Mr Justice Roth :
INTRODUCTION
- This is an appeal against the determination issued on 20 December 2012 ("the Determination") by the Deputy Pensions Ombudsman ("DPO") of a complaint brought by the Appellant, Mr Ainslie, against the Respondent ("SLFC"). The Determination adopted, with further observations, the reasoning set out in the assessment dated 13 September 2012 by an investigator in the Pensions Ombudsman's office ("the PO Investigator"). Mr Ainslie originally issued his appeal notice naming the DPO as the respondent. Following correspondence from the Court, he accepted that SLFC should be the respondent and an order was made by consent on 14 March 2013 substituting SLFC as respondent with directions for re-service.
- Mr Ainslie has a right of appeal against the Determination on a point of law pursuant to section 151(4) of the Pension Schemes Act 1993 (the "1993 Act").
- Mr Ainslie is acting in person. He is now in his mid-70s, lives in Dorset and has explained that he is not very mobile. He set out his grounds of appeal with supporting documents in a helpfully prepared bundle. SLFC served a Respondent's Notice, supported by a full skeleton argument from Counsel attaching further documents, and Mr Ainslie wrote a response to that argument. I have also been sent copies of further correspondence from SLFC's solicitors and Mr Ainslie (in reply) dated 13 and 14 November 2013. In these circumstances, both parties have agreed that the court should decide the appeal on the papers, without the need for an oral hearing. That has obviously greatly reduced the costs, and I do not consider that Mr Ainslie has been in any way prejudiced through having explained his case only in writing without an additional oral presentation.
- In response to questions from the Court, Mr Ainslie provided further information by email on 8 December 2013 and Counsel for SLFC filed a supplemental submission on 17 December 2013, to which Mr Ainslie responded by way of detailed comments dated 19 December 2013. On 14 January 2014, Mr Ainslie also forwarded his exchange with an official in the pensions policy team at Her Majesty's Revenue and Customs ("HMRC") responding to some questions he had raised with HMRC.
SUMMARY
- Mr Ainslie had a pension entitlement under the Elders Senior Executive Scheme ("the Elders Scheme") held through the Courage Staff Pension Fund. In 1993, he transferred his pension or rights under the Elders Scheme to a personal pension with SLFC. It appears that this was on or about the date he took early retirement at age 55, since on about 1 February 1993 he was paid by SLFC a tax-free lump sum of £35,836 and began to receive payment of an annuity, increasing at the rate of 3% p.a. However, part of his pension was held as a protected rights fund ("PRF"), which as a matter of law could not vest before the member reached age 60. The annuity that he received from 1993 accordingly came from the non-protected rights fund. Under the SLFC scheme, the PRF had to be used to purchase an annuity on reaching State pension age, also increasing at the rate of 3% p.a.
- It appears that in about 1996, SLFC accepted that in several respects the terms of his personal pension with them were less favourable to Mr Ainslie than his former entitlement through the Elders Scheme. By letter dated 10 December 1996 SLFC made a proposal (the "redress offer") to make a lump sum payment for the shortfall in benefits to date and adjust Mr Ainslie's pension payments for the future. The stated intention was to provide Mr Ainslie so far as possible with equivalent benefits to those which he would have received under the Elders Scheme. There is no dispute regarding any of the figures in the redress offer.
- On 12 December 1996, Mr Ainslie signed a form of acceptance of the redress offer, in settlement of his claims against SLFC. This gave rise to a contract determining his pension rights ("the Settlement"). The proper interpretation of the Settlement in the light of subsequent legislative changes and the consequences of the actions of SLFC thereafter are at the heart of Mr Ainslie's complaint.
- Mr Ainslie raised three issues in his complaint:
i) whether Mr Ainslie is entitled to a Tax Free Cash Lump Sum ("TFCLS") equating to 25% of the value of his PRF on or before his 75th birthday;
ii) whether his PRF may be vested with a third party (an Open Market Option, or "OMO"); and
iii) the necessary documentation in relation to a widow's pension.
