The Pensions Ombudsman has upheld a police officer’s complaint that his employer had a duty of care to inform him of the tax implications of re-employment on his retirement benefits.
Mr Cherry was employed as a police officer with the Police and Crime Commissioner of South Wales from February 1982, and he took his retirement benefits from 12 June 2011. He was then re-employed by the Commissioner on 23 June 2011, within one month of receiving his pension benefits.
Because Cherry was re-employed within a month of taking his retirement benefits, he lost his protected pension age and therefore incurred tax charges on his retirement benefits.
Cherry argued that the Commissioner failed to provide him with information about the tax penalties.
The Ombudsman determined that, although the Commissioner was under no legal obligation to advise individual employees on their tax liabilities, this case concerns the provision of relevant information about the impact on benefits following re-employment for an employee.
The Ombudsman concluded that the Commissioner should reasonably meet the tax liabilities incurred by Cherry.
The Ombudsman ruling states: “As a responsible employer the Commissioner had a duty of care to inform Mr Cherry of the tax implications of re-employment on his retirement benefits.”
Arshad Khan, associate director, pensions and investment litigation at law firm Sackers, said: “This was a case brought against an employer but the lessons apply equally to pension scheme trustees. While it is clear in principle that an employer/trustees are not under an obligation to provide advice to scheme members, they do have to provide relevant information about the impact on the member’s benefits of decisions they might take, in this case the decision being how quickly to return to work with the police force following early retirement under the Police Pension Scheme.
“It is often difficult for schemes to draw the line between giving good levels of information and advice but this case highlights the risk of having to pay compensation to a member for any tax liabilities they could have avoided had sufficient information been provided to them in the first place.”