A recent Pensions Ombudsman determination on the European Metal Recycling Scheme provides a useful warning for trustees. The Ombudsman held that a rule labelled as a forfeiture provision did not actually extinguish a beneficiary’s entitlement to unpaid spouse’s pension and GMP arrears. Trustees should check whether their rules contain clear operative forfeiture wording, understand why any underpayment arose, and keep evidence of tracing and historic administration decisions. This is particularly important where buy-out or wind-up work may expose unresolved arrears issues and historic payroll anomalies.

The Pensions Ombudsman’s determination in Mr G, on behalf of the estate of Mrs P, concerning the European Metal Recycling Limited Pension and Life Assurance Scheme is another reminder that trustees cannot assume that a clause headed “forfeiture” will necessarily allow historic arrears to be cut down. The complaint concerned a spouse’s pension, including GMP, which had been paid after the member’s death in 1996 but appears to have stopped in about 2001. The reason for the cessation could not be established. Following Mrs P’s death in 2020, the trustees paid only six years of excess pension and eight years of GMP arrears, relying on what they considered to be a discretionary forfeiture power in the scheme rules.

The statutory regime may permit forfeiture of pension arrears in some circumstances, but it does not itself forfeit the benefit. For ordinary pension arrears, section 92(5)(b) of the Pensions Act 1995 permits scheme rules to provide for forfeiture where a claim is not made within six years after the amount becomes due. For GMP, regulation 26 of the Occupational Pension Schemes (Schemes that were Contracted-out) (No 2) Regulations 2015 provides for an eight-year period. The critical question was therefore whether the scheme rule was effective as a matter of drafting.

The Ombudsman held that it was not. Although the relevant rule was labelled as a forfeiture provision, its operative wording only allowed the trustees to apply unclaimed money for the purposes of the scheme. It did not clearly extinguish, suspend, time-bar or otherwise remove the beneficiary’s underlying entitlement. Applying the approach in Lloyds, Punter Southall/Axminster and CMG, the Ombudsman treated clear operative wording as essential. A heading, or wording which deals only with what trustees may do with unclaimed money, is not enough.

That conclusion mattered because the case was not a straightforward missing-beneficiary scenario. Mrs P had been in receipt of a pension which then stopped for reasons that remained unexplained. The Ombudsman regarded the case as one of underpayment, potentially caused by administrative error, rather than simply a failure by the beneficiary to claim. That distinction is important in practice. If a pension has stopped because of a scheme or administrator failure, trustees may face a more difficult argument that the member should lose arrears merely because the error remained undiscovered for many years.

The determination also highlights the importance of tracing and record-keeping. The Ombudsman’s findings were influenced by the uncertainty about why the pension payments stopped and by the available evidence of the tracing steps taken. Trustees do not need perfect records of every historic decision, but where arrears are significant, gaps in the audit trail can make it much harder to justify reliance on a forfeiture rule or to explain why payments ceased in the first place.

For trustees, the key takeaway from this determination is to review the scheme’s forfeiture wording before relying on it. It is worth asking whether the rule expressly removes the right to the benefit, or whether it merely says that unclaimed money may be used for scheme purposes. Trustees should also distinguish between genuinely unclaimed benefits, missing-beneficiary cases, and historic underpayments caused or potentially caused by administrative error. That analysis may affect both the legal position and the exercise of any discretion.

This is particularly relevant for schemes preparing for buy-out, wind-up or data-cleansing projects. Historic pension payroll issues, member tracing gaps and ambiguous forfeiture wording can all surface late in the process. A short review, combined with a clear decision-making paper on any affected arrears cases, may help trustees avoid a much more difficult dispute later.