- By the Determination, the DPO decided the first and second questions in the negative, upholding the position taken by SLFC. The third issue has been resolved and I need not address it further in this judgment. Mr Ainslie argues in this appeal that the Determination should be set aside and that he is entitled: (i) to a TFCLS; and (ii) to vest his PRF with a third party.
THE LEGISLATIVE FRAMEWORK
- In order to understand the basis of the Determination, it is necessary to set out parts of the legislative framework. This is complex, and has undergone various material changes since the time of the Settlement.
Contracting-out and protected rights
- A Contracted-Out Salary-Related ("COSR") scheme is a salary-related pension scheme that has contracted out of the State second pension or its predecessor, the State earnings-related pension scheme ("SERPS"). COSR schemes must meet certain requirements prescribed by statute. At the relevant time, a salary-related scheme could contract out of SERPS on the basis of providing a Guaranteed Minimum Pension ("GMP"). A GMP was broadly equivalent to the amount the scheme member would have received had he remained within SERPS. Where, as was usually the case, the COSR provided a more generous pension than would have been the case with SERPS, the GMP was treated as a discrete element within the COSR, subject to specified restrictions.
- A Contracted-Out Money-Purchase Scheme ("COMP") is a defined contribution pension scheme that has contracted out of the State second pension (or SERPS). At the relevant time, members of a COMP scheme would accrue "protected rights" in relation to those rebated national insurance contributions for the benefit of the member. When transferring from a COSR scheme to a COMP scheme, a member's GMP rights were required to convert to protected rights. Distinct rules applied to the protected rights portion of a pension, including a requirement that this was a separately identifiable fund (the PRF). Until 6 April 2006, the PRF was not permitted to vest prior to the member reaching age 60, and on vesting could be taken only as a pension annuity (i.e. not as a lump sum).
- On 6 April 2012, protected rights were abolished and since then they fall to be treated like any other class of benefit, but that was not the position at the material time.
Lump sum payments
- The Finance Act 2004 ("the 2004 Act") introduced a number of significant changes designed to simplify the legislative restrictions on pensions, with effect from 6 April 2006. In particular, the restrictions on pension scheme members commuting protected rights for a lump sum payment were relaxed. Sects 164 and 166 of the 2004 Act provided, insofar as material:
"164 Authorised member payments
The only payments a registered pension scheme is authorised to make to or in respect of a member of the pension scheme are—
...
(b) lump sums permitted by the lump sum rule or the lump sum death benefit rule (see sections 166 and 168),....
...
166 Lump sum rule
(1) This is the rule relating to the payment of lump sums by a registered pension scheme to a member of the pension scheme ("the lump sum rule").
Lump sum rule
No lump sum may be paid other than—
(a) a pension commencement lump sum,
(b) a serious ill-health lump sum,
(c) a short service refund lump sum,
(d) a refund of excess contributions lump sum,
(e) a trivial commutation lump sum,
(f) a winding-up lump sum, or
(g) a lifetime allowance excess lump sum.
(2) For the purposes of this Part, a person becomes entitled to a lump sum under a registered pension scheme—
(a) in the case of a pension commencement lump sum, immediately before the person becomes entitled to the pension in connection with which it is paid ..., and
(b) in any other case, when the person acquires an actual (rather than a prospective) right to receive the lump sum.
(3) Part 1 of Schedule 29 gives the meaning of expressions used in the lump sum rule.
In Schedule 29, para 1 of Part 1 defined a "pension commencement lump sum". It is sufficient to set out part of the definition:
"For the purposes of this Part a lump sum is a pension commencement lump sum if—
(aa) the member becomes entitled to it in connection with becoming entitled to a relevant pension ...,
(b) it is paid when all or part of the member's lifetime allowance is available (but see sub-paragraph (3A)),
(c) it is paid within the period beginning six months before, and ending one year after, 4 the day on which the member becomes entitled to it,
(d) it is paid when the member has reached normal minimum pension age (or the ill-health condition is satisfied), ...and
(f) it is not an excluded lump sum (see sub-paragraph (4))."
