Pensions Ombudsman rules on increases following transfer — key takeaways for employers and trustees

10 March 2025

6 min read

A man puts money into a piggy bank pension concept

The Pensions Ombudsman has issued an interesting determination (CAS-503535-Y4X5) that highlights the responsibilities of employers and trustees in managing pension schemes and ensuring that members receive the benefits they’re entitled to.

The determination covers a wide range of issues, including the:

Pension’s Ombudsman’s jurisdiction to investigate and whether the complaint was time barred
Presumption of regularity.
Ongoing contractual obligation on the employer in the new scheme to amend its rules
the interpretation of the previous scheme’s pension increase rule (and whether it required annual increases to be made to the pension when in payment despite the employer’s power to give directions as to the rate of increase).
Employer’s duty of good faith.
Transfer-in rule.
Carrying over to the new scheme of the previous employer’s direction about pension increases.

The Ombudsman received over 1,000 pages of documents from the employer to review in this case — which won’t exactly have helped to manage caseloads — and his determination runs to 69 pages.

Here, Max Ballad from our pensions team helpfully summarises the background to the case and presents the key takeaways for employers and trustees.

Background to Mr H’s complaint

In 1998, Mr H was invited to join his employer’s new pension scheme. Mr H was a Special Member in the previous pension scheme and the only member in that category. He had been told in a supplement to the member booklet that his pension would increase when in payment by 5% or due to the change in RPI (if lower). However, the booklet contained the usual caveat that this was subject to the rules.

He agreed to transfer to the new scheme, having been told that he would receive ‘mirror’ benefits to which he was entitled as a Special Member under the previous scheme. The trustee of the new scheme stopped providing pension increases (apart from statutory increases) in 2017, having received legal advice that the rules didn’t provide for them.

Pensions Ombudsman rulings

The Pensions Ombudsman decided:

He could investigate Mr H’s complaint as Mr H had made it within three years of being notified of the decision to stop pension increases. The assertion by the respondent that a claim based on contract would be time-barred didn’t preclude him from investigating because he would need to do so to establish whether that defence applied.
He agreed with the legal advice the trustee had received regarding the presumption of regularity. The amendment power only required an employer resolution but there was no evidence that it had passed a resolution to amend the pension increase rule. The Ombudsman was unwilling to infer that the resolution had been made when such evidence as there was pointed the other way (i.e., a copy of a board resolution was annexed to the rules of the new scheme when they had been adopted).
The employer did have a contractual obligation to procure that the new scheme would provide mirror-image benefits. The employer had the power to amend the scheme by resolution and there was an ongoing contractual obligation to ensure that the new scheme provided the benefits Mr H had been promised.
The breach of contract had occurred in 2017 when Mr H had been informed that he wouldn’t get the increases under the new scheme. He had made his complaint within six years following the breach, so it wasn’t time-barred. The Pensions Ombudsman also noted that the six-year limitation period didn’t apply to the remedy of specific performance, which the Ombudsman considered to be the most appropriate remedy.
The failure to amend the rules was also a breach of the employer’s duty of good faith — i.e., without reasonable and proper cause, it had conducted itself in a manner calculated to destroy or seriously damage the relationship of trust and confidence between employer and employee — and this still applied when Mr H was a former employee.
The pension increase rule wasn’t clearly drafted but the Ombudsman decided that it required the pension to be increased each year when in payment. The employer had a discretion but only as to the amount of the increase — it couldn’t decide that the increase would be zero. The rule was different to the one considered by the Court of Appeal in the Britvic case, where the employer could decide that an ‘increase’ would be zero.
The first part of the transfer-in rule provided that the member would be entitled to receive such benefit as the trustee considered justified by the transfer sum. The evidence indicated that the member had become entitled to the mirror-image benefits in respect of the transfer-in from the previous scheme (it therefore seems that the employer’s contractual breach may only have been relevant to a small amount of post-transfer pensionable service).
He didn’t have any document that recorded the employer’s direction regarding pension increases in the previous scheme but the evidence indicated that such a direction had been made. Furthermore, it continued to apply in the new scheme until the new employer made a direction to change the rate of pension increase.

Four key takeaways

The key takeaways from this determination are:

1. Trustee’s role

The trustee wasn’t found guilty of maladministration because it followed legal advice.

2. Employer's duties

Employers must comply with their duty of good faith and be aware that commitments to pension scheme members could be found to be contractual (although the circumstances of this case were unusual).

3. Jurisdiction and time limits

The Ombudsman may investigate and determine complaints that have their origin in events which happened a long time ago.

4. Presumption of regularity

There is currently some interest in this presumption in relation to historic amendments of contracted-out schemes and missing actuarial confirmations. The Ombudsman was unwilling to infer in this case that the employer had resolved to amend the scheme.