ‘salient’ information regarding the tax implications of re-employment on his pension benefits.

The Ombudsman did not specifically refer to the Scally case when making his decision. However, the Cherry decision does reflect the contractual duty which was held to have applied in the Scally case. In Cherry the Ombudsman concluded that as a “responsible employer” the Commissioner had a duty of care to provide Mr Cherry with the information regarding tax implications of re-employment. The Commissioner already had this information in its possession in the form of the Home Office Circular. The Ombudsman said that providing this information did not amount to giving advice.

Key points

This decision contrasts with other cases and Pensions Ombudsman decisions where it has been found that the employer did not have a duty to inform members and employees about certain pension rights.

It is not necessarily surprising that different conclusions are reached in relation to a specific employer’s duty to inform as each case very much depends upon the particular facts involved. In the Cherry case the Commissioner did say that it had put in place a new process to ensure that the circumstances which led to Mr Cherry losing his protected pension age did not reoccur and admitted that this was a step a “responsible” employer would take.

The decision is a reminder to employers and trustees that certain significant legal and regulatory pensions information must be provided to members.

This post was contributed by Rachel Stevens. For more information, email blogs@gateleyplc.com.

[1] Mr John Cherry (PO-7096) – 22 December 2015

[2] Scally & Ors v Northern Health and Social Services Board & Anor (1991)

Updated guidance: Insolvency Practitioners and The Pension Protection Fund

Updated guidance: Insolvency Practitioners and The Pension Protection Fund
Posted on 04/02/2016

The Pension Protection Fund (PPF) is a statutory fund which pays compensation to members of eligible salary-related pension schemes where the employer has become insolvent and the scheme has insufficient funds to cover the level of compensation offered by the PPF. The PPF is funded by compulsory annual levies charged on all eligible schemes as well as via an investment portfolio. The compensation payable is either 90% or 100% of what is due under the scheme (subject to a cap based on the age of the individual), depending on the circumstances of the individual involved. The PPF then claims as a creditor in the insolvency of the employer.

When an employer enters into an insolvency process, the PPF begins an assessment period. This period lasts at least a year during which the PPF assesses whether it will assume responsibility for that scheme. The PPF will only take on responsibility for an eligible scheme if:

the scheme has insufficient funds to pay pensions equal to the compensation offered by the PPF;
the insolvency practitioner (IP) has issued a scheme failure notice confirming that no scheme rescue is possible; and
there has been no withdrawal event. A withdrawal notice can be issued by the PPF if it considers that the scheme is not eligible or by an IP if the pension scheme can be rescued.
The IP plays an important role in the assessment process. The IP is required to serve a notice on the PPF when the employer enters into an insolvency process. That notice begins the assessment period. The IP is then required to assess whether the pension scheme can be rescued, for example, if the employer can be rescued as a going concern. If it can, the IP issues a withdrawal notice. If not, the IP issues a scheme failure notice. During the assessment period the PPF acts as the creditor of the employer in relation to the pension scheme but in all other respects the scheme runs as normal and is administered by the trustees.

If the PPF takes responsibility for a scheme, the assets and liabilities of the scheme transfer automatically to the PPF and the scheme is deemed to have been wound up. The PPF becomes responsible for paying compensation to members.

Because of the important role IP’s play in the assessment of a scheme and the PPF’s role as a creditor of the employer, the PPF have issued guidance on the IP’s role and the process to be followed. That guidance, which is based on the statutory obligations of the IP set out in the Pensions Act 2004, can be found here:

http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/insolvency_guidance.pdf

The guidance covers the obligations of the IP in notifying the PPF of an insolvency event as well as during the assessment period. It also provides some guidance on the PPF’s approach during the assessment period.

The guidance also contains information on the circumstances in which the PPF (along with the Pensions Regulator) will participate in the restructuring of an employer, without entry into a formal insolvency process. The circumstances in which it will do so are limited, and a number of criteria must be met, which are set out in the guidance. The guidance also includes links to standard documentation.

This post was edited by Lisa Smith. For more information, email blogs@gateleyplc.com.

You can’t put a price on that… or can you?

Posted on February 4, 2016
You can’t put a price on that… or can you?

Picture the scene: you discover that a limited edition of your dream car is being produced. You rush to contact a car dealer who says that as long as his dealership is allocated one of the highly sought-after cars, he will put you on top of the waiting list. You both sign an order form and you hand over a substantial deposit, with the price to be agreed further down the line.

Then you wait.

And wait.

Eventually you find out that the dealer was allocated one of the cars but that they skipped over your name on the list and supplied it to another customer instead.

What do you do?

Ok, so this is almost certainly a problem that most of us are unlikely to encounter, but it did happen to Mr Hughes who was at the top of the waiting list for a limited edition of the Porsche 911 GT3 RS4 model. When he found out what had happened he commenced a County Court claim against his Porsche dealer, Pendragon Sabre Limited (Pendragon), for breach of contract[1].

At first instance, the judge concluded that the payment of the deposit was “no more than an ‘agreement to agree’” and therefore unenforceable. He held that “There was no contract…all [Mr Hughes] did was to express his wish to purchase a GT 3. There was no vehicle. There was no price. There was no delivery date.”

On appeal, however, the judge reversed this decision, commenting that, “it is as plain as a pikestaff that Mr Hughes entered into some sort of contract with Pendragon”. He took into account the following:

That under the Sale of Goods Act 1979 there can be an agreement to sell “future goods”
There can also be a contract for the sale of goods, “the acquisition of which by the seller depends on a contingency which may or may not happen”
The fact that the car was not in existence at the time of the sale, the fact that Pendragon might not be allocated one in any event and the fact that no delivery date was specified was not, therefore, fatal to a finding that a contract existed
The bottom of the order form stated that the document contained the terms of a contract and made reference to terms and conditions which had “all the hallmarks of what one would expect with an agreement to sell a motor vehicle”.
Having found that there was a contract and that the contract had been breached, the judge turned to the assessment of damages. In the usual course, damages are awarded based on the difference between the price the buyer contracted to pay for the goods and the current market price at the time those goods should have been delivered. The problem here was that there was no contract price and the car was a limited edition Porsche, for which there was no available market. In the circumstances, therefore, the judge looked at what the contract price would have been and what Mr Hughes would have had to pay to obtain “the nearest equivalent vehicle”.

In this respect, Mr Hughes had produced evidence at trial that the list price for the basic model was £128,000 to £129,000. With extras, the price was around £140,000. The only thing Mr Hughes had wanted to change was the colour and on this basis the judge worked on the assumption that he would have paid £135,000 for the car. In terms of the nearest equivalent, Mr Hughes had adduced evidence of similar vehicles with a price of £170,000. On this basis, the judge awarded damages of £35,000, being the difference between the two, which represented Mr Hughes’ lost chance of purchasing his dream car.

Whilst each case will turn on its own facts – and the facts of this case are unique – this case does provide a helpful reminder of the provisions of the Sale of Goods Act 1979 and the approach the Court will adopt in assessing damages in circumstances where there is no available market.

For more information, email blogs@gateleyplc.com.

[1] Hughes –v- Pendragon Sabre Ltd (t/a Prosche Centre Bolton) [2016] EWCA Civ 18