Open Market Option
- An OMO allows a person with accumulated pension savings to choose their annuity provider, rather than take the rate offered by their pension provider. OMOs were introduced by sect 26(1) of the Finance Act 1978 in relation to retirement annuity contracts. When personal pension plans replaced retirement annuity contracts, the OMO provisions were contained in sect 622 of the Income and Corporation Taxes Act 1988 ("ICTA 1988"). Sect 634 of the ICTA 1988 provided that, in relation to personal pension schemes: "the annuity must be payable by an authorised insurance company which may be chosen by the member".
- Sect 29(3)(b) of the 1993 Act specified that any annuity in relation to protected rights had to be provided by an insurance company chosen by the member. Sect 29(4) further stated that a member is only to be taken to have chosen an insurance company if he gave notice of his choice within the prescribed period and in the prescribed manner.
- On 1 September 2002, FSA Rules introduced a requirement for members to be expressly informed prior to retirement of the OMO for the purchase of an annuity.
THE SETTLEMENT AND SUBSEQUENT CORRESPONDENCE
- In addition to an increase in the pension he was receiving, and payment of a lump sum for the shortfall between 1993 and 1996, the Settlement contained provisions governing payment for the future, setting out the rates of annual increase. These provided that the GMP element of Mr Ainslie's pension would be revalued by 8.5% compound each year to State retirement age, and the balance would increase in line with inflation, with a maximum of 6% and a minimum of 3%.
- Further, the redress offer set out the current position regarding the PRF, as follows:
"In addition, you have a Protected-Rights policy which as at 1 November had a fund value of £13,200.40. This must be used at retirement to buy a pension for you increasing in payment at a fixed rate of 3% per annum compound, to be followed on your death by a pension of one half payable only to your legal spouse at that time."
The terms of the offer then provided as regards this PRF element:
"From State Pension Age, the Protected Rights element of your benefits will come into payment and there will be a corresponding reduction in the Non-Protected Rights pension in payment at the time. As with your previous scheme, the gross annual amount you receive will be unchanged."
- Since entering the Settlement, there has been extensive correspondence between Mr Ainslie and SLFC. Given the volume of correspondence supplied with the submissions of both sides, and which itself does not constitute the entirety of the correspondence, I shall refer only to those letters most material to the points raised in this appeal.
- On 10 June 2003, SLFC wrote to Mr Ainslie, apparently following a query by him regarding the rate of increase applied to his pension. The letter stated:
"When I last wrote to you on 28 March you were informed that the GMP element of your Annuity had been increased by 3% from 1 March 2003. This I am afraid is not the case as there should have been no change in the way in which we increased the GMP element of your Annuity. We should have escalated the GMP element from 1 April by 8.5%.
The increase on your GMP element will only alter when you decide to vest your Protected Rights, which you can defer up to age 75."
- On 23 February 2006, SLFC wrote to Mr Ainslie, in response to a request by him for various information regarding his pension policy. That letter included the following statement regarding the forthcoming legislative changes:
"One of the changes coming into effect from 6 April 2006 will allow up to 25% of a Protected Rights policy to be taken in the form of tax-free cash. Should you select to take some tax-free cash, this would result in the amount of pension becoming paid to you being smaller than is presently the case. Should you not take any tax-free cash, the amount of pension in payment would continue unaltered."
- On 9 August 2006, SLFC wrote a long letter in response to various issues raised by Mr Ainslie. It is appropriate to quote at some length from that letter:
"Basis of Redress Contract
The intention of the redress offer was to replicate, as far as possible, the benefits you would have received had you remained in the Courage Scheme. Thus, that part of the annuity increasing at 8.5% represents the GMP you would have had from the Scheme. It is not a Protected Rights (PR) benefit as your transferred PR policy remains unvested.
