Royal Mail Pensions Trustees Ltd v Gosling

On 27^th November 2007 I had before me an appeal from the decision of Mr David Laverick, the Pensions Ombudsman (“the Ombudsman”), given on 30^th April 2007, in which he found for the Applicant, Mrs S. Gosling (“Mrs Gosling”) in her dispute with the Royal Mail Pensions Trustees Limited (“the Trustees”), which company is the corporate trustee of the Royal Mail Pension Plan for employees of the Royal Mail. Mrs Gosling was a part-time employee of the Royal Mail. At the conclusion of his determination the Ombudsman directed that Mrs Gosling should be credited with 4 years and 183 days of reckonable service under the Royal Mail Pension Scheme (“the Scheme”) if she continued to have deducted from her part-time salary 9% of that salary. The Scheme contained provisions empowering members of the Scheme to purchase additional pension rights up to a maximum allowed by the Inland Revenue. These provisions were known as Addplan. At the conclusion of the argument I indicated that I would allow the appeal but would give my reasons for doing so later in writing. These are those reasons.

Between paragraphs 3 and 12 of his written determination, the Ombudsman sets out the material facts in the case upon which he relied as follows:-

“3.

Mrs Gosling joined the Royal Mail Pension Plan (then known as the Post Office Pension Scheme – POPS) in August 1994.

4.

Having applied for details of “added years”, she received an illustration (the Illustration) from POPS in October 1997. This Illustration showed that if Mrs Gosling was to contribute an additional 9% of pensionable pay to Addplan between then and her retirement date in August 2007, she would receive a further 4 years and 183 days of Scheme service. In addition, the Illustration showed that her salary at the date of illustration to be £7,021.05. A note in the illustration says:

‘As Addplan increases your main scheme benefits, you may wish to refer to your POPS booklet and also POPS leaflet No 2.’

5.

Mrs Gosling signed an application form on 10 November 1997 which stated:

‘I authorize the deduction of 9% per week/month from my wages/salary in addition to my standard contributions to buy 4 years 183 days.’

The deduction will start week/month ending 11/10/1997. If there is any delay in the deductions starting, I agree to the payment of additional contributions to clear the arrears.

I understand that my contributions to ADDPLAN will continue until my normal retirement at age 60 or until I leave POPS if this is earlier.’'

6.

POPS leaflet No. 2 titled "Purchase of Added Years by Addplan" includes:

6.1.

Under the section headed “Who can join?”, it states:

“Part-time members may buy Added Years. However, as they are buying reckonable service, the amount of PENSIONABLE SERVICE bought depends on the hours worked throughout the period of purchase”

6.2

"Reckonable Service" is defined as service on which pensionable service is calculated. "Pensionable Service" is defined within the POPS rules as:

"Service on which benefits are calculated. If your service is entirely full-time, pensionable and reckonable service are identical. If you have any part-time service, it counts as a proportion of full-time service, i.e. reckonable at its normal length multiplied by the proportion which part-time hours bear to full-time hours. "

7.

The POPS PLUS booklet includes:

"Who is Addplan for?

Addplan is open to all members of the Post Office Pension Scheme (POPS) who are likely to have less than the maximum allowable number of years' service counting towards their pension. It is designed for those who want to pay extra contributions to buy extra years of service and increase the total benefits they will receive from POPS at retirement.

What Addplan offers

• Increased main scheme benefits

-

extra pension when you retire

-

guaranteed pension linked to your pay

-

incresed [sic] widow's/widower's and children's pension

• Tax relief on your contribution

How Addplan works

You pay a contribution either regularly from your pay or by cheque as a lump sum. The amount you need to pay depends on your age now and the number of extra years you want to buy.

Example

A man is aged 35 and the pay on which his contributions are based is £7,000 a year. He wants to buy three extra years in POPS. The cost will be O. 79 per cent for each year, so to buy three years it will cost a total of 2.37 per cent of his contributory pay each year up to age 60. Therefore his gross contribution to Addplan for the current year will be 2.37 per cent of £7,000 which is £165.90. The net contribution will be less than this amount, because of the application of tax-relief.

