The recent Pensions Ombudsman case of Levinson is helpful for two reasons:
- It provides useful guidance for trustees concerning late retirement increases
- It puts into context the term ‘accrued rights,’ which is often a difficult term to grasp for members
Doctor Levinson was an employee of EMI until June 1999 and subsequently became a deferred member of the EMI Group Pension Fund (the EMI Fund). When Doctor Levinson reached his normal retirement age in 2006, he received a deferred entitlement statement. This explained that, if Doctor Levinson deferred taking his pension, his entitlement would increase for late retirement as set out in the relevant annual statement for the EMI Fund. Following the announcement that the scheme would be subject to a full buyout, Mr Levinson received statements in 2012 and 2013. The first statement quoted a pension of £17,744 per year if Doctor Levinson were to take retirement from 21 October 2012. The second statement quoted a pension of £15,371 if Doctor Levinson were to take retirement from 21 October 2013. This lower pension quotation was a result of the trustee changing the basis for calculating late retirement increases.
After going through the internal dispute resolution procedure and consulting with the Pensions Advisory Service regarding this lower pension quotation, Doctor Levinson complained to the Pensions Ombudsman. Doctor Levinson complained that the trustee’s decision to change the basis for calculating late retirement increases went against the 2006 deferred entitlement statement. In addition, Mr Levinson stated that the trustee should have forewarned him about this change and that the change should not have retrospective effect.
The Deputy Ombudsman partially upheld the complaint, ultimately because of the misleading 2006 deferred entitlement statement. However, the Deputy Ombudsman noted that, with appropriate actuarial advice, the trustee had the power to calculate and amend the basis for calculating the late retirement increases under the EMI Fund rules. Not only that, the Deputy Ombudsman confirmed that the amendment to this calculation had retrospective effect and did not affect the accrued rights of members.
Accrued rights are the rights related to service already completed to which a member is entitled under an occupational pension scheme. The value of accrued rights for active members may be calculated on the basis of current salary or, alternatively, may include an allowance for future salary increases. In Levinson, the Deputy Ombudsman emphasised that the right to late retirement uplift is not an accrued right until the point of retirement. Because of this, the Deputy Ombudsman held that a retrospective change to the basis for calculating late retirement increases did not affect any accrued right. In addition, neither statute nor the scheme rules stated that the change made could not be made retrospectively.
Guidance for trustees
As the complaint was partially upheld, it is important for trustees to treat this case as guidance in respect of late retirement factors and informing members. This case confirms that there is no statutory duty for trustees to inform members of a change to the method by which a late retirement increase is calculated because it is not a ‘listed change‘. However, trustees and administrators should be proactive by providing information on the calculation of late retirement factors. For example, trustees and administrators might wish to explain in benefit statements that late retirement uplifts are not guaranteed and that they may change depending on decisions made by the scheme actuary concerning methods and assumptions.
 Determination in a complaint by Dr Hugh Levinson, 19 December 2014 (PO-5023)
 Definition taken from The Pensions Regulator’s website – http://www.thepensionsregulator.gov.uk/glossary.aspx
 These are contained in the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006