Corsham & Ors v Police and Crime Commissioner for Essex & Ors

The appeals challenge the Pensions Ombudsman’s dismissal of complaints by retired police officers that their former police authorities and chief constables failed to warn them of adverse tax consequences flowing from taking pension benefits before the normal minimum pension age where they accepted post-retirement civilian employment within one month of retirement. Central legal material included the Finance Act 2004 (Part 4 and transitional provisions in Schedule 36, para. 22) governing protected pension ages and the consequences of unauthorised member payments, and the duties and reporting obligations of scheme administrators under the Provision of Information Regulations 2006.

The High Court held that a scheme administrator (here the police authority / its delegated pension administrators) in the circumstances should have known the relevant law and, where it knew (or should have known) that it was offering re-employment within one month of retirement, it assumed responsibility and/or owed a duty of care not to make misleading statements about the tax-free nature of lump sums. On the facts the Avon & Somerset Police authority had such knowledge and was liable for negligent misstatement; its successor (the Police and Crime Commissioner) is liable. The court did not find a comparable general tortious duty owed by chief constables to advise serving officers of the tax consequences of post-retirement civilian employment, and dismissed the claims against the chief constables. The Essex appeals were remitted to the Ombudsman for further factual findings about the Essex authority’s knowledge before a final decision on liability in those cases.

Background and parties: Five retired police officers (three from Essex, two from Avon & Somerset) appealed the Pensions Ombudsman’s decision of 21 August 2018 dismissing complaints that their police authorities and chief constables failed to inform them of tax consequences arising from taking pension benefits before the normal minimum pension age (which became 55 from 6 April 2010) when they accepted civilian employment with the police authority within one month of retirement.

Nature of the claim / relief sought: The complainants sought findings that the police authorities and/or chief constables owed duties to inform or warn them (in contract, in tort or as negligent misstatement) about the tax risks created by the Finance Act 2004 transitional provisions (in particular paragraph 22 of Part 3 of Schedule 36 and related rules) and consequent compensation for losses from tax charges on lump sums and pensions.

Issues framed: (i) Whether a relevant duty existed in contract/quasi-contract or tort on the police authorities (as scheme/sub-scheme administrators) to advise members of the tax consequences of re-employment within one month of retirement; (ii) whether chief constables (in their quasi-employer relationship) owed an analogous duty (relying on Scally v Southern Health Board and its progeny); (iii) whether the police authorities assumed responsibility and/or made negligent misstatements in standard pension letters; (iv) causation and loss.

Procedural posture: Appeals were brought to the High Court on points of law under Pension Schemes Act 1993 s.151(4) from the Ombudsman’s dismissal. Permission to appeal was granted in October and November 2018.

Reasoning and conclusions: The court found that scheme administrators should have been aware of the Finance Act 2004 rules and HMRC guidance and that Home Office guidance and other material made the legal position reasonably knowable. Where a scheme administrator (or its delegated pensions department) knew that the retiree would be re-employed by the authority within one month of retirement, a standard letter stating that a lump sum was "tax free" was misleading because, by reason of the re-employment and the 2004 Act transitional rules, the payments would be unauthorised and taxable. On those facts the Avon & Somerset authority was held liable for negligent misstatement and breach of a duty of care in relation to the information it provided; its successor, the Police and Crime Commissioner, is liable. The court declined to extend Scally to impose a general tortious duty on chief constables to advise officers about the external tax consequences of post-retirement re-employment: such an extension would be a major and unjustified development. For the Essex appellants the court remitted issues about the police authority’s knowledge of re-employment dates to the Ombudsman for factual findings before a final decision can be given on liability to them.

Practical outcome: successful liability finding against Avon & Somerset Police authority (and successor commissioner) for negligent misstatement; appeals versus chief constables dismissed; further fact-finding remitted for Essex appellants.

The High Court allowed the appeals in part. It held that where a police authority acting as scheme/sub-scheme administrator knew, or ought to have known, that a retiring officer would be re-employed by the authority within one month of retirement, a statement that the lump sum would be tax-free could be a misleading/negligent misstatement and give rise to liability; on the facts the Avon & Somerset authority was liable and its successor (the Police and Crime Commissioner) must answer for loss. The court refused to extend the principle in Scally v Southern Health Board to impose a general duty on chief constables to warn serving officers of the tax consequences of post-retirement re-employment and dismissed claims against the chief constables. The court remitted factual questions about the Essex authority’s knowledge to the Pensions Ombudsman for determination and further application of the legal principles set out in this judgment.

Appeal from the decision of the Pensions Ombudsman (Mr Anthony Arter) dated 21 August 2018, dealing with eight complaints and dismissing them. Permission to appeal to the High Court was granted (26 October 2018 for one group; 29 November 2018 for the other). This judgment is the High Court (Chancery Division) decision: [2019] EWHC 1776 (Ch), handed down 11 July 2019.