In return for his extra contributions, he will receive a further three years worth of main POPS pension benefits when he retires at age 60.

The cost of buying extra years by a lump sum will be advised on request.

What benefits will be provided?

Your main POPS pension benefits will be increased by the number of extra years service you have bought through Addplan. This means extra guaranteed pension for life for you and improved security for your dependents. More information about your main scheme benefits can be found in the POPS booklet.”

8.

Mrs Gosling received a statement of her pension benefits in March 2003 which showed that she had accrued to date only 1 year 42 days additional service. She queried this and made a complaint through POPS's internal dispute resolution (IDR) procedure.

10.

As part of the IDR procedure POPS offered to cancel her Addplan contract and refund all premiums. The offer was not accepted and is no longer available.

12.

Before starting to contribute to Addplan in November 1997, Mrs Gosling saw an independent financial adviser and undertook a full review of her finances. In respect of POPS, the adviser said:

“I have now had the opportunity to review the documentation and would recommend that you select the Addplan option - i.e. the purchase of added years. This will substantially enhance the benefits that will be payable to you under the main scheme at age 60. According to the documentation you are eligible to purchase 4 years 183 days which will cost an additional 9% of your pensionable pay. Based on a salary of £7,021 this will mean be (sic) approximately £40 per month after basic rate tax relief. This together with the 6% you are paying into the main scheme means you are paying the maximum allowable contribution into the scheme."

11.

Mrs Gosling's complaint was rejected under the IDR procedures. She also made complaints about receiving incorrect illustrations and being given incorrect information by POPS's Pension Service Centre. POPS has acknowledged and apologised for these errors and corrected them. They have also offered Mrs Gosling a distress and inconvenience lump sum of £35. This offer was also not accepted and has now also lapsed.

12.

Mrs Gosling remains an active member of the Addplan Scheme.”

It is not in issue that the statement of pension benefits given to Mrs Gosling in March 2003, described at paragraph 8 of the Ombudsman’s description of the facts, conformed to the provisions of the Scheme as provided for in the Scheme rules (“the Rules”), in particular at Schedule 4A of the Rules. Section C paragraph 1 of the Rules provides:-

““Pensionable service” means …

(2)

For a Member who is or has been a Part-time Member his Reckonable Service adjusted so that each part-time period of Reckonable Service reckons at its full length multiplied by the proportion which part-time hours bear to full-time hours …

“Reckonable Service” means Service as a Member …together with any additional period secured by … (2) AVC s [additional voluntary contributions] (under Rule 3C)

3C Additional Voluntary Contributions by Members

A Member’s AVCs may, at his option, be used to purchase additional Reckonable Service in accordance with such terms as the Trustees decide and notify to the Member. …”

As the Ombudsman’s description of the facts sets out the “Illustration” which was given to Mrs Gosling in October 1997, at the bottom of its second page under “Further Information” referred Mrs Gosling “to your POPS booklet and also POPS leaflet No. 2”. The Ombudsman quotes from the POPS leaflet No. 2. He also quotes from a third publication the POPSPLUS booklet. He does not however quote from the POPS booklet in particular the passage which starts at the bottom of page 15 of that booklet which, under the heading “OTHER INFORMATION Part-time Employment”, states:-

“You may still be a member of POPS irrespective of the number of hours you are contracted to work. If you work less than the full-time hours specified in the Post Office for your grade then you will be a part-time member of POPS. Your pension benefits are calculated on the same basis as a full-time member i.e. 1/60 of final pensionable pay for each year of pensionable service, except that:

(a)

final pensionable pay is generally calculated using the full-time equivalent for your grade not your part-time rate;

(b)

pensionable service counts as a proportion of full-time service, i.e. reckonable at normal length multiplied by the proportion part-time hours bear to full-time hours, so for example if you worked 21 hours for 10 years and full-time hours were 42 your pensionable service would be 21/42 x10 = 5 years.”

