The Pensions Ombudsman has said a High Court judgment, which overturned one of his decisions, is “disappointing” as it does not clear up a potential inequality between private and public sector pension schemes.

The Ombudsman had ruled that the Police and Crime Commissioner for Greater Manchester should pay the claimant, Catherine Butterworth, a bridging pension from its own funds and £2,000 in compensation after it refused to pay her an unreduced pension upon reaching the age of 55, which was promised by the Commissioner’s predecessor, the Greater Manchester Police Authority.

However, the Commissioner argued that as a matter of construction the commitment made to Butterworth by its predecessor did not bind it in the circumstances and that, even if it did bind it, it was not within its powers to provide such a benefit.

As a result, last Thursday 10 November, High Court deputy judge Jonathan Crow QC overturned the Ombudsman’s decision, despite the Ombudsman himself taking a proactive role in the appeal case. Crow found that the clause containing the commitment was worded in such a way, that in the circumstances, the Commissioner was not contractually bound to give Butterworth access to an unreduced pension at age 55.

Butterworth herself was not represented in the appeal but the Ombudsman had hoped that in participating he would obtain clarity as to whether the Commissioner, as a public authority, could avoid the effect of its contractual commitment to Butterworth on the ground that making the commitment lay beyond its powers.

Currently the legal position on this point is uncertain, but it is a matter of relevance to the Ombudsman as it is an issue in a significant number of complaints that he receives. The Ombudsman’s view is that the effect of the current uncertainty is that an inequality arises between public and private sector pension schemes.

In private sector schemes, employers who make pension commitments to members would not ordinarily be able to rely on a lack of power to deny a liability to fulfil such commitments. By contrast, it appears that the legal principles applying to public sector employers can produce a different outcome for members.

However, deputy judge Crow ruled that the wording of the clause containing the commitment did not bind the Commissioner to provide the benefit, which meant he had no need to tackle the issue of the inequality.

However, he acknowledged that “whether a public authority can avoid the ostensible effect of a contractual commitment on the ground that making the commitment lay beyond its powers” was a “vexed question on which the law remains uncertain”. Therefore, the Ombudsman hopes that, in the interests of providing clarity, this issue will come before the courts for consideration in the near future.

Pensions Ombudsman Anthony Arter said: “The judgment is largely disappointing. We had hoped that the issue outlined above would have been addressed so as to provide clarity for our service, and others, going forward. Furthermore, on the particular facts of Mrs Butterworth’s case, it is disheartening that the court was not able to remedy the underlying injustice here that (as it was accepted by the Commissioner’s advisers) Mrs Butterworth “probably was encouraged to think that she would receive an unreduced pension at age 55” (paragraph 4 of the judgment). Nevertheless, I cannot fault the legal reasoning adopted by deputy judge Crow in this complex case.”

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