You cannot be serious!

The ball was on the line. There was chalk dust. Are you blind?

It can be pretty annoying when we don’t get what we think we are entitled to. The sense of injustice may not be proportional to the wrong. Imagine you go into a shop to buy an item for 95 pence and hand over £1.  You wait for your change. You can see it in the tray of the cash register. After a short while the shopkeeper closes the till and wishes you a good day. “No change?” “Sorry sir, we have a rule in this shop that if you don’t ask for your change within 15 seconds, we keep it.”

What’s any of this got to do with pensions? It’s about forfeiture rules and in particular the type of rule where the trustees don’t have any discretion to pay the benefits.

It’s clear from the recent cases that these rules will be effective to deprive members of benefits even if they don’t realise they have been underpaid. Requesting your full pension when you retire isn’t enough. You’ve actually got to appreciate that an amount which has been paid to you is less than it should have been and claim the difference before the forfeiture rule deprives you of your benefit. You’ve probably got to do that for each instalment of underpaid pension. That’s a pretty tall order for most people who aren’t employed as pension administrators or actuaries. Even those of us who are employed in pensions can struggle with things like later earnings additions and appropriate additions.  It is unrealistic to expect members to be able to calculate their own pensions. They rely on trustees and the professionals they employ to do that.

Contrast the position of the underpaid pensioner with the former member whose transfer value was less than it should have been. The latter can make a claim against the trustees whilst they still hold assets from which it can be paid. There is no time limit whatever the scheme rules say. 20 years later, 30 years later, it doesn’t matter.

Pension rights are earned by members through their contributions and service. It cannot be right that they can lose benefits because the drafter of the scheme rules 40 or 50 years ago happened to use a precedent which included a mandatory forfeiture rule.

There is nothing wrong with forfeiture rules in principle. They give certainty and protection from stale claims (except in relation to transfer values). But for mandatory forfeiture rules there should be a statutory override giving trustees a discretion to pay the benefits to current pensioners.

Read Max Ballad’s article in Professional Pensions, here. Another version of this article was published in Employee Benefits, here.