Local Government Pension Scheme Appeal Determination By The Secretary of State

Our Ref: LGR 85/18/179

18 October 1999

LOCAL GOVERNMENT PENSION APPEAL

SUPERANNUATION ACT 1972

LOCAL GOVERNMENT SUPERANNUATION REGULATIONS 1986 (the 1986 regulations)

LOCAL GOVERNMENT PENSION SCHEME REGULATIONS 1995 (the 1995 regulations)

LOCAL GOVERNMENT PENSION SCHEME REGULATIONS 1997 (the 1997 regulations)

1. I refer to your letter of 27 April 1999 in which you appeal (under regulation 102 of the 1997 regulations) on behalf of Mr XXX to the Secretary of State for the Environment, Transport and the Regions against the decision of XXX, the Appointed Person in relation to Mr XXX’s local government pension scheme (LGPS) dispute with XXX (the council).

2. The Appointed Person found that the council had acted correctly in calculating Mr XXX’s retirement benefits on his final year’s remuneration. You maintain that when Mr XXX accepted the post of clerk it was under circumstances that were beyond his control and therefore within the criteria for a certificate of material reduction and that his pension benefits should be recalculated on the basis of his pensionable pay in his previous post.

3. The Secretary of State’s powers under regulations 102 and 103 of the 1997 regulations are to reconsider the original disagreement referred to the Appointed Person under regulation 100. This regulation refers to a matter relating to the LGPS, which effectively means whether provisions governing the LGPS have been correctly applied in the circumstances. There are no provisions to award compensation where claims are made that information has not been provided with regard to the LGPS. Like the Appointed Person the Secretary of State has no powers to direct a local authority to act outside the provisions of the regulations.

4. The question for decision: The question for decision by the Secretary of State is whether Mr XXX’s benefits should be based on his pensionable remuneration in the higher paid post in which he was employed as a floor layer before his employment as a clerk.

5. The Secretary of State has considered all the representations and evidence. Copies of documents supplied by the Appointed Person were sent to you under cover of the department’s letter of 24 May 1999.

6. Secretary of State’s decision: The Secretary of State has taken into account the appropriate regulations. He finds that Mr XXX’s benefits cannot be re-calculated on the basis of his pensionable pay in his previous higher paid post. His decision confirms that made by the Appointed Person. The Secretary of State’s reasons and the regulatory provisions, which he considers apply in Mr XXX’s case, are set out in the annex to this letter, which forms an integral part of this decision. He is acting judicially and has no power to modify the way the regulatory provisions apply to the facts of the case. Having made his decision he has no power to alter it and his officials cannot discuss the case further. The decision is binding and can only be overturned by a judgement of the High Court or the Pensions Ombudsman.

7. This completes the second stage of the internal disputes resolution procedure. The Pensions Advisory Service (OPAS) is available to assist members and beneficiaries in connection with difficulties which they have failed to resolve. Their address is 11 Belgrave Road, London, SW1V 1RB (telephone number 0171 233 8080).

8. The Pensions Ombudsman may investigate and determine any complaint or dispute of fact or law in relation to the LGPS made or referred in accordance with the Pensions Schemes Act 1993. His address is 11 Belgrave Road, London, SW1V 1RB (telephone number 0171 834 9144).

9. A copy of this letter has been sent to the Appointed Person, Mr XXX’s pension manager and former employer.

EVIDENCE RECEIVED

1. The following evidence has been received and taken into account:

(a) from you: letter dated 27 April (with enclosures) and 16 August 1999; and

(b) from the Appointed Person: letter dated 14 May 1999 (with enclosures listed in the department’s letter of 24 May); and

REGULATIONS CONSIDERED AND REASONS FOR DECISION

2. From the evidence submitted the following relevant points have been noted:

(a) Mr XXX’s date of birth is 5 September 1944;

(b) on 24 July 1990 he started pensionable employment with the council;

(d) after 5 months sick leave he returned to work on light clerical duties;

(e) on 23 February 1994 the council’s occupational health physician advised the he should not return to heavy duties pending further medical investigation of his fitness;

(f) on 24 May 1994 the council’s occupational health physician confirmed that he was fit for a Clerical Assistant post;

(g) on 15 June 1994 he was appointed to a permanent position as a clerk; and

(h) on 31 December 1997 he received voluntary early retirement benefits on being made redundant.

