Time to wrap up some discretions?

Topic:

Legal & governance

Date published:

Monday, 24 April 2017

Author:

Gillian Graham

Pension trustees quickly discover that one of their key roles is to exercise discretion on the payment of member benefits. However, the world of defined benefit (DB) pensions has changed quite a bit over the past 5 – 10 years so it makes sense for trustees to make sure their discretions policy is still fit for purpose.

I find a lot of pension trustees still seem to go through the same old process involving lots of emails to confirm consent for early retirements, which is fairly inefficient and often results in delays.

Is consent always needed?

It is true most pension scheme rules specify that active members who wish to retire early need employer and trustee consent. However, with most DB schemes now closed to future accrual, pension members wishing to retire early are generally deferred. For deferred members, you would not expect employer consent to be required. In most cases, the cost neutral early retirement factors provided by the Scheme Actuary make it difficult to envisage any reason for not granting consent.

Is imprisonment grounds for refusal of consent?

I had wondered what grounds there could be for pension trustees to refuse consent, and this was brought into sharp focus when one scheme member in prison requested an early retirement quotation. The trustees did not know why he was in prison, so advised him consent had not been given.

The pension member wrote to complain and ask them to explain why consent had been declined. This time he also requested a transfer value. The trustees’ lawyer advised they should find out the reason for the member being imprisoned, as there are certain circumstances when mandatory forfeiture applies to pension benefits. In this case the conclusion was:

“In essence, if the member in prison has not committed murder, manslaughter or unlawful killing of a beneficiary, or caused a monetary loss to the scheme, then it is simply a case of the normal discretion applying (and being able to justify why not to grant early retirement to him).”

The trustees decided they were unable to justify their previous decision, particularly as he had a statutory right to a transfer value, and so granted consent.

I concluded from this that, in many cases nowadays, there are no reasonable grounds for not granting consent. The whole process can be streamlined by pension trustees advising their scheme administrators they are happy to grant consent with a ‘blanket’ policy, subject only to highly unlikely exceptions due to fraud etc. However, it is important this policy is added to the trustee business plan to be reviewed regularly in order not to fetter the trustees’ discretion for the future.

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