An employee is dismissed by his employer on grounds of incapacity; is he then automatically eligible for an ill-health early retirement pension from his employer’s pension scheme?
The case highlights that different rules can apply regarding ill-health for employers and trustees and it should therefore not be assumed that an employee who meets the test for incapacity under an employment contract will be entitled to an ill-health pension.
Mr Scragg was a member of the Universities Superannuation Scheme and was employed by Dundee University until December 2016 when he was dismissed for reasons of incapacity.
The relevant scheme rules set out a process for determining whether a member was eligible for an ill-health pension. Amongst other things, they required:
- the member to be suffering from incapacity in the employer’s opinion; and
- the trustee to determine that the member was suffering from total or partial incapacity.
The rules stated that any determination made by the trustee must be made on the balance of probabilities, having regard to a medical opinion.
The issue was whether, once the university had formed the opinion that Mr Scragg was suffering from incapacity, was the trustee’s task to determine:
- solely whether the incapacity was total or partial, or
- whether Mr Scragg was suffering from incapacity at all?
Mr Scragg argued that it was for the university to determine whether or not he was suffering from incapacity and that the trustee’s role was limited to determining the extent of that incapacity.
The trustee adopted the latter interpretation and, after considering medical evidence, determined that Mr Scragg did not meet the criteria for incapacity under the scheme’s rules at either a total or partial level.
Pensions Ombudsman determination
Mr Scragg complained to the Pensions Ombudsman who found in his favour and determined that the trustee lacked power to override the university’s conclusion.
The Ombudsman found that if it was down to the trustee to determine whether or not the member was suffering from incapacity (as per the second interpretation above), then it would have been unnecessary for the employer to reach this decision also. The Ombudsman directed the trustee to decide whether Mr Scragg was either totally or partially incapacitated and backdate the benefits payable to the date he left the university with added interest. He also directed the trustee to pay £500 to Mr Scragg for the significant distress and inconvenience that he suffered resulting from maladministration.
The trustee appealed to the High Court.
High Court decision
The High Court allowed the appeal, holding that the trustee was not bound by the university’s opinion as to whether or not Mr Scragg suffered from incapacity.
The scheme’s rules required the trustee to come to its own determination as to whether Mr Scragg suffered from total or partial incapacity, and that included the possibility that he did not suffer from incapacity at all.
The Court commented that it was clear that the rules were not to be applied in sequence because the rule requiring the member to submit an application form was found after the rule requiring the trustee to make a determination. The Court further held that although the university’s view was likely to be an important element of the evidence considered by the trustee, the weight given to this by the trustee would depend on the quality of the evidence provided by the member or the university.
Furthermore, the rules stated that the trustee must have regard to a medical opinion when making its determination and, if that opinion concluded that the test for incapacity was not met, it would be illogical for the trustee then to be restricted to making a decision only as to whether the member suffered from total or partial incapacity.
Although in many ways the judgment is specific to the rules of the USS, similar provisions may apply in many other schemes and it highlights the importance of trustees and employers considering the terms of their ill health wording carefully when making decisions.
This judgment is also a useful reminder that the test applied by an employer under the contract of employment when deciding whether to dismiss the member on ill-health grounds may not be the same as the test for incapacity under the scheme rules.
 Universities Superannuation Scheme Ltd v Scragg and others  EWHC 51 (Ch)
This blog post was written by Patricia Bailey. For further information, please contact:
Stephen Maynard, Senior Associate
T: 0161 836 7792