3. Your appeal is on the basis that Mr XXX should have been given a certificate of reduction in remuneration so that his pension would be based on his higher pay as a floor layer rather than his final salary as a clerk. The council considered that a certificate of material change was not relevant because the drop in pay was not the result of something beyond Mr XXX’s control as he applied for the clerical job of his own accord.

4. The Appointed Person took the view that Mr XXX’s reduction in remuneration arose from his applying for and accepting a job as a clerk. As he did so of his own volition it was not as a result of circumstances beyond his control. Furthermore the council did not issue a certificate of a material reduction in pay. He concluded that the council had acted correctly calculating Mr XXX’s retirement benefits on his final year’s pay.

5. In your appeal to the Secretary of State you have provided a letter from Mr XXX’s medical advisor Dr XXX dated 30 March 1999 saying that he considered Mr XXX’s heart attack was the result of a stress related to his work and that he must avoid excessive stressful situations. You argue that the heart attack was beyond Mr XXX’s control and that his employer was responsible for the stress which induced the attack, that his application for work as a clerk was forced on him because he was advised that the alternative was loss of employment and that the council should have advised him of pension options and implications of these options.

6. The Secretary of State in reaching his decision has had regard to the regulations which in his view apply. At the time Mr XXX suffered a reduction in remuneration through changing jobs the 1986 regulations applied. When he ceased employment, his retirement benefits were calculated under the 1995 regulations. The way benefits are calculated is set out in Part D. Benefits are based on a member’s pensionable remuneration for the relevant period. The relevant period is defined in regulation D1 and Schedule D1. Normally it is the member’s final year. In both the 1986 and the 1995 regulations, if a member suffered a reduction in remuneration at any time up to 13 years before they retired, the higher remuneration would be used in calculating pension benefits provided that the employer had issued a certificate of reduction in remuneration. This was provided for under paragraph 4 of Schedule D1 of the 1995 regulations, and regulation E24 of the 1986 regulations. A certificate could only be issued where a member was transferred to a lower paid employment within the council or if he continued to the same employment but his pay was reduced. A reduction in remuneration was not material if it did not result from circumstances beyond a member’s control. A member who satisfied these criteria was entitled to be issued with a certificate, but only if he applied within 12 months of the reduction; however, the council could issue a certificate without an application from the member.

7. In deciding the appeal the Secretary of State first considered whether your application was out of time. Under regulation 100(8) of the 1997 regulations an application to appeal must be made within 6 months of the relevant date or longer if the Appointed Person considers this reasonable. The Secretary of State takes that Mr XXX’s dispute stems from the reduction in his remuneration when he changed to a lower paid job following his heart attack. The Secretary of State would have expected a member of an occupational pension scheme where benefits are based on final salary to consider the effect on his pension entitlement in such circumstances. However, the Secretary of State notes that there is no evidence to show that Mr XXX was specifically informed at the time of consequences to his pension entitlement. He takes the view that Mr XXX only realised the import of his change in salary when he was made redundant and then pursued the question. The Appointed Person accepted your appeal and did not dismiss it under regulation 100(8). In the circumstances the Secretary of State has also decided to consider the appeal.

