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Education briefing - Ill health early retirement – the importance of a timely decision

  • United Kingdom
  • Education - Briefings

12-08-2019

A recent determination by the Pensions Ombudsman has suggested that employers could be liable for losses employees suffer where they take ill health retirement but payments under the pension scheme do not commence immediately following the end of sick pay.

Facts

Mrs I was employed by Southwark Council and was a member of the Local Government Pension Scheme (LGPS). Mrs I was diagnosed with cancer in September 2015 and commenced sick leave in October 2015. She received full pay for six months and half pay for a further six months but was then on no pay from 16 October 2016 until she was dismissed with effect from 31 May 2017. She finally received her ill health pension in February 2018, backdated to 1 June 2017.

Mrs I complained to the Pensions Ombudsman that she should have been assessed for ill heath retirement much earlier and if that had happened she would have received her pension from an earlier date.

The Adjudicator who heard the complaint believed, given the nature of the illness (the nature of her illness being known well before the end of the sick pay period), that the Council should have managed the transition between employment and ill health to be seamless so that when Mrs I’s sick pay ran out her retirement income would have taken over.

The Adjudicator concluded that the Council should pay to Mrs I the equivalent of seven and a half months of pension for the lack of pension payments between 16 October 2016 and 1 June 2017, together with interest and £2,000 for the distress and inconvenience she had suffered.

The Council disagreed with the Adjudicator’s opinion arguing that due weight had not been given to the employment issues, in particular the fact that guidance issued by the Department for Communities and Local Government (DCLG) on the LGPS states that responsibility for deciding the grounds on which the employment of a Scheme member has been terminated rests solely with the Scheme employer. The Council argued that this meant that the decision to dismiss and the timing of the decision was with the employer and the Pensions Ombudsman had no jurisdiction to interfere in such decisions.

The matter was therefore passed to the Pensions Ombudsman to make a determination. The Ombudsman agreed with the Adjudicator’s opinion that the complaint was upheld and with the remedy, save that he increased the compensation for distress and inconvenience to £3,000.

The Ombudsman concluded that he did have jurisdiction to hear the complaint as he has the power, under the Pensions Schemes Act 1993, to investigate and determine any complaint made of injustice in consequence of alleged maladministration of an occupational or personal pension scheme.

In relation to the Council’s arguments, the Ombudsman agreed that it was for the employer to decide the grounds on which an employee’s employment is terminated but pointed out that the DCLG guidance stated that “In the context of ill health retirements, the role of the Scheme employer begins a long time before employment has been terminated and the question of entitlement to an ill health retirement benefit arises”. He said it was clear from the evidence that the Council had failed to take any steps prior to the end of Mrs I’s sick pay and this delayed the obtaining of a medical report and the decision to terminate employment on grounds of ill health.

The Ombudsman went on to say that whilst it was not up to him to decide how the Council managed its long term sickness it should have had regard to the DCLG guidance and ensure that it had a process in place that enabled a decision to be taken, as to whether ill health retirement was likely, well before the end of the payment of sick pay.

Comment

This case highlights the importance to employers of managing sickness cases from the very outset, and the early identification of cases where ill health retirement is a possibility. To do otherwise risks exposure to potential compensation claims as well as the extension of sickness benefits.

The Pensions Ombudsman is becoming increasingly concerned regarding the number of ill-health early retirement complaints before it, and takes delays in processing ill-health benefits seriously. Whilst this case relied on guidance issued in respect of the LGPS, similar arguments could also be used with regard to ill-health benefits applications under schemes such as the TPS and USS, particularly given previous determinations made by the Ombudsman in respect of other public sector schemes.

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