It was Mrs Gosling’s evidence that she was never shown a copy of the POPS booklet or the POPS leaflet No. 2. However it seems from paragraph 10 of the determination that she took the advice of an independent financial adviser. It appears from the passage from his written report quoted by the Ombudsman that, before reporting, he “had the opportunity to review the documentation”. The Ombudsman does not state whether that documentation extended to the Rules, the POPS booklet and the POPS leaflet No. 2. It seems to me that if he had done so he must have realised the way in which the Rules reduced Reckonable Service in respect of part-time workers, by the proportion which their hours worked under their contract terms bore to the hours worked by a full-time employee, and that it followed that “purchased” Reckonable Service would receive the same treatment in the process of calculating Pensionable Service as hours of Reckonable Service actually worked.

The Ombudsman set out his conclusions and his consequent Direction between paragraphs 15 and 19 of his determination as follows:-

“15.

Mrs Gosling entered into a contract with the Trustees when she agreed and started paying contributions to Addplan. The terms are set out in the Illustration and the application form that she completed in November 1997. These clearly state that Mrs Gosling would pay an additional 9% of her salary each month in exchange for an additional 4 years 183 days of pensionable service. The Illustration sets out Mrs Gosling’s part-time salary. There is nothing in those terms which gives any indication that because Mrs Gosling is a part-time employee 9% of the quoted salary would provide any less service than was specified. Nor is there any indication either within that documentation or more generally in the documentation provided by the Scheme that in order to be credited with that amount of service she would need to pay 9% of the equivalent full-time salary. [Emphasis added by me]

16.

I accept that note 5 in the notes to the Illustration referred Mrs Gosling to the POPS booklet and the leaflet No 2. However, I can see nothing in those documents or the POPSPLUS booklet which would indicate that the contract was other than stated in the third sentence of paragraph 15.

17.

The POPS leaflet No 2 clearly states that the amount of “Pensionable Service” bought depends on the hours worked throughout the period of purchase. It also sets out the definition of “Pensionable Service”, as defined under the POPS rules, as being service on which benefits are calculated and that part-time service counts as a proportion of full-time service. But again I see nothing in that leaflet to indicate that Mrs Gosling was buying anything other than the 4 years 183 days additional service as shown on the Illustration.

18.

The position would have of course been different had the illustration quoted the equivalent full-time salary for her post. But it did not. The only salary figure shown on the Illustration is Mrs Gosling’s part-time salary.

19.

Whether by error or design, the Trustees notified the member that her proposed contribution based on that stated salary would buy her 4 years 183 days added service in the Scheme. The Trustees need to honour that statement. Provided Mrs Gosling maintains her contributions until her Minimum Retirement Date at the rate of 9% of her part-time salary she should be credited with 4 years 183 days as set out on the Illustration.”

The Ombudsman’s analysis of the position at law of Mrs Gosling as against the Trustees resulting from the facts which he found is set out at paragraph 15. This is that Mrs Gosling, when she signed the Addplan application in November 1997, entered into a contract with the Trustees on the terms to be found in the illustration and the notes under it. In particular the contract was summarised in the third sentence of paragraph 15 in the words “these clearly state that Mrs Gosling would pay an additional 9% of her salary each month in exchange for an additional 4 years 183 days of pensionable service.”

My first comment is that neither the illustration nor its notes actually refers to “pensionable service” but rather to “reckonable service” which Mrs Gosling was acquiring by the deductions from her wages. But more importantly the terms summarised by the Ombudsman are insufficient by themselves to amount to a contract for the provision of pension benefits which is what Mrs Gosling was attempting to obtain. For that purpose it was necessary to understand what was meant by “reckonable service” and what effect the acquisition of additional reckonable service would have on the benefits obtainable by Mrs Gosling on retirement. In order to discover that it was necessary to have access to the provisions of the Scheme and in particular the Rules. The effect of those rules was summarised in the POPS booklet and the POPS leaflet No 2, in particular, in the extract from the POPS booklet which I have set out above.

Thus the representation by the Trustees to Mrs Gosling contained in the illustration that the deductions from her wages that she was authorising would buy her 4 years and 183 days additional reckonable service must surely invite the question from Mrs Gosling or, perhaps more importantly, Mrs Gosling’s financial adviser “but what does that mean for me/my client by way of increased pension benefit?.” The answer to that question could only be obtained by consulting the relevant Scheme rules in so far as they dealt with part-time workers and the purchase of additional benefits by such workers under the Addplan provisions.

