Ainslie v Sun Life Assurance Company of Canada (UK) Ltd (t/a Sun Life Financial of Canada) (Rev 1)

A contractual pension settlement is not varied merely because legislation later changes the benefits that may generally be provided. A pension commencement lump sum is available only where the member has a contractual or scheme-based entitlement to it. Standard communications cannot objectively vary a specific settlement where the provider has previously made its contrary position clear. An offer to vary may be withdrawn before acceptance. In unusual circumstances, a settlement may implicitly exclude an open-market option where any improved annuity rate would merely increase the corresponding deduction from benefits already paid. The Pensions Ombudsman is not required to direct a variation that confers no substantive benefit.

The appellant appealed under section 151(4) of the Pension Schemes Act 1993 against a determination of the Deputy Pensions Ombudsman concerning a protected-rights fund held under a personal pension arrangement with the respondent.

The parties had entered into a 1996 settlement intended to provide redress for disadvantages arising from the appellant’s transfer from an occupational pension scheme. The settlement required the protected-rights fund to purchase an annuity, with a corresponding reduction in the pension already being paid. The appellant later claimed an entitlement to take 25 per cent of the fund as tax-free cash and to use an open-market option. The Ombudsman rejected both claims. The central issue was whether the settlement had been varied, or otherwise ceased to govern those rights, following legislative changes and subsequent correspondence.

1. Appeal dismissed. The pension rights were governed by the 1996 settlement, which did not provide for a tax-free cash lump sum from the protected-rights fund. Its structure required the fund, on vesting, to purchase an annuity and the existing pension to be reduced correspondingly.
2. The changes introduced by the Finance Act 2004 did not themselves vary the settlement. A pension commencement lump sum was not an automatic statutory entitlement. The statutory definition required the member to become entitled to the lump sum in connection with becoming entitled to a pension.
3. Whether a contract has been varied is determined objectively, having regard to the surrounding circumstances. The general notes accompanying annual plan statements could not objectively amount to an offer to vary this specific settlement, particularly in view of SLFC’s earlier express statements that the settlement prevailed over standard communications and did not permit tax-free cash.
4. The personal letter of 23 February 2006 was capable of being an offer to vary the settlement and showed an intention to create legal relations. However, the letters of 18 February and 11 May 2010 clearly withdrew that offer before acceptance. The appellant therefore acquired no contractual right to tax-free cash, and there was no basis for estoppel.
5. The settlement implicitly excluded an open-market option. Although that option existed in 1996, obtaining a higher annuity rate from another provider would merely produce a corresponding greater reduction in the pension paid by SLFC, while creating administrative inconvenience. Alternatively, even if the option had not been excluded, no direction under section 151(2) would have been appropriate because it would confer no benefit.
6. The earlier agreement to allow vesting at age 75 was a separate variation and did not oblige SLFC to agree to a further variation. The court noted that inaccurate communications might have supported a maladministration complaint, but could not confer the substantive rights claimed.

High Court (Chancery Division): appeal from the Deputy Pensions Ombudsman’s determination dated 20 December 2012. The appeal was dismissed.