Table Of ContentA Practitioner’s Guide
to Correcting Mistakes
in Pension Schemes
For Emily
A Practitioner’s Guide
to Correcting Mistakes
in Pension Schemes
Paul Newman QC
Wilberforce Chambers
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Foreword
Mistakes in pension scheme documentation and administration are all too
common. There is no wonder given the complexity of scheme documentation
which has often built up incrementally over many decades, and the interaction
of the provisions themselves with complex primary and secondary legislation
in relation to both pensions and tax.
Those mistakes can have a profound effect on pensioners and active members
alike. Mistakes can also be extremely serious and very costly for employers and
may threaten the continuation of the business itself.
The Office for National Statistics estimated that as at 31 December 2020, the
total membership of both defined benefit and defined contribution funded
occupational pension schemes was in the region of 41 million. Apart from
inheritance, pensions are perhaps one of the chief ways in which the law
intersects with people’s lives, and in just the same way, it may do so at a time
when they are at their most vulnerable.
With all this in mind, I very much welcome this comprehensive, clear
and authoritative book which will be an essential resource for all pension
practitioners and trustees.
It brings together a wide variety of possibilities which may be open to trustees,
employers, members and practitioners once mistakes and their accompanying
issues are discovered, and contains valuable practical guidance about how those
possibilities can be best pursued. It will assist both in the avoidance of mistakes
and in their correction.
It also provides the practitioner with a clear guide to the essential law and
practice in an area which is often a morass of detail and which is fraught with
complexity and uncertainty. It also maintains a careful balance between the
legal and the practical which will be welcome to all.
Dame Sarah Asplin
Sussex
v
Preface
Well, nobody’s perfect!
Osgood Fielding III
Mistakes in the administration of pension schemes are as widespread as they
are potentially serious for trustees, employers and members. The complexity
of schemes, their interaction with legislation and tax practice, and their long-
term operation provide fertile ground for the making of mistakes. Moreover,
pension scheme documents were historically prepared by insurers and benefits
consultants who were not legally trained, and who often relied on precedents
which were out of date or otherwise not wholly fit for purpose.
Changes in pensions law and practice over the years have led to many schemes
undertaking comprehensive document reviews, which have disclosed drafting
and other administration errors. Such reviews have also taken place during the
process of buying in and buying out benefits with insurers, who require clarity
on the liabilities they are being asked to undertake.
As a result, the past 25 years have seen a significant increase in the number
of court and Pensions Ombudsman decisions on the correction of pension
scheme mistakes, most notably in the fields of rectification and construction.
This reflects the number and cost of such mistakes, which have led to attempts
to find imaginative legal solutions to these problems.
The discovery of mistakes can have serious consequences beyond the scheme
itself, where the error was the responsibility of the advisers to the trustees or
the employer, perhaps the same advisers who initially discovered the error.
The importance of dealing effectively with mistakes is therefore heightened
by underlying issues of liability which may arise if the mistakes cannot be put
right.
The purpose of this book is to provide those involved in making decisions and
giving advice in relation to pension schemes with the material for considering
how pension scheme mistakes may be corrected and – if possible – avoided in
the future. It is intended to be both a legal and a practical guide, and most of
the chapters contain specific sections discussing practical considerations which
arise in the context of such mistakes.
The structure of the book is as follows. Chapter 1 introduces the types of
mistake which arise in pension schemes. Chapters 2 to 9 discuss various legal
techniques used to correct mistakes in changes made by scheme documents.
Chapters 10 to 12 discuss how to deal with mistakes made in the payment of
benefits to members, leading to overpayments, underpayments or incorrectly
calculated transfer payments. Chapter 13 deals with mistakes in the decision-
making process leading to the exercise of pension scheme powers. Chapter 14
vii
Preface
gives an overview of the principal tribunals in which pensions mistakes may be
corrected: the Pensions Ombudsman and the courts. Chapter 15 deals with
compromises of claims, which is a popular method for correcting mistakes.
Chapter 16 considers the scope for recovering losses caused by mistakes from
the professional advisers involved in their commission. The book concludes
with a consideration in Chapter 17 of the tax issues that commonly arise in
the course of correcting mistakes.
The book is specifically aimed at trust-based occupational pension schemes,
although many of the principles are equally applicable to private trusts.
Contract-based personal pensions and public sector pensions give rise to
their own issues which are outside the scope of this book. Unless the context
requires otherwise, all references in this book to scheme members include
their contingent beneficiaries.
I would like to thank Mark Atkinson, Mark Blyth, Rosalind Connor, Emma
Game, David Pollard and Dan Schaffer, who very kindly read draft chapters
of this book and whose comments have considerably improved it. My thanks
also to Mark Jenkins, and particularly to Dame Sarah Asplin for writing the
foreword.
All remaining errors are, of course, my own. Should anyone have comments
or suggestions as to how future editions of this book may be improved, please
contact me at [email protected].
I would finally like to thank my wife, Emily Campbell, for her wisdom and her
forbearance, but most of all for the fun and chats.
The law is stated as at 1 December 2021.
Paul Newman QC
Wilberforce Chambers
December 2021
viii
Contents
Foreword v
Preface vii
Abbreviations xiii
Table of Statutes xv
Table of Statutory Instruments xvii
Table of European Legislation xix
Table of Cases xxi
Table of Pensions Ombudsman Determinations xxxix
Chapter 1 – Types of mistake 1
A taxonomy of pensions mistakes 1
Document errors 2
Administration errors 8
Decision errors 9
Practice point 1: amendments to look out for when
reviewing scheme documents 9
Practice point 2: building in protection to prevent a
document error becoming operative 12
Chapter 2 – Proving compliance 15
When evidence of a formal record is necessary 15
Proof of the formal record 18
Can compliance with the formality be inferred or
presumed? 19
Presumed exercise of a power 20
Practice point 1: establishing an inference or presumption
that formalities have been satisfied 22
Practice point 2: drafting meeting minutes 23
Chapter 3 – Amendment 25
Restrictions in amendment powers 25
Statutory restrictions 35
Other amendment powers 39
Saving part of the amendment 41
Amending powers of amendment 41
Practice point: ascertaining the proper scope of the
amendment power 43
Chapter 4 – Saving part of the amendment 45
The early cases 45
Bestrustees plc v Stuart 46
Subsequent cases 48
Wedgwood Pension Plan Trustee Ltd v Salt 50
ix