In my judgment, as a matter of construction, the provisions of the illustration and the notes under it, together with Mrs Gosling’s signed POPSPLUS Addplan application, do not constitute a contract for the provision of pension benefits which excludes the provisions in the Rules which require that Reckonable Service purchased by a part-time worker be proportionately reduced in proportion as that worker’s contract hours bear to the hours of a full-time worker.

At paragraph 2 of his determination the Ombudsman says this:-

“2.

Some of the issues before me might be seen as complaints of maladministration while others can be seen as disputes of fact or law and indeed some may be both. I have jurisdiction over either type of issue and it is not usually necessary to distinguish between them. This determination should therefore be taken to be the resolution of any disputes of facts or law and/or (where appropriate) a finding as to whether there has been maladministration and if so whether injustice has been caused.”

In the result the Ombudsman directed:-

“Whether by error or design, the Trustees notified the member that her proposed contribution based on that stated salary would buy her 4 years 183 days added service in the Scheme. The Trustees need to honour that statement. Provided Mrs Gosling maintains her contributions until her Minimum Retirement Date at the rate of 9% of her part time salary she should be credited with 4 years 183 days as set out on the Illustration.”

The Ombudsman’s direction, which has the effect of giving Mrs Gosling 4 years and 183 days of additional Pensionable Service as if she was earning the salary of a full-time worker confers upon her a pension entitlement, in exchange for the 9% deductions from her part-time salary which she authorised, substantially greater than the Rules allow in the events which actually took place.

Although there is some uncertainty over what documents Mrs Gosling’s Independent Adviser had before him, there are no substantial issues of fact in this case. At paragraph 15 of his determination the Ombudsman finds that Mrs Gosling entered into a contract with the Trustees. Since the parties must have intended a contract for the provision of pension benefits I have found that he was wrong to do so, on the basis that its terms are to be found in the illustration, and the notes under it, construed as excluding the provisions of the Scheme. It follows that the next question must be whether the Ombudsman’s direction is justified on grounds of maladministration.

As appears from paragraph 2 of the determination, no separate finding of maladministration is made or was intended by the Ombudsman to be made. Such a finding could only be made, it seems to me, on the basis that Mrs Gosling was misled by the terms of the illustration into entering into an arrangement the benefits of which were not as great as she was led to believe they were. She denied seeing any other of the Trustees’ documents.

In my judgment such a finding of maladministration would not be justified for the reasons set out in Mr Codling’s letter on behalf of the Royal Mail to Mrs Gosling dated 26^th April 2004 giving the result of the Royal Mail’s internal dispute resolution investigation. At no stage did either the Royal Mail or the Trustees set out to give advice to Mrs Gosling in 1997 as to whether or not she should embark on the acquisition of increased pension benefits by use of the Addplan Scheme under the Rules. It was up to her to make up her own mind as to whether or not to do so and for that purpose to satisfy herself about how this part of the Scheme worked and the benefits which would flow to her from it. As one would expect Mrs Gosling obtained professional advice before entering into the Addplan Scheme. The illustration drew her attention to the POPS booklet and the POPS leaflet No 2 to tell her about that Scheme. She did not have recourse to them. The POPS booklet contains a passage which I have set out above which describes the process of discounting Reckonable Service for the purpose of calculating Pensionable Service in respect of part-time employees under the Rules. Mrs Gosling’s professional advisers should certainly have required access to the leaflet and the booklet if not the Rules themselves. They may have done so. Had they done so, they should have been able to explain to Mrs Gosling the benefits to her which the proposed deductions from her salary would produce. She should not have embarked upon the Addplan Scheme without satisfying herself as to the extent of the increased pension benefits obtainable under it.

For these reasons it seems to me that this appeal should be allowed and the Ombudsman’s direction should be discharged.

If the parties wish to address me on the costs of the appeal, I will hear their submissions at a further hearing. On the assumption that they do not, my order for costs would be that Mrs Gosling should pay the Trustees’ costs resulting from a detailed assessment.