In my 28 June letter, I noted that the offer makes perfectly clear that, come State Pension Age (SPA), the Protected Rights (PR) element of your benefits would come into payment and there would be a corresponding reduction in the Non-Protected Rights pension in payment at the time.
Some discussion could exist over the definition of SPA. It is clear that as far as an occupational pension scheme (OPS) is concerned, that age is definitely 65. Under the personal pension regime, it could have a wider interpretation but, as the offer was to replicate as far as possible OPS benefits, the intention (whether or not actually stated) would have been age 65.
Given that the redress was aimed at mirroring the Courage Fund and that this is exactly what would have happened under Scheme benefits, it was correct to reduce the escalation rate at age 65. However, albeit contrary to the intentions of the offer, you have secured the agreement of the annuity provider to alter the terms of the offer. I agree there is nothing to be gained from any attempt to change the position now.
We have since established that, right or wrong, the escalation under the "GMP" portion of your annuity will remain at 8.5% until the PR benefit is vested.
There are three scenarios which would lead to the vesting of the PR policy and, upon this happening, the escalation rate will change. The three events are 1) your instruction to [SLFC] to vest, 2) your attaining age 75 and, c) your death before age 75.
When the PR policy is vested, 8.5% escalation on the annuity will cease. The PR fund will be used to purchase an annuity escalating at 3%. The balance of the annuity will escalate at RPI capped at 6%. If vesting takes place before your death, the total annuity being paid to you will not change at the date of vesting.
Vesting Illustrations
When we talked about the vesting illustrations issued to you recently, I explained that these documents were in a standard format and therefore applicable to virtually every investor. In your case, however, there is a legal contract between yourself and [SLFC] and this overrides certain aspects of the wording of the illustrations. The restrictions are clearly set out in the offer and acceptance and have been covered many times in subsequent correspondence.
In fact, all that the illustrations actually convey to you is an indication of what I have outlined above namely, what the "replacement" PR annuity may be.
As made clear in the offer and acceptance, no additional benefit over and above that you currently receive will be payable in any of the three scenarios outlined above. It follows, therefore, that there is no Open Market Option available and, more importantly, no further annuity to increase the sum in payment, other than by escalation.
...
Issue of any inappropriate document or inaccurate information to a policyholder, which may indicate that the individual may be entitled to any benefit greater than his actual entitlement, does not confer any legal right to the inappropriate benefit or option.
... At risk of stating the position once too often, there will be no more money resulting from the vesting of your PR benefit."
- The references in that letter to "vesting illustrations" and "inappropriate document" appear to refer to the standard illustrations sent as part of a summary of plan benefits by the administrators of a pension scheme to members each year. In any event, it is clear that Mr Ainslie received such communications, to which he refers, each year thereafter between 2007 and 2012. The 2012 document that is furnished with his written submissions by way of example is in the form of a letter addressed to him dated 31 January 2012 that quotes his policy number and states that it is enclosing the "Annual Plan Statement" for his pension plan. The one page letter is followed by printed "Notes" under various sub-headings. Under the sub-heading "Contracting-out (Protected Rights)" it states:
"The Protected Rights section of your pension provides a means of replacing (or "contracting-out" of) the State Second Pension (S2P) with a personal pension in your own name..... Up to 25% of the Protected Rights fund may now be taken as tax free cash."
- It appears that it was in reliance on such a statement that on 12 February 2010, Mr Ainslie wrote to SLFC as follows:
"I see from the attached statement[1] that I can draw 25% of this fund tax free if invested now. Can you confirm this please and the exact effect on my present annuities if you invest the balance. I think the income from the 75% replaces some present income?"
- SLFC responded to this by letter from Mr Grant Morgan of its Technical Operations, dated 18 February 2010:
"Thank you for your letter and enclosures dated 12 February 2010. The agreement we made in 1996 regarding the advice to transfer from the Elders Senior Executive Fund (via the Courage Staff Fund) specified that the protected rights plan "must be used at retirement to buy a pension for you increasing in payment at a fixed rate of 3% per annum compound". Therefore, as a result of our agreement, it is not possible for you to receive any of your protected rights as tax-free cash. A copy of our original offer letter and your signed acceptance is enclosed for your convenience.
