Grievson v Grievson & Ors

Calberto Ltd is a small family company in the engineering business. It is the participating employer in a pension scheme. The scheme was originally established in January 1990 as an executive pension for Mr Norman Grievson (“Norman”); a director of the company. It was subsequently converted into a Small Self-Administered Scheme. It was a money purchase scheme. Norman’s brother Mr Allen Grievson (“Allen”) applied to join the scheme in January 1996. On his application form he stated that he was to be appointed a “20% director” of the company. Norman and Allen are the only two members of the scheme.

By 2005 the two brothers had fallen out. On 21 April 2006 Allen asked Hazell Carr, the scheme administrators, to arrange for a transfer valuation. This request was passed on to Brewin Dolphin, who in turn passed it on Foden Baynes, Pension Consultants & Actuaries. Brewin Dolphin had asked Foden Baynes earlier in the month to provide them with the maximum fund that could be held for Allen, compatible with Inland Revenue approval, based on salary and service between 1 June 1995 and 31 March 1998. They provided Foden Baynes with details of the assets of the scheme. Foden Baynes e-mailed their response on 19 April saying that the maximum deferred pension to which Allen would have been entitled as at 31 March 1998 was £980; and that the maximum fund that could be held for him on that date was £21,750. Following Allen’s request for a transfer valuation, Foden Baynes explained on 25 April how they had arrived at their figure. Foden Baynes’ figure was referred to as the 2006 valuation.

Later in that year Norman contacted the Pensions Ombudsman questioning Allen’s eligibility to remain a member of the Scheme and his entitlement to a transfer value. That complaint was not pursued. In turn Allen wrote to the Pensions Ombudsman in August 2008 saying that he wanted to complain about the transfer value offered; and that he disputed the Foden Baynes calculations based on documentation and instructions to which he was not party. This led to a formal complaint to the Pensions Ombudsman on 2 April 2009. The grounds of the complaint were that the transfer valuation process had been unfairly prejudicial; and that the transfer value had not been calculated in accordance with previous actuarial valuations. In his letter in support of his complaint, Allen said that he had been provided:

“…with a figure that has not been calculated in accordance with previous actuarial valuations. I am therefore not being offered a correct transfer value for my share of the pension fund.”

He then set out the injustices that he alleged that he had suffered. They included:

“1)

I am being offered a valuation of £21750 plus my Prudential account amounting to £13419.93 whereas when calculated on the agreed actuarial basis the value of my share of the fund would exceed £250000.

2)

Having now reached my 60^th birthday I am not in a position to plan my retirement and pension entitlement.”

The Pensions Ombudsman did not uphold that complaint. Allen now appeals against that decision. It must be noted that Allen did not complain that the valuation had misapplied or misinterpreted the rules of the scheme. The thrust of his complaint was that his transfer value had not been calculated on the previously agreed actuarial basis.

Section 151 (4) of the Pension Schemes Act 1993 (“the 1993 Act”) gives him a right of appeal; but only on a point of law.

The starting point must be Allen’s legal entitlement to a transfer value. Section 94 (1) (a) of the 1993 Act provides:

“a member of an occupational pension scheme other than a salary related scheme acquires a right, when his pensionable service terminates (whether before or after 1st January 1986), to the cash equivalent at the relevant date of any benefits which have accrued to or in respect of him under the applicable rules”.

The “applicable rules” are defined by section 94 (2) as meaning the rules of the scheme, except where they are overridden by statute. The “relevant date” is also defined by section 94 (2) as the date when the member’s employment terminates or (if later) the date on which he applies to the trustees or managers of the scheme under section 95 requiring them to use the cash equivalent in one of the ways specified in that section.

Section 97 of the 1993 Act says that the cash equivalent is to be calculated in the prescribed manner; and provides for the making of regulations for that purpose. The relevant regulations are The Occupational Pension Schemes (Transfer Values) Regulations 1996. They were extensively amended with effect from October 2008; but the relevant regulation at the time of Allen’s request was regulation 7 (5) which said:

“(5)

Where a cash equivalent or any portion of a cash equivalent relates to money purchase benefits which do not fall to be valued in a manner which involves making estimates of the value of benefits, then that cash equivalent or that portion shall be calculated and verified in such manner as may be approved in particular cases by the trustees of the scheme and in accordance with methods consistent with the requirements of Chapter IV of Part IV of the 1993 Act.”

