Date updated: Thursday 12th September 2019

In a the recent case of Mrs I (PO-21599), the Pension Ombudsman has upheld a complaint by a member of the Local Government Pension Scheme who was without pension provisions, directing the employer to make a back-dated payment of the contributions missed due to the employer’s “inaction”.

Facts

In this case, there had been a delay between the employee being declared as unfit to work by occupational health, and the employee being advised of her dismissal and awarded ill-health early retirement benefits. This caused the employee to be without pension provisions for seven and a half months between her statutory sick pay ending and her receipt of ill-health early retirement benefits.

Outcome

The Ombudsman upheld the employee’s complaint. The key conclusion was that, had the employer acted earlier in awarding ill-health early retirement benefits, the employee could have received her pension from the point her sick pay finished and would not have suffered such financial strain. The Ombudsman directed the employer to pay the employee the pension provisions she was entitled to, i.e. seven and a half months that she had missed out on, plus interest.

The rules on ill-health early retirement

Many occupational pension schemes allow members to retire before their normal retirement age if they are suffering from ill-health or incapacity. The test for whether or not a member qualifies for ill-health early retirement will be set out in the scheme's rules, depending on the type of pension arrangement the employee is member of, in addition to any statutory restrictions.

Legislation sets out detailed provisions for occupational pension schemes to meet, including provisions on payment of ill-health early retirement pensions. The Finance Act 2004 (FA 2004) allows registered pension schemes to pay ill-health early retirement pensions to members at any age, if a registered medical practitioner can provide a report confirming that the member is medically incapable (either physically or mentally) of continuing in his or her current occupation as a result of injury, sickness, disease or disability. The member must have actually ceased to carry on their occupation. This is the “statutory ill-health condition”. The statutory normal minimum pension age does not apply to an ill-health early retirement pension, provided the ill-health condition is satisfied.

Some schemes include provisions that allow trustees of the pension scheme to stop an ill-health early retirement pension if, at a future date, the member's physical or mental condition improves to a degree that they no longer satisfy the scheme's test for incapacity, or start paying the ill-health pension again if the member's health subsequently deteriorates.

The Pensions Ombudsman can deal with complaints of maladministration concerning occupational pension schemes, including complaints about entitlement to ill-health pensions.

Implication for Employers

This decision provides a persuasive argument for ill-health retirement to be considered as a real possibility at an early stage in capability proceedings, where there are ongoing concerns about the employee’s health. Here, the fact the employer was “inactive” and did not take steps as early as possible to consider ill-health early retirement, was found to be a “failure in its duty of care” and was the reason for the employee’s loss of pension contributions for an extended period of time.

Government guidance in respect of ill-health retirement from the LGPS states “in the context of ill health retirements, the role of the employer begins a long time before employment has been terminated and the question of entitlement to an ill health benefit arises”.

If there are concerns in capability proceedings, the scheme rules should be checked ahead of time to ensure the employee meets the test and that arrangements are in place well ahead of the employee being declared unfit to work.