Due to changes in pensions regulations since our agreement, it is now normally possible to take up 25% of the value of protected rights plans as cash. Therefore the wording on our personal pension plan annual statements includes an explanation of how much tax-free cash can be taken from protected rights plans. However, this does not apply to your plan."
- Mr Ainslie evidently wrote to SLFC raising this matter again on 6 May 2010, eliciting in response a further letter from Mr Morgan dated 11 May 2010. The second paragraph of that letter was in the same terms as that of the letter of 18 February that I have quoted, with the additional sentence: "I can confirm that this remains our position". The letter continued:
"I appreciate that the current regulations now allow for tax free cash to be taken from protected rights plans. However, the redress that you accepted was calculated on the basis that all the remaining protected rights fund would be payable as an annuity, and a reduction of an equivalent amount would be applied to your existing non protected rights annuity. Allowing you to take tax free cash would effectively result in us paying out additional redress."
- Mr Ainslie replied on 17 May 2010, noting that his view remains that the Settlement reflected the prevailing legislation and not a contractual obligation, so that the conditions of the Settlement should now reflect the change in legislation.
- Mr Ainslie does not suggest that, other than receipt of the Annual Plan Statements with the content referred to above, there were any further material developments before 2012. In that year, following receipt of his Annual Plan Statement, Mr Ainslie wrote to SLFC on 12 February. Although that letter is not in any of the bundles before the court, its material terms are evident from SLFC's response of 20 February from their Technical Operations department:
"I write in reply to your letter dated 12 February 2012, in which you requested "the necessary papers to release 25% of the plan proceeds to yourself, "and vest the rest with SLFC".
I can confirm that our position on the matter of drawing a Tax Free Lump Sum from the plan has not changed from that expressed by my colleague Grant Morgan, who in his letter dated 11 May 2010 stated "as a result of our agreement, it is not possible for you to receive any of your protected rights as tax-free cash.
I therefore enclose the requested forms to vest this plan but cannot agree to your request to pay 25% of the plan value to yourself."
- Somewhat curiously, on the same date, 20 February 2012, SLFC sent a separate letter to Mr Ainslie in response to his "recent enquiry regarding pension benefits available to you." That letter came from the Customer Services department and states that Mr Ainslie could buy a pension income from another provider, expressly referred to as the "Open-Market Option."
- Mr Ainslie pressed his concerns with SLFC, who treated the matter as a formal complaint: see SLFC's acknowledgment dated 24 February 2012. Whether or not Mr Ainslie had intended to make a formal complaint at that stage really does not matter. In any event, by a very full letter dated 14 March 2012, Ms Hewitt, as the company's complaints adjudicator, set out SLFC's "decision." That letter includes the following:
"I agree the annual plan statements issued to you since January 2006 do have generic notes attached. These notes state 'Up to 25% of the Protected Rights fund may now be taken as tax free cash'.
As explained in our letter of 11 May 2010, current regulations do now allow for tax free cash to be taken from protected rights plans. However, you accepted our redress offer for this plan on 12 December 1996. This offer was calculated on the basis that the remaining Protected Rights fund would be payable as an annuity. This meant that a reduction of an equivalent amount would be applied to your non Protected Rights annuity.
I cannot agree that the offer you accepted on 12 December 1996 did not [sic] allow 25% of the fund to be taken as [TFCLS] or that the fund could not be taken. The acceptance form specified that the sum of £33,113.70 was available to you immediately without the deduction of tax. This was paid to you on 3 January 1997. If we now allowed you to take [TFCLS] from this plan, we would effectively be paying out additional redress.
...
In answer to your questions about vesting with another provider, I can confirm that based on our original agreement, we are not prepared to allow an Open Market Option for this plan."
- Although Mr Ainslie, in the helpful timetable he has provided, indicated that SLFC rejected his position on 24 April 2012, I think their letter of that date goes no further than the decision letter of 14 March 2012.
