Police and firefighter pensions - decision of the Pensions Ombudsman

Briefly - a decision of the Pensions Ombudsman in May 2015 had the effect of increasing the lump sum payable to many firefighters and police officers who retired in the early 2000s. The Government has accepted the decision in full and is working to identify affected individuals and ensure appropriate payments are made.

In more detail - the rules of some pension schemes – including those of the Firefighters’ Pension Scheme 1992 and the Police Pension Scheme 1987 – allow an individual to exchange (‘commute’) part of their pension for a lump sum. The amount of lump sum payable is calculated as the actuarial equivalent of the annual pension exchanged. These factors are reviewed periodically by the Government Actuary’s Department (GAD) to take account of factors such as life expectancy. For more detail, see GAD, Commutation factors: Pensions Ombudsman determination, 15 May 2015.

GAD reviewed these commutation factors in 1998 but then not again until 2008. These new factors were backdated to take effect from 22 August 2006 (firefighters) and 1 December 2006 (police) following a decision by the High Court in 2009 [2009] EWHC 488 (Admin).

This led to a number of complaints to the Pensions Ombudsman, who decided to consider that of Mr Milne as a specimen case. Mr Milne had retired from the fire service in November 2005 but was offered the commutation terms in force at that time - those which had been in force since July 1998. The Pensions Ombudsman took some time to reach a decision, in part because of a legal challenged launched by GAD regarding whether the Pensions Ombudsman had jurisdiction to consider the complaint. On 15 May 2015, the Pensions Ombudsman published its final decision, which was in favour of Mr Milne:

The Pensions Ombudsman decided that the factors should have been reviewed between 1998 and 2005, when Mr Milne retired. He has directed GAD to assess what the factor would have been in 2005 if reviews had taken place and to notify the administrator of the relevant part of the Firefighters’ Pension Scheme so that they can recalculate the cash sum. He also directed GAD to pay interest on any additional cash sum, from Mr Milne’s retirement date. (See Pensions Ombudsman's website - police and firefighters pension schemes).

It recommended that other police officers and firefighters hoping to benefit should wait for the response of the relevant government departments to its decision:

Strictly our decision only applies to Mr Milne. It is binding between him and GAD, unless there is an appeal to the court on a point of law.

Mr Milne was a member of the scheme in Scotland. Firefighters are employed by Fire and Rescue Authorities in England, Wales and Northern Ireland, and by the Scottish Fire and Rescue Service in Scotland, though these arrangements have changed over time. So the administration of the scheme involves a number of different bodies as well as different departments in Westminster and the devolved administrations.

However, the Pensions Ombudsman said in his decision that he hoped that all the relevant bodies would swiftly take steps to deal with the position of other affected retired firefighters and police so that it would not be necessary for their complaints to be pursued (Ibid)

On 9 June 2015, the Government said it accepted the Ombudsman’s determination in full:

The Government accepts the Ombudsman’s determination in full and recognises that there are other individuals, including retired police officers, who are affected by the principles set out in this determination. The Government is working with pension administrators to identify affected individuals and ensure that appropriate payments are made as quickly as possible. This will take time, with thousands of historic records to consider. Those affected will receive updates through their pensions administrators. (PQ 987, Police Pensions, 9 June 2015).

GAD issued guidance and revised commutation factors to the relevant Government departments on 7 August (Pensions Ombudsman determination (W Milne), 7 August 2015).

On 24 August 2015, the Pensions Ombudsman set out a response to two recurring questions. The first was that individuals were concerned to know whether they would get a lum sum payment like Mr Milne or whether their individual authority might not agree to pay it. On this point the Ombudsman said:

The Government has accepted the Determination and decided that appropriate redress will be paid [...] My predecessor had every hope and expectation that GAD, the Department for Communities and Local Government, and all other interested bodies, including those representing the fire and police authorities, would quickly and jointly consider what steps should be taken. I am satisfied that this is being done, however because complex actuarial, policy, funding, and taxation issues have to be worked out, and the numbers affected are so large, it will take a little time to sort out.

The second from people arguing that the commutation factors produced by GAD in 1998 (and other dates) were said to have been incorrect. On this point, paragraph 152 of Mr Milne's determination had said that what the factor would have been was "entirely a matter for GAD's judgment". (Pensions Ombudsman News Monday 24 August 2015).