This week’s post concerns whether an employer has a duty to inform employees and members about their pension rights.
The Pensions Ombudsman recently decided that the Police and Crime Commissioner of South Wales (the Commissioner) had a duty of care to an employee to inform him of the adverse tax implications of re-employment on his retirement benefits.
Duty to inform
Employers are not legally obliged to advise employees or pension scheme members about their tax and pension liabilities. However, a previous case (Scally) established that, in certain limited circumstances, the employer does have an implied contractual duty to draw to an employee’s attention a particular term which provides a valuable right where that right depends upon the employee taking steps to obtain it. The obligation applies where the employee could not reasonably be expected to be aware of the right unless it is drawn to his attention.
Mr Cherry was employed as a police officer by the Commissioner from 1 February 1982. He retired from the Police Pension Scheme in June 2011 and was then re-employed. Mr Cherry complained because he said his employer had failed to inform him of the tax penalties which applied to his retirement benefits after subsequently being re-employed by the Commissioner.
Certain members have a protected pension age which means that they can receive benefits before the usual normal minimum pension age of 55 subject to certain conditions. One of these conditions relates to re-employment. Members with a protected pension age don’t have the same freedom to take flexible benefits i.e. to take pension benefits and continue working as other members might have.
Mr Cherry lost his protected pension age as a result of re-employment and past and future pension payments up to age 55 were subjected to punitive tax charges as a result.
A Home Office circular had been published on 6 April 2006 regarding the tax changes which were introduced at that time. This provided links to HMRC’s website and loss of protected pension age status.
The Ombudsman agreed with the Commissioner that it did not have a legal obligation as an employer to advise officers and employees about tax and pension liabilities. However, he decided that the Commissioner did have a duty of care to inform Mr Cherry about ‘salient’ information regarding the tax implications of re-employment on his pension benefits.
The Ombudsman did not specifically refer to the Scally case when making his decision. However, the Cherry decision does reflect the contractual duty which was held to have applied in the Scally case. In Cherry the Ombudsman concluded that as a “responsible employer” the Commissioner had a duty of care to provide Mr Cherry with the information regarding tax implications of re-employment. The Commissioner already had this information in its possession in the form of the Home Office Circular. The Ombudsman said that providing this information did not amount to giving advice.
This decision contrasts with other cases and Pensions Ombudsman decisions where it has been found that the employer did not have a duty to inform members and employees about certain pension rights.
It is not necessarily surprising that different conclusions are reached in relation to a specific employer’s duty to inform as each case very much depends upon the particular facts involved. In the Cherry case the Commissioner did say that it had put in place a new process to ensure that the circumstances which led to Mr Cherry losing his protected pension age did not reoccur and admitted that this was a step a “responsible” employer would take.
The decision is a reminder to employers and trustees that certain significant legal and regulatory pensions information must be provided to members.
 Mr John Cherry (PO-7096) – 22 December 2015
 Scally & Ors v Northern Health and Social Services Board & Anor (1991)