THE DETERMINATION
- The jurisdiction of the Pensions Ombudsman is set out in sect 146 of the 1993 Act. Insofar as material, that provides:
"(1) The Pensions Ombudsman may investigate and determine the following matters:
(a) a complaint made to him by … an actual … beneficiary of an occupational personal or pension scheme who alleges that he has sustained injustice in consequence of maladministration in connection with any act or omission of a person responsible for the management of the scheme;
...
(c) any dispute of fact or law in relation to an occupational or personal pension scheme between:
(i) a person responsible for the management of the scheme, and
(ii) an actual … beneficiary."
- The remedies the Pensions Ombudsman may impose in a determination are set out in sect 151 of the 1993 Act. Sect 151(2) provides:
"Where the Pensions Ombudsman makes a determination under this Part ..., he may direct any person responsible for the management of the scheme to which the complaint or reference relates to take, or refrain from taking, such steps as he may specify ..."
- Here, Mr Ainslie contends that as a matter of law SLFC was wrong to refuse his request for a TFCLS or an OMO.
(1) The TFCLS
- It is common ground that as at the time of the Settlement, a TFCLS option was not available for a PRF. The Determination notes that this was the assumption underlying the redress offer, which was made on the basis that the whole of the PRF would be used to purchase a second annuity. The Determination held that if part of the PRF was taken as a lump sum, it would be impossible to provide an accurate adjustment to the amount of the pension in payment to reflect that.
- The DPO noted that the key point was whether a new contract was formed allowing Mr Ainslie to take a TFCLS and considered that it was not. The basis of that view is briefly stated in the letter of 20 December 2012, and appears to be that SLFC had no intention to create legal relations, and no such intention can be attributed to "the parties". Although not expressed as clearly as it might have been, I regard that as a reference to the question whether there was an agreement by SLFC to vary or amend the terms of the Settlement.
- I think it is clear that:
i) the terms of the pension to which Mr Ainslie was entitled from SLFC were governed by the Settlement, which overrode any provisions in any SLFC scheme;
ii) the Settlement did not provide for a TFCLS to be taken out of the PRF since that was not permitted by law as at 1996; and
iii) the basis of payment of a future pension under the Settlement was that once the PRF vested and came into payment, the non-protected rights pension already in payment would be reduced accordingly, such that the gross annual amount received by Mr Ainslie would remain unchanged.
- I do not see that the change in the law in 2006 in itself could result in a variation of this contract. In the first place, as noted in the Determination, a TFCLS is not an automatic statutory right. That is, in my judgment, clear from the statutory definition of a "pension commencement lump sum" which applies only if the member becomes "entitled" to that sum in connection with his pension. In other words, a pension contract or scheme could be amended to permit such a TFCLS to be taken, but the pension provider was not under an obligation to do so.
- As noted above, Mr Ainslie's position was specifically governed by the contract set out in the Settlement. In my judgment, the letter he received from SLFC dated 9 August 2006 made clear that SLFC did not intend the changes in the legislation to give him any greater benefits. That would therefore preclude his taking a further TFCLS.
- I accept that the annual communications that Mr Ainslie received from SLFC thereafter could, in isolation, have given him to understand that a TFCLS was an available option for him. But when he raised the matter expressly in 2010, SLFC stated unequivocally that they were not offering him that option.
- The test of whether a contract has been amended or varied is objective, taking into account all the surrounding circumstances. In the context of the correspondence of 2006 and 2010 quoted above, I regard it as clear that when Mr Ainslie received his Annual Plan Statement dated 31 January 2012, the attached notes could not objectively be regarded as an offer to vary his own specific contract with SLFC to permit him to take a TFCLS. The notes are clearly in general terms: see for example the paragraph immediately above that Contracting-out (Protected Rights) that is headed "Non UK Residence" which addresses the possibility that the reader is not a UK Resident (which had no application to Mr Ainslie). In their letter of 9 August 2006, SLFC had expressly pointed out to Mr Ainslie that the terms of the Settlement overrode the standard format of communications sent to scheme members generally. And specifically as regards a TFCLS, Mr Ainslie had been told expressly in the letters of 18 February 2010 and 11 May 2010 that SLFC were firmly of the view that this was not permitted under the Settlement and indeed was contrary to the basis on which SLFC entered into the Settlement.
