Kemp v Sims & Anor

A statutory appeal from a Pensions Ombudsman determination is confined to points of law and proceeds on the facts found by the Ombudsman. Scheme assets held by pension scheme trustees belong to the trustees for application under the trust and scheme rules, even where the employer paid the premiums. A demutualisation payment relating to an insurance policy held by trustees is therefore scheme property. Diverting it to the employer without an authorised power is a breach of trust. Relief under section 61 of the Trustee Act is unavailable where a qualified lawyer administering the scheme could not reasonably have adopted the course taken. A scheme providing benefits on termination of service or death may fall within the statutory definition of an occupational pension scheme even if its benefits are payable as cash rather than as periodic pensions.

Mr Kemp appealed on points of law against a determination of the Deputy Pensions Ombudsman dated 7 March 2008. The Ombudsman directed him to pay £86,818 plus interest to the trustees of the Powage Press Cash Benefits Scheme.

The scheme held an insurance policy with Scottish Widows. Following demutualisation, compensation was paid by cheque to the trustees but was instead paid into the principal employer’s bank account and used to reduce its borrowing. The appeal challenged the factual basis of the determination, ownership of the compensation, the Ombudsman’s jurisdiction, the status of the scheme, and the effect of the employer’s later liquidation and a successor employer’s assumption of obligations.

1. Appeal dismissed. The appeal was an appeal on a point of law under section 151(4) of the Pension Schemes Act 1993. The facts were those found by the Pensions Ombudsman.

2. The Ombudsman’s mistaken observation that Mr Kemp might have benefited as a shareholder did not vitiate the determination. The operative reason for refusing relief was that, as a qualified lawyer who administered the scheme and had received the Scottish Widows booklet, he could not reasonably have diverted the compensation to the employer. His status as a guarantor also provided a sufficient basis for the observation that he stood to benefit indirectly.

3. The demutualisation compensation belonged to the trustees. The trustees were the owners of the policy and the rights as members of the Scottish Widows Mutual Society. The employer’s payment of premiums did not make it the owner of the policy or its proceeds. The scheme rules provided no power to return scheme monies to the employer during the scheme’s continuation, apart from the specified arrangements on termination or reduction or suspension of contributions to an over-funded scheme.

4. Paying the cheque into the employer’s bank account and using it to reduce the employer’s borrowing was therefore an unauthorised transfer of scheme funds and a breach of trust. The Ombudsman had jurisdiction to determine the ownership dispute between the scheme members and the principal employer.

5. The scheme fell within the statutory concept of an occupational pension scheme because it provided benefits, in the form of pensions or otherwise, payable on termination of service or death. The fact that the benefits were cash benefits did not remove the scheme from the Ombudsman’s jurisdiction.

6. The later liquidation of the original employer and assumption of the principal employer’s obligations by Pepbury did not undermine the determination. There were no grounds for treating that deed as invalid or for concluding that a surplus would have been available to the original employer’s creditors. Relief under section 61 of the Trustee Act was unavailable. The direction to pay £86,818 plus interest was upheld.

1. Deputy Pensions Ombudsman: determination dated 7 March 2008 directing Mr Kemp to pay £86,818 plus interest to the scheme trustees.
2. High Court (Chancery Division): appeal on points of law dismissed and the Ombudsman’s direction upheld.