8. The Secretary of State is satisfied the only way that the regulations would permit Mr XXX’s retirement benefits to be calculated on his higher paid job as a floor-layer would be by the issue of a certificate of material reduction. It is not disputed that Mr XXX suffered a reduction in his remuneration when he took up his post as a clerk from his previous remuneration in his post as a floor layer. However, it is also not disputed that he did not make an application for a certificate of material reduction under regulation E24 of the 1986 regulations within 12 months. On the face of it, therefore, the council were not required to issue a certificate because of the terms of regulation E24(4) of the 1986 regulations. However, you maintain that the council failed to inform Mr XXX of the effect on his pension of the reduction in pay or of the provisions to safeguard it. The council have provided a copy of an explanatory booklet (“employee’s guide”) which they maintain they issued to Mr XXX when he joined the scheme, and which refers to a certificate of material reduction. You maintain that Mr XXX has no recollection of receiving this, that it post-dates his joining the scheme, but that in any event it implies that the onus is on the council to issue a certificate and it does not indicate that the member has to apply.

9. The Secretary of State accepts that it cannot be proved whether or which booklet was issued to Mr XXX. However, he accepts that the booklet submitted by the council does not explain that unless a member applies for a certificate within 12 months the council need not issue one. The Secretary of State also notes that there is evidence that the pension department were unaware of Mr XXX’s reduction in remuneration until October 1997, shortly before he was made redundant (note by XXX Principal Pensions Assistant, dated 17 June 1998). In the Secretary of State’s view, the evidence suggests that Mr XXX was not given an explicit opportunity to comply with regulation E24(4) of the 1986 regulations and make an application for a certificate, and that the council did not consider at the time whether it was appropriate to issue one. The Secretary of State concludes that Mr XXX should not be refused a certificate now, if one was appropriate, solely on the grounds that he failed to apply for one within 12 months of his reduction in remuneration. The Secretary of State does not therefore dismiss the appeal on these grounds.

10. To decide whether Mr XXX is entitled to a certificate of material reduction the Secretary of State has therefore had to consider whether his remuneration was reduced because he was transferred to another employment under the same LGPS employer at a reduced remuneration and whether it was due to circumstances beyond his control. Having noted your initial contentions and those of the council the Secretary of State sought to clarify the circumstances under which Mr XXX took up his post as a clerk (Mr XXX’s letter of 16 July 1999). The Secretary of State notes that the council’s reply dated 29 July 1999 (copied to you on 2 August 1999) did not specifically address all the questions raised by him. However, the council said that Mr XXX expressed a preference for office work rather than returning to floor-laying irrespective of the outcome of further medical investigations. The council’s medical advisor concluded that he was fit for clerical duties. The council’s letter enclosed handwritten notes which they claim to be of meetings with Mr XXX. A note dated 15 February 1994 states “Mr XXX … says he is interested in office work and says that he will go on grounds of ill-health rather than return to floor-laying. Therefore doesn’t really matter what doctor says”. The council say that they notified Mr XXX that his earnings would be lower if he changed jobs. Their subsequent letter dated 3 August 1999 enclosed the “employee’s guide” referred to above.

11. Your response to the council’s evidence dated 16 August 1999 addresses issues concerning the employee’s guide and what you consider to be the council’s failure to issue a certificate or inform Mr XXX of his pension rights and options. You have not sought to refute the council’s evidence that Mr XXX was interested in office work and not interested in returning to floor laying, whatever the medical evidence indicated.

12. The Secretary of State accepts the Mr XXX’s heart attack and the immediate restriction on him undertaking heavy work were circumstances beyond his control. However, the Secretary of State has to decide whether his subsequent reduction in remuneration arose from circumstances beyond his control and because he was transferred to another lower-paid employment under the same LGPS employer. The Secretary of State is unable to conclude that this was the case. The evidence leads him to believe that Mr XXX voluntarily sought to take up office work rather than returning to floor-laying irrespective of any further medical investigation. Mr XXX’s appointment to the lower paid clerk’s post was not therefore, in the Secretary of State’s view, a transfer imposed on him and the circumstances in which be suffered the reduced remuneration were not beyond his control.

13. Accordingly the Secretary of State concludes that Mr XXX was not entitled to a certificate of material reduction in remuneration and that his remuneration as a floor layer cannot be used in the calculation of his retirement benefits