Estoppel can work – occasionally!

Jason Shaw

I deal with an awful lot of Pensions Ombudsman complaints and, without doubt, the most common cause of member complaints is the provision of incorrect information. Typically, this will take the form of an incorrect benefit statement or retirement quotation and, invariably, that statement will suggest that the member is entitled to greater benefits than is actually the case under the scheme’s rules. When the error comes to light, and the trustees try to reduce the member’s pension, the member complains.

In these cases, the Ombudsman will often consider whether the trustees are estopped (prevented) from reducing the pension or whether there has been a negligent misrepresentation on the part of the administrators or trustees. In an earlier blog post, Mervyn discussed estoppel and misrepresentation and set out the test for establishing estoppel. Following on from that post, I thought it might be useful to see how the test for estoppel was applied in the recent Deputy Pensions Ombudsman’s decision of McClean – one of the few cases in which estoppel has been successfully employed.

Without going into all the details of the case, the facts are essentially these: the scheme’s administrators wrote

to the member to say that he would shortly be reaching age 62, which they said was the scheme’s normal retirement age (NRA), and accordingly enclosed a statement of retirement benefits for his consideration. The member wrote back to say he was surprised by their letter as he understood NRA to be 65 and had intended to continue working until then. Nonetheless, the member decided to retire from the scheme at age 62. A year later, he was informed that the correct NRA was in fact 65 and that his annual pension would therefore need to be reduced by just over £1,000 a year to reflect early payment. The member argued that the trustees were estopped from going back on the representation that NRA was 62. He succeeded and was awarded a pension on the basis that his NRA was 62, rather than 65.

So how did he do it? Well, first, the member needed to show that there was a clear and unambiguous representation upon which it was reasonably foreseeable that he would act. In this case, the statement of benefits and representation that the NRA was 62 was found to be a clear representation and, as the representation was made in the context of a retirement quotation, it was reasonably foreseeable that the member would rely on it.

Second, the member had to demonstrate that he had acted in reliance on the representation and would suffer detriment if the trustees were allowed to go back on their representation. Here, the evidence indicated that the member had intended to continue working; and the fact he did not spend the lump sum payment he received indicated that he had no immediate need for that money. Accordingly, the DPO found that, even though the member had benefitted from receiving his pension early, viewed against the significantly higher pension he would have received had he delayed his retirement to age 65 (as he had intended), the representation had caused the member detriment.

Interestingly, the DPO did consider whether the case was more appropriately one of misrepresentation rather than estoppel. However, as the remedies for estoppel and misrepresentation are different, and as the remedy in this particular case would have been disproportionate (for reasons I won’t go into), the DPO thought that accepting the defence of estoppel provided the most ‘practical and proportionate’ result.

Jason Shaw is a senior associate at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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