The Pensions Ombudsman (TPO) has often considered the duties of trustees
and employers in the context of the obligations to provide pension benefit
information to members. For a scheme to run smoothly, there must be a flow
of information between the scheme as provider and the member (or survivor)
Often, these duties will be governed by specific legislation. However,
where pensions law is silent, the area can be tricky for employers and
trustees to navigate, and considerable uncertainty may arise.
This briefing examines the level of information trustees and employers
should provide to a member when they become aware of a diagnosis of
terminal ill health. What are the obligations to inform a member of any
scheme benefit choices and when might this information stray into the
territory of unauthorised financial advice?
Disclosure obligations on trustees
By law, a trustee must make certain scheme documentation available to
members, including the trust deed and rules. The statutory disclosure
requirements apply under section 41 of the Pensions Act 1995 and the
Occupational and Personal Pension Scheme (Disclosure of Information)
Regulations 2013, as amended (Disclosure Regulations). The Pensions
Regulator has also issued guidance for trustees on member communications.
Disclosure obligations on employers
The Disclosure Regulations impose information provision duties on employers too, but a
strand of litigation has suggested that there may be additional contractual obligations to
advise members of their pension scheme rights.
In Scally, the House of Lords came close to finding a duty on employers to advise in
respect of scheme benefits. Scally involved a collective agreement giving doctors a time-limited
entitlement to buy enhanced pensions rights. When this opportunity was missed, some doctors
claimed that they had been unaware it existed. The House of Lords implied a term in their
employment contracts that the employer would take reasonable steps to inform members of
their rights. However, in subsequent cases, Scally has been narrowly interpreted.
In Eyett, an employer failed to advise a scheme member that if he retired a month later than
planned, his pension would include his pay rise and thus be higher. The High Court reversed
TPO’s initial decision and found the member had all the information necessary to reach this
conclusion himself. He had not asked the employer for advice about the chosen retirement
date, and there was no employer duty of good faith to warn him that it was financially
detrimental. More recently, a line has been drawn by the Court of Appeal, holding that there
is no employer duty to take reasonable care of an employee’s financial well-being: Crossley.
Thus, employers are not obliged to advise members about their pension rights. Neither have
they a duty to highlight potentially detrimental member decisions about taking benefits.
Indeed, employers must avoid giving anything that might constitute financial advice as
they are not normally authorised to do so under the relevant Financial Conduct Authority
However, these judgments have been supplemented by numerous decisions from TPO finding
maladministration where employers have failed to follow good practice. Determinations from
TPO are not binding and only affect the parties to whom they relate but there have been
some apparently conflicting decisions where a member suffers from terminal ill health.
Below, we examine two cases on the issue of benefit information provided by the scheme,
and three where the member’s retirement date affected the level of benefits.
Estate of Mr R4 : trustees failed to inform terminally ill member that retirement options were available only during his lifetime
In this case, TPO upheld a complaint where the scheme’s trustees failed to inform a terminally
ill deferred member that certain options were available only if exercised prior to his death.
The trustees had a fiduciary duty to provide Mr R with all the relevant information to enable
him to make a fully informed decision but this duty had been breached. Despite being aware
that the member had a terminal illness, the trustees had not mentioned that the benefits were
dependent on the member making a lifetime choice, and that failing to do so would reduce
his wife’s future benefits. If there had been greater clarity and urgency TPO found, it was
more likely than not that the member would have acted to his eventual widow’s financial
advantage. Where benefit options were subject to conditions, the trustees should ensure the
member was aware of them.
TPO directed the trustees to calculate the amount of lump sum the member’s estate would
have received had he applied for the more advantageous option in his lifetime and to pay
this to the estate directly. They were also directed to uplift the spouse’s pension on the same
basis, as well as paying Mrs R £500 for distress and inconvenience.
Mrs L5 : no employer duty to inform terminally ill member of death in deferment benefits
TPO heard two complaints brought by Mrs L against her husband’s scheme. Mr L had a
terminal cancer diagnosis in April 2014 and died in October 2015. The first complaint,
concerning alleged misleading guarantee wording, was dismissed.
The second complaint was brought on behalf of Mr L’s estate that
- Delays in providing information to Mr L about his deferred member options amounted to
- Mr L had not been informed about how his death benefits might be affected by his
decision to defer his pension.
Mrs L claimed that the trustee and employer were under an enhanced duty of care, as they
were aware Mr L had a terminal illness.
TPO agreed that there had been maladministration, as the trustee had taken almost six
months to issue a benefit statement and had not met its own service standards in providing
a transfer value. TPO did not agree that insufficient information on benefit options had been
provided. Considering Scally, TPO found that this duty applied only where an employee
could not reasonably be expected to be aware of the term unless it was drawn to his
attention. The employer and trustee had no duty to provide information on which option
was most financially advantageous to Mr L. Neither was there evidence that he had asked
specifically about death benefits or provided other details leading to any enhanced duty.
Although TPO considered that the maladministration was serious and awarded £1,000,
the trustee had already offered Mrs L £1,600, meaning no additional sum was payable.
