Imagine you go into a shop to buy an item for 95 pence and hand over £1. You wait for your change. After a short while the shopkeeper closes the till and wishes you a good day. “No change?” “Sorry sir, in this shop if you don’t ask for your change within 15 seconds, we keep it.”
Pension scheme members may get a similar feeling if their scheme has a mandatory forfeiture rule and the trustees inform them their pension is less than it should have been.
It is clear from recent cases that these rules will be effective to deprive members of benefits. Requesting your full pension when you retire is not enough. You must appreciate that an amount paid to you is less than it should have been and claim the difference before the forfeiture rule deprives you of your benefit. You have probably got to do that for each instalment of underpaid pension.
That is a pretty tall order for most people who are not employed as pension administrators or actuaries – even those of us who are can struggle with things like later earnings additions and appropriate additions. It is unrealistic to expect members to be able to calculate their own pensions. They rely on trustees and the professionals they employ to do that.
Contrast the position of the underpaid pensioner with the former member whose transfer value was less than it should have been. The latter can make a claim against the trustees while they still hold assets from which it can be paid. There is no time limit whatever the scheme rules say. 20 years later, 30 years later, it does not matter.
Pension rights are earned by members through their contributions and service. It cannot be right that they can lose benefits because the drafter of the scheme rules 50 years ago happened to use a precedent which included a mandatory forfeiture rule.
There is nothing wrong with forfeiture rules in principle. They give certainty and protection from stale claims, except in relation to transfer values. But for mandatory forfeiture rules there should be a statutory override giving trustees a discretion to pay the benefits to current pensioners.
Max Ballad is a legal director at Arc Pensions Law