- The DPO refers in the Determination to an intention to create legal relations as necessary for communications to give rise to a contract. That is basic contract law, and whether there was such an intention is to be judged objectively. Here, I agree with her view that the provisions in the Notes to the Annual Plan Statements do not, objectively considered in the light of the prior correspondence to which I have referred, evince an intention on the part of SLFC to vary the Settlement terms.
- Accordingly, in my judgment, Mr Ainslie's letter of 12 February 2012 cannot constitute the acceptance of such an offer so as to constitute a binding variation. The correct interpretation, in my view, is that Mr Ainslie's letter was an offer by him to have the Settlement varied in the light of the legislative changes so as to permit him to take a TFCLS. By their response, SLFC expressly rejected that.
- I have considered the terms of the letter of 23 February 2006 (see para 22 above), which I note is not referred to in the Determination. That was a personal not a standard form letter, and purports to be a statement that Mr Ainslie's contract was varied to permit a TFCLS to be taken out of the PRF. But that statement was superceded by the letters of 18 February and 11 May 2010. Since the Settlement was a contract, I consider that the letter of 23 February 2006 is properly to be regarded as an offer to vary its terms, and I reject the argument of SLFC to the contrary. I also consider that as regards that particular letter, it cannot be said that, objectively, SLFC showed no intention to create legal relations. However, it is fundamental that an offer can be withdrawn before it is accepted: see Chitty on Contracts (31st edn, 2012) Vol I, para 2-088. Here, I find that the two letters of 2010 to which I have referred clearly constituted such a withdrawal. For the same reason, I consider that there is no possibility of SLFC being estopped by the statement in their letter of 23 February 2006. Accordingly, while that letter does SLFC little credit, I do not think it can avail Mr Ainslie in his case and, albeit on different grounds, it does not provide a basis to set aside the Determination.
- Moreover, that stance appears to me to reflect the underlying basis of the Settlement. If Mr Ainslie were permitted to take a TFCLS out of the PRF, such that only 75% of the PRF was used to buy an annuity, then if only that new (and obviously lower) pension that came into payment was deducted from the non-protected rights amount already in payment so that Mr Ainslie continued to receive the same gross annual pension thereafter, he would achieve a windfall. I note that this indeed appears to have been the approach suggested by Mr Ainslie in his inquiry of 12 February 2010: para 25 above. An alternative would be to calculate the additional annuity that would have been paid had the 25% also been devoted to its purchase, and set off that notional pension as a continuing deduction. I believe that this was a proposal put forward by the PO Investigator. However, the amount of the notional annuity would presumably be calculated based on Mr Ainslie's actuarial life expectancy, and depending on his actual life, and thus how long the pension remained in payment, SLFC might as a result be worse off. On that basis, they rejected that proposal. Whether or not that proposal represented a reasonable approach which SLFC could have accepted, such an arrangement is not contemplated by the Settlement. It would involve a variation of the Settlement terms and I do not see that they were under any legal obligation to accept such a variation. In my judgment, the DPO was accordingly correct in her conclusion that no such contract was formed. Her decision not to direct SLFC to accept the PO Investigator's proposal was well within her discretion and discloses no error of law.
- Mr Ainslie relies on the fact that although the Settlement provided for the PRF to come into payment on State pension age, in 2003 SLFC stated that he need not seek to have the PRF vest until he was 75: see para 21 above. SLFC have subsequently said that was a mistake, but agreed to adhere to it. That has of course been to Mr Ainslie's benefit. However, whatever the reason for SLFC having written that letter of 10 June 2003 and its subsequent stance regarding the vesting age, that gave rise to a wholly separate variation of the Settlement. That of course demonstrates that the Settlement could be varied by mutual agreement. But as I believe Mr Ainslie recognises, the fact that SLFC agreed to one change does not oblige them to agree to another. The agreement to change the age of vesting cannot alter the legal effect of the communications between the parties regarding the distinct question of a TFCLS.