Estate of Mr Y6 : employer should have maximised benefits by bringing forward retirement date
The Deputy Pensions Ombudsman (DPO) upheld a complaint where an employer failed to
bring forward a member’s retirement date. The member suffered from serious ill health and
was given a 12-week notice period before retirement. He was informed that his wife would
receive significantly more in pension benefits if he died in retirement, rather than in service.
The couple was told to contact the employer again if the member’s condition worsened so
that his notice period could be brought forward.
The DPO heard that the complaint hinged on a telephone call from the spouse to the
employer once she learned that her husband’s condition was terminal. Mrs Y claimed that
she informed the employer on the day of the terminal diagnosis and made a request to withdraw benefits, which the employer refused. The employer denied this and said that the
spouse had simply asked to withdraw part of her husband’s pension for a holiday prior to
him undergoing further treatment.
The DPO preferred Mrs Y’s account of events on the balance of probabilities. The call was
made on the same day as the terminal diagnosis and the DPO held that this information was
sufficient for the employer to suggest retirement was brought forward, even without a specific
request. The employer was directed to calculate and pay the difference between the death
benefits paid and those that would have applied had Mr Y’s service been terminated within
two days of the disputed phone call.
Mrs T7: no implied duty on employer and financial adviser to advise dying employee on implications of taking ill health benefits early
In a conflicting decision, TPO dismissed a complaint that the scheme’s employer and its
financial advisers failed to advise a dying member of the implications of taking his ill health
pension benefits early.
TPO held there was a difference between an employer giving prohibited financial advice
to employees and providing information to assist them. All the relevant information was
provided in the scheme booklet including how the benefit level depends on the employee’s
membership status in the scheme at the time of death, as well as when to seek independent
financial advice. The employer’s financial advisers were required to give advice to employees
following a member’s request, which had not been made.
TPO considered both Eyett and Scally, but found that Scally was decided on its facts,
and Mr T had the necessary information available in the scheme booklet.
Estate of Mrs N8 : employer should have set terminally ill member’s retirement and approval of benefit to same date
The DPO upheld the complaint of Mr N, the widower of a member who died one day before
her retirement date. The member’s ill-health early retirement had been approved, and her
retirement date was set for later in the month. She died in service and as a consequence her
widower’s benefits were reduced. The DPO held the employer had jeopardised the member’s
benefits unnecessarily by not setting the retirement and approval dates for the same day,
for which there was no justification. Retrospective amendment was not possible under the
scheme rules. The DPO directed the employer to pay any difference to the widower, plus interest
and any tax liability incurred.
There are clear administrative difficulties where employers and trustees learn of a member’s
terminal ill health, and where decisions (and the timing of decisions) can have a significant
impact on the resultant level of benefits.
TPO’s determinations, while often sympathetic to the member, must follow both statute
and case law where members have sought advice which employers cannot give. Although it
would often benefit a member if the employer takes an extra step to provide assistance,
that may involve taking on a responsibility that no prudent employer would choose to
adopt. Trustees may also face questions from employees that could benefit from that extra
step, and it is important to ensure that any responses do not cross the line from providing
information to giving unauthorised advice. In broad terms, employers are not obliged
to advise members about options relating to their pension rights, highlight potentially
detrimental member decisions or inform members of how best to exercise their choices
under a scheme’s rules. The only requirement is to make sufficient information available to
the member, and there is no automatically enhanced duty when a member is terminally ill.
The case of the Estate of Mr Y covers a sad sequence of events. It seems that the member was
not fully familiar with the technical details of the pension options in his final months and
this no doubt contributed to the confusion surrounding the disputed phone call. From an
employer perspective, this determination may cause concern, as it suggests a widening of the
duty to advise employees. Nevertheless, the Courts have decided that the scope of the duty on
employers to advise on pension rights is fairly narrow. TPO is generally reluctant to rule that
the Scally duty has been breached. Following Crossley, it is clear that there is no implied duty
on an employer to take reasonable care of an employee’s financial well-being.
In the case of the Estate of Mr R, the trustees were found to have breached their fiduciary
duty by failing to provide the member with all relevant information to ensure he made an
informed decision, and significant compensation was awarded to his estate as a result.
However, that finding was not mirrored in Mrs L’s complaint, where TPO found that the
trustee and the employer had provided sufficient information to enable the member’s own
sound decisions. The only breach here was the severe delay in process, which amounted to
Employers should be aware that TPO has often found maladministration where employers
have failed to follow good practice. Trustees and employers should be on high alert when
they learn of a member’s terminal illness and ensure related benefits queries are dealt
It is simple human kindness to exercise some understanding that members’ thoughts will
not be fully focused on the finer details of their pension benefits when they have received a
terminal diagnosis. It must be best practice for trustees and employers to reiterate in simple
terms the scheme rules that apply and, where possible, set an ill health retirement date
as early as possible. Where there is a discretionary notice period, employers may wish to
consider waiving it altogether. Employers should always seek to provide members with full
details of a scheme’s benefit structure, ensure the information is clear and ultimately suggest
that members seek independent advice before making important financial decisions.