Ombudsman backs Halcrow over indexation reduction following RAA
The Pensions Ombudsman (TPO) has backed the Halcrow Pension Scheme (HPS) trustees after they reduced the level of indexation for transferred-in benefits when members were transferred to another scheme.
The case, brought by Mr Y, relates to previous communications by the trustees that money transferred into the scheme would rise at 6.5% each year during deferment.
However, the regulated apportionment arrangement (RAA) conducted last year - which split the scheme from its sponsoring employer Halcrow Group (HGL) and the firm's parent CH2M - saw indexation reduced to the consumer price index (CPI), prompting the complaint.
The ombudsman ruled this past confirmation did not construe a contract - allowing trustees to lower this level of increase when members moved into Halcrow Pension Scheme (No. 2) (HPS2).
Mr Y, who was employed by HGL between 1998 and 2011, requested a transfer of benefits from a previous employer into the HPS in 2002. The scheme accepted the transfer of £28,155, which provided Mr Y with an additional nine years of service, and said the benefits would increase by 6.5% per year if he left before his normal retirement date.
The scheme then closed to future accrual in 2007, and the trustees contacted all scheme members to say benefits would increase at 2% above the retail prices index (RPI), but with a cap of 5%.
Mr Y complained to the scheme, with the trustee chairman then stating the transferred-in portion of his pension would continue to increase by 6.5% every year in deferment.
However, following last year's RAA of the scheme, members were asked for their consent to be moved into HPS2 or they would enter the Pension Protection Fund (PPF).
The HPS2 saw all members' benefits - including increases in payment and revaluations up to the date of transfer - protected, while members received an initial uplift. Also, revaluation and indexation of members' benefits was reduced to CPI, and there would be a PPF underpin.
This meant that Mr Y's transferred-in benefits would retain annual 6.5% increases up to the date of transfer, but future increases would be at statutory rates.
Mr Y agreed to transfer his scheme benefits to HPS2, but he then claimed he had a "valid and contractual" claim for the transferred portion of his deferred pension to be uprated by 6.5% a year. He said this segment was not affected by the RAA.
Mr Y estimated the move would reduce his annual pension entitlement by around £10,000 a year.
However, the trustees said they did not enter into a contract, but accepted a transfer into the scheme in accordance with the scheme's rules, with them then in 2008 confirming the terms of this transfer. Their communications simply gave information "about how a transfer-in from a previous pension scheme was given effect".
A TPO adjudicator agreed no contract had been made and that the transferred-in benefits were subject to the same terms and risks as other pension rights. They also referred to the 2012 Danks and others v Qinetiq Holdings High Court case, which confirmed trustees, in this case, had the right to move from RPI to CPI.
The matter was then referred to TPO, with ombudsman Anthony Arter concluding: "there has been no misrepresentation by either the scheme or HGL".
In particular, he disagreed that a contract had been made with Mr Y, stating: "I can understand Mr Y's distress at the reduction in his future pension benefit, but I do not find that the trustees or HGL or CH2M have acted incorrectly in reaching the decision they did or that Mr Y had a contractual promise for the 6.5% revaluation on his transfer-in to be continued."
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