(2) The OMO
- On the papers before the Court, Mr Ainslie does not appear to have pursued the question of an OMO with SLFC until recently. Hence his letter of 12 February 2012, which requested a TFCLS, sought to vest the pension with SLFC not a third party provider. For the reasons set out below, this is unsurprising.
- The letter from the PO Investigator of 13 September 2012 states of the Settlement that it made no provision for an OMO "reflecting legislation at the time". That is not correct: an OMO was in effect in 1996: see para 15 above. But that is expressly recognised in the DPO's letter of 20 December 2012 and so this error does not vitiate the Determination. Indeed, the basis of the Determination on this point is founded on that basis:
"The option to buy an annuity in the open market was in effect at the time the redress contract was agreed, so you should have reasonably known that by agreeing to the contract with SLFC, your option in respect of the vesting of the Plan would be restricted by the nature of the contract you were signing."
- An option is precisely that: so Mr Ainslie was free to decide not to take it. Normally, that decision would be made at the time when the pension rights vest. However, I accept the submission for SLFC that a member of a scheme may waive this right and I see no reason why such a waiver could not be made at the time of the Settlement.
- I would generally expect such a waiver of a statutory right to be expressly stated. However, the reality here was unusual. It was fundamental to the Settlement that once the PRF vested, the amount of the pension already in payment would be reduced by the amount of the resulting annuity, so that the gross annual amount paid to Mr Ainslie remained the same. The purpose of an OMO is of course to enable the beneficiary to seek a better rate of annuity from a third party. But here, achieving a higher rate on the annuity bought with the PRF would simply cause a correspondingly greater reduction in the pension already in payment from SLFC. Therefore, it would not bring Mr Ainslie any more money. And it would create the administrative inconvenience of the other pension provider keeping SLFC informed as to the amount of pension it was paying Mr Ainslie, presumably with the authority of Mr Ainslie to pass on that information. In these unusual circumstances, I think that the terms of the Settlement implicitly excluded the exercise of an OMO. That is not quite how the DPO expresses her conclusion, but I think it is to the same effect.
- If I am wrong on that, and the terms of the Settlement are insufficient to exclude the OMO, then Mr Ainslie would in theory be entitled to exercise it once the PRF vests. But given the set-off of the resulting annuity against his pension in payment from SLFC, as I have just explained this would bring no benefit to Mr Ainslie and would only create administrative inconvenience. Accordingly, if that had been my view, I would have found that it would not be appropriate for there to be a direction under sect 151(2) of the 1993 Act to SLFC to permit Mr Ainslie to exercise an OMO.
CONCLUSION
- I note that Mr Ainslie did not bring a complaint on the basis of maladministration. Had he done so, the Pensions Ombudsman would have had to consider the conduct of SLFC in writing to Mr Ainslie with incorrect information and then issuing annual statements that inaccurately reflected the basis of his pension with them. But that could not have given Mr Ainslie the right to either a TFCLS or an OMO, which is what he has asked for.
- Mr Ainslie's complaint, on the two matters at issue in this appeal, was therefore founded on alleged legal rights that he claims he was denied. As explained above, I find that he did not have the rights he has claimed, and his appeal against the Determination is accordingly dismissed.
- In contrast to most appeals to the High Court, there is currently no requirement for permission to appeal against determinations of the Pensions Ombudsman. However, in this case, given the terms of the communications from SLFC, I would have given permission had it been required. Although SLFC had clarified the position to Mr Ainslie on several occasions, it had also contributed to the confusion by sending him a sequence of communications that were inappropriate to his pension entitlement and at times contradictory. I shall take that into account if any application is made for costs.