So the production of a transfer value involves a two stage process:

The pension scheme was sequentially governed by two sets of rules. The first were contained in (or annexed to) the original definitive deed; and the second were contained in (or annexed to) a deed of amendment which came into operation in January 2002. They contain the usual Byzantine series of definitions and clauses which make the reader constantly cross-refer from one provision to another. The following is a summary of the salient features of each.

I begin with the definitive deed and the original rules. It is clear from the recitals to the deed that (as one would expect) an important purpose of setting up the scheme was to obtain the approval of the Inland Revenue in order to attract the tax advantages that accrue to an approved pension scheme. The deed contains a power to amend the trusts created by the deed and the rules, but only if they do not prejudice Inland Revenue approval. Under the scheme pensions are payable to “Members”, as defined. A Member is “a person who is or has been an Eligible Employee and who has been admitted to membership.” An Eligible Employee is “a person in the service of a Participating Employer who has not passed the Normal Retirement Date”. Such a person may include a director. Although “service” in this definition is not spelled with a capital “S”, there is a definition of “Service” which means “whole-time service with any Participating Employer and includes holding the office of director of a Participating Employer”.

Rule 6 requires the trustees to keep accounts. These accounts include an account for each Member. Each Member’s account must be credited with contributions made either by that Member or the Participating Employer in respect of him. It must also be credited or debited with that Member’s proportion of any surplus or deficiency in the fund since the last valuation. This account is called a “Member’s Account”; but the definition of “Member’s Account” says that it is maintained for the purpose of calculating “notionally” the interest of each Member under the scheme. The definition goes on to say that:

“Notwithstanding the notional allocation of assets for benefit calculation purposes, all the assets remain assets of the common trust fund against which the rights of each Member lie.”

It is therefore necessary to look elsewhere to see what those rights are. Rule 7 gives the Member a right to a pension. The amount of the pension cannot exceed the Maximum Permitted Pension. This is governed by rule 31. In short a Member is entitled to 1/60^th of his Maximum Pensionable Remuneration for each year of Service. But his pension is capped at 2/3rds of that remuneration. Rule 31 allows for the possibility of a greater pension if it would not prejudice Inland Revenue approval of the scheme. In fact the Inland Revenue did permit larger pensions, but only where a member retired early because of ill-health. Thus the fund allocated to a Member in the Member’s account might be called upon to fund a pension larger than 1/60^th of remuneration per year of service; but only in the case of early retirement caused by ill-health. Maximum Pensionable Remuneration is also defined. It is the Member’s annual average salary and additional emoluments over a continuous period of three years in the last ten. In calculating that average, the amount actually paid may be uplifted by any increase in RPI.

As I have said, these rules were replaced in 2002. The basic structure of the new rules was similar to the original rules; but there were some changes. First the definition of “Service” was widened. It was defined as meaning “service in the employment of, or as an officer of, a Participating Employer”. The wider definition was thus not limited to directors: it extended to any officer. So it would include a company secretary. The trustees were still required to keep accounts, including a Member’s Account. This was dealt with by Schedule 5 rule 5. Rule 5.2 said that the calculation of a Member’s Account “affects only the calculation of his benefits and in no way gives him any right to any particular assets within the Fund”. Rule 6 said that any surplus could be used to augment benefits (provided the Inland Revenue approved); and any unused surplus was to be returned to the employer. The pension cap was dealt with by Schedule 12. Again it was 1/60^th of Final Remuneration for each year of Service; with the possibility of a greater amount if the Inland Revenue approved. “Final Remuneration” was differently defined. It was the higher of two amounts. The first of these was the highest remuneration upon which tax liability had been determined for any one of the last five years. Remuneration for this purpose included both basic pay and Fluctuating Emoluments. These latter included bonuses and benefits in kind. But Fluctuating Emoluments which were paid only in a single year were not to be included without the consent of the Inland Revenue. The second amount was the yearly average of the total emoluments from the Participating Employer which were assessable to Schedule E income tax for any three or more consecutive years within the last ten.

