The Pensions Ombudsman (TPO) has upheld a complaint against MyCSP and the Cabinet Office in relation to the payment of interest on backdated injury benefit payments.

As a result, MyCSP and the Cabinet Office have been directed to pay the complainant, Mrs S, simple interest on each of her benefit payments from the date she was originally eligible to receive it up to the date it was actually paid, at the base rate for the time being quoted by the reference banks.

The case follows on from a previous TPO decision, which ruled that Mrs S’ applications for ill health retirement and injury benefit were not considered in a proper manner. As a result, she was given the opportunity to reapply, and was successful. MyCSP subsequently backdated Mrs S’ injury benefit to the date when she left her employment, 22 October 2011.

The Civil Service Injury Benefit Scheme (CSIBS) provides compensation to members who are injured, or contract disease, during the course of their official duties. CSIBS benefits are discretionary under Rule 1(ii) which states: “The benefits under this scheme will be paid at the discretion of the Minister and nothing in the scheme will extend or be construed to extend to give any person an absolute right to them.”

Mrs S raised a complaint with the scheme’s internal dispute resolution procedure (IDRP) when she found out that she would not receive interest on her backdated payments. She argued that she should have interest paid to her as the payments might have been paid sooner if MyCSP had properly considered her first application.

However, in response, MyCSP stated: “CSIBS benefits are discretionary under rule 1(ii)- there is nothing in the scheme to give any person an absolute right to them. Accordingly, there are no provisions in the CSIBS rules for the payment of benefits on a given date, or for the payment of interest. Your appeal in July 2013 for a review of your impairment assessment did not give rise to your entitlement to benefits or give you an expectation that benefits would be paid to you on a particular date.

“Your expectation was, that if your appeal resulted in a decision by MyCSP to award you CSIBS benefits, these would be backdated to the date you left service. The dispute about your eligibility to appeal took some time to resolve and you did not become entitled to injury benefits until August 2017. You received payments a month later. Cabinet Office will not agree to pay interest on benefits that you received 1 month after MyCSP exercised discretion to pay them.”

As a result, Mrs S brought her complaint back to the ombudsman, in which an adjudicator ruled that further action was required by MyCSP and Cabinet Office. In particular, the adjudicator found that in backdating the IBA to 22 October 2011, MyCSP accepted that Mrs S should have been entitled to it from this date. Therefore, the adjudicator believed that MyCSP should have awarded simple interest on the lump sum and pension payments, and that Mrs S’ complaint should be upheld.

The adjudicator referred to section 151A of the Pensions Schemes Act 1993 (the 1993 Act), which deals with interest on late payment of benefits. However, MyCSP and Cabinet Office did not accept the adjudicator’s opinion and the complaint was passed to Deputy Pensions Ombudsman, Karen Johnston.

In defence, MyCSP and the Cabinet Office asserted that CSIBS is a statutory scheme made under Section 1 of the Superannuation Act 1972. No provision is made within the scheme rules for payment of interest on late, or backdated payments under the scheme. MyCSP and the Cabinet Office contended that, with reference to section 151A of the 1993 Act, an ombudsman’s power to award interest is discretionary and that the discretion can only be exercised following a direction to the scheme to make a payment.

They believe that section 151A is not relevant to Mrs S’ case as in the previous determination issued on 22 March 2016, there was no direction or requirement that interest be paid. Furthermore, the direction was to consider the further evidence provided by Mrs S, not for any payment to be made, so it would not have been possible to make a direction for the payment of interest.

They referred to the case of Riddell, case reference PO-72726/1, which demonstrates that there is no legal entitlement to interest and assert that there can be no complaint of maladministration in respect of the decision not to pay interest.

In her ruling, Johnston accepted that the relevant rules themselves do not make provision for interest to be added in these circumstances. However, she did not consider that this means interest cannot be paid. As evidence she noted that there is authority that interest is payable when a trustee pays arrears of pension to a beneficiary to acknowledge and compensate for the fact that the member has been kept out of their money, which they should have had sooner. The issue was recently considered in the case of Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank Plc and others (2018).

“I accept MyCSP and Cabinet Office’s submissions that in the circumstances, section 151A of the 1993 Act cannot apply here as there was no direction to make any payment earlier. Until the redecision to backdate benefit had been made it could not have been known whether there was any basis to award interest under section 151A. However, under section 151(2) of the 1993 Act, I have a general power when determining a complaint, to direct any person responsible for the management of the scheme to which the complaint relates to take, or refrain from taking, such steps as I may specify. In this case I am satisfied that to achieve a complete remedy for Mrs S, she should receive interest on the benefits which have been backdated to 22 October 2011.”

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