In support of his complaint Allen produced a number of previous valuations. These included a statement of net assets of the fund as at 30 June 2003, which both he and Norman had signed in their capacity as trustees. As well as describing the net assets of the fund, a separate schedule had also allocated those assets as between Norman and Allen. Put shortly, each of the brothers was allocated the value of a Prudential policy in his name; and all the other assets of the fund were allocated equally between them. The 2004 valuation, to which Allen specifically referred in his complaint, was prepared by Mr Finch of James Hay Pension Trustees Ltd on behalf of Prudential Assurance plc. It was a triennial report on the pension fund; and its purpose was to reassess the maximum contribution levels needed to provide maximum approvable benefits. The report stated:

“3.1

At the last review date there were two members of the Scheme and they have remained members throughout the period under review. One of the members, Mr A Grievson, left the service of the Company before the review date. He retains the right to receive benefits from the Scheme from his Normal Retirement Date. There have been no new entrants.

3.2

The members of the Scheme are N W Grievson (active) and Mr A Grievson (deferred) and their relevant details are as follows…

4.1

At the valuation date the balance sheet value of the fund was £241,601 made up as follows:-

Freehold land		£106,016
Prudential policies	– N W Grievson	£46,084
	-A Grievson	£11,555
Cash at Bank		£60,946
Debtors less Creditors		£17,000
		£241,601

4.2

…

4.3

For the purposes of the valuation I have allocated the fund between the members in proportion to the liabilities for service completed to date. The share of fund for each member is as follows:

	%	£
N Grievson	57.1	138,065
A Grievson	42.9	103,536
	____	____
	100.0%	£241,601

It is important to appreciate that the allocation of the assets of the fund between its two members was a requirement of the rules, both in their original and their amended form. This allocation was the Member’s Account. But it is equally important to appreciate that the allocation was only a notional allocation. It did not signify any form of beneficial entitlement to the allocated assets. As the rules made clear the assets remained assets of the fund. It follows that this allocation of assets had no direct bearing on the calculation of the correct transfer value of the benefit that had accrued to Allen under the rules of the scheme.

In order to calculate the correct transfer value it was necessary to go through the following steps:

In essence this is the calculation that Foden Baynes performed. They assessed Allen’s Final Remuneration as £10,376.47 per annum. But in assessing that amount they took into account a benefit in kind of £26,000 paid in a single year. As the Pensions Ombudsman noted (§ 51) it was questionable whether the benefit in kind should have been included in the calculation of Final Remuneration; so Foden Baynes may have been over generous to Allen. Having assessed Final Remuneration Foden Baynes estimated that Allen’s maximum pension allowable under Inland Revenue limits was £980 per annum. 1/60^th of £10,376.47 is £172.94; so the annual pension that Foden Baynes calculated appears to represent 5.66 years of pensionable service. Based on that figure for the maximum annual pension, they calculated that the maximum fund that could have been held in order to pay it was £21,750. They said that there could be debate about the Prudential policy in Allen’s name. In the event Allen was offered the calculated amount of £21,750. Although he had said in his complaint that he had been offered the value of the Prudential policy as well, it is common ground that he was not.

The Pensions Ombudsman said (§ 49):

“Whilst there does not appear to be a dispute that Mr A Grievson commenced employment in 1991, he did not join the Scheme until 10 January 1996. Under the rules of the Scheme pensionable service is restricted to service whilst a member of the Scheme. In addition, benefits may not normally be provided for periods of service for which no remuneration is paid. Consequently only service, and service which is remunerated from 10 January 1996 onwards can count as being pensionable for the purposes of any valuation.”

He went on to say that the Foden Baynes calculation had over-calculated Allen’s Final Remuneration; and that it was arguable whether the inclusion of the benefits in kind in the calculation (which Foden Baynes had included) was in fact correct. Having considered a number of factors that Foden Baynes took into account in making their calculation, the Pensions Ombudsman concluded (§ 54):

“It is agreed that Mr A Grievson is entitled to a transfer value. However, its value when calculated with reference to the rules, as indicated above, is likely to be far inferior to the offer that Mr N Grievson has made available. The 2006 valuation cannot be described therefore as being prejudicial to Mr A Grievson.”

Thus what the Pensions Ombudsman decided was that Allen had been offered more than his strict entitlement under the scheme rules. It is possible that Foden Baynes’ figure of £21,750 was wrong. They ignored Allen’s period of service as company secretary between January 2000 and June 2004. On the other hand, they took into account 5.66 years of pensionable service, whereas Allen was remunerated for only two years after he joined the scheme. In addition the Pensions Ombudsman decided that Foden Baynes had over-calculated Allen’s Final Remuneration and may well have been wrong in including benefits in kind. In my judgment the Pensions Ombudsman was entitled to take the view, which I consider to be a question of fact, that the offer made to Allen was better than his strict entitlement under the rules of the scheme. Certainly there is no material before me which would suggest that his overall conclusion on the basis of Allen’s entitlement under the scheme rules was wrong.

Allen’s appeal essentially rests on two alternative arguments. The first is that the appropriate way of calculating the transfer value attributable to a member of a money purchase scheme is on a “share of fund basis”. This would treat the fund’s assets allocated to Allen as being, in effect, his assets. But that would contradict the clear rules which say that the allocation of assets to members is purely notional and does not give them an entitlement to those assets. It would also ignore Inland Revenue limits, which are an integral feature of the scheme and of members’ entitlement to benefits. I therefore reject this argument.

The second argument is one of estoppel. This argument is itself put on two alternative bases: estoppel by representation and estoppel by convention. Since both are general principles of law, it is clear that they are capable of applying to pension schemes. However, in many cases the factual context of a pension scheme, with a wide and fluctuating membership, will mean that an allegation of estoppel fails on the facts.

The legal principles are not in doubt. Both counsel were content to take the ingredients of estoppel by representation from the judgment of Neuberger LJ in Steria Ltd v Hutchison [2007] I.C.R. 445 (§ 93):

“When it comes to estoppel by representation or promissory estoppel, it seems to me very unlikely that a claimant would be able to satisfy the test of unconscionability unless he could also satisfy the three classic requirements. They are (a) a clear representation or promise made by the defendant upon which it is reasonably foreseeable that the claimant will act, (b) an act on the part of the claimant which was reasonably taken in reliance upon the representation or promise, and (c) after the act has been taken, the claimant being able to show that he will suffer detriment if the defendant is not held to the representation or promise. Even this formulation is relatively broad brush, and it should be emphasised that there are many qualifications or refinements which can be made to it.”

However, as Neuberger LJ also pointed out (§ 109):

“An additional reason why the court should lean against an estoppel in favour of one, or only some, of the members of a pension scheme, is that it involves favouring only one or some of the members of the scheme over the other members of the scheme.”

The ingredients of estoppel by convention can be taken from the recent judgment of Warren J in Catchpole v Trustees of the Alitalia Airlines Pension Scheme [2010] I.C.R. 1405 (citing the decision of Briggs J in HMRC v Benchdollar Ltd [2010] 1 All ER 174):

“In my judgment, the principles applicable to the assertion of an estoppel by convention arising out of non-contractual dealings, to be derived from Keen v Holland [1984] 1 WLR 251, and the cases which comment upon it, are as follows: (i) It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. (ii) The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it. (iii) The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter. (iv) That reliance must have occurred in connection with some subsequent mutual dealing between the parties. (v) Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”

Allen was not represented in making his complaint to the Pensions Ombudsman. His complaint did not mention the word “estoppel” at all. But generous allowance must be made for the fact that he was unrepresented and for the fact that the process of complaining to the Pensions Ombudsman is an informal procedure. Allen’s complaint did allege that the transfer value that he had been offered departed from the previously agreed actuarial values and that he had suffered injustice because he was no longer able to plan for his retirement. In my judgment that was a sufficient allegation to raise the question of estoppel.

However, the Pensions Ombudsman did not deal with this question at all. He only considered Allen’s legal entitlement under the rules of the scheme. Although the principles of estoppel are not in doubt, whether they apply in any particular case is a question of fact. The court’s jurisdiction when sitting in an appellate capacity on an appeal restricted to a point of law does not enable it to reach conclusions on questions of fact. They are the exclusive province of the Pensions Ombudsman. There may be an exception where the material before the Pensions Ombudsman (I hesitate to call it evidence) can only lead to one possible outcome. Accordingly unless I am satisfied that Allen’s plea of estoppel must fail; or alternatively that it must succeed, the proper course is to allow the appeal and remit that question to the Pensions Ombudsman to find the necessary facts.

Suffice it to say that I was not persuaded by Mr Burroughs that the plea of estoppel must fail; and I was not persuaded by Mr Grant that it must succeed. Having reached that conclusion I think it is best if I say nothing more about the facts, for fear of influencing the Pensions Ombudsman one way or another.

In the result, therefore, I will allow the appeal and remit the question of estoppel to the Pensions Ombudsman for determination on the facts in accordance with the principles of law I have summarised above. It will be for him to decide how he wishes to embark on that task; and whether to permit either party to adduce additional material before him.