Council liable for losses due to teacher's reliance on incorrect TPS in-service death benefits statements

Late teacher's estate awarded damages for school's failure to inform the TPS that she had exhausted sick pay and was not in pensionable service

The impact of long term absence on pensionable service under the Teachers' Pension Scheme (TPS)

Under the rules of the Teachers' Pension Scheme (TPS), a teacher will not be in "pensionable service" once he or she receives less than half rate sick pay. The scheme also provides that a death in service grant will not be payable if a member dies more than 12 months after leaving pensionable service.

Case: The Estate of Mrs S (Pensions Ombudsman)

Mrs S was a part time teacher employed by Liverpool City Council at St Paul's Catholic Junior School. She developed a melanoma and had periods of long term sickness absence. She expressed a wish to return to work, but unfortunately her condition worsened and she was unable to do so. Eventually, she exhausted her sick pay entitlement. The school governing body agreed with Mrs S that she could remain on payroll on no pay. The council continued to report to the TPS that Mrs S was an employee. 

Mrs S received statements from the TPS (one five months and another 16 months after her sick pay ended). Both stated that she was in pensionable service and would be entitled to a death in service grant of around £114,000. She found out that her condition was terminal but decided not to apply for ill-health early retirement because she thought her family would be better off if she died in service.

Following her death, Mrs S's husband received notification that a death grant of £18,703.62 was payable, along with an annual spouse's pension and long term children's pension, each of around £3,000. When he was not able to resolve his complaint with the TPS, he complained to the Pensions Ombudsman.

The Pensions Ombudsman decision

The Ombudsman decided that Mrs S had relied on the TPS statements in her decision not to apply for ill-health retirement and that she was unaware of the amount which would have been available to her if she had taken ill-health retirement and commuted her benefits.

The TPS submitted that it was very likely that Mrs S would have been accepted for enhanced ill-health retirement benefits, given that her condition was terminal. It calculated that, along with annual pension payments, she could have commuted her ill health benefits for a tax-free lump sum of just over £100,000.

The Ombudsman found that the TPS guidance to employers about what was meant by pensionable service was clear enough and that the council had failed to make necessary enquiries to avoid this mistake. He determined that the council's failure to inform the TPS that Mrs S was no longer in pensionable service was negligent and had led to the TPS providing her with incorrect statements on which she relied. The Ombudsman concluded that it was more likely than not that Mrs S would have applied for ill-health retirement if she had been aware of the lower level of benefits available to her family should she die while out of pensionable service. He directed that the council should pay to Mrs S's estate the maximum benefits which Mrs S would have received if she had made such an application (minus the amounts already paid by the TPS). It is likely that this will be over £100,000.

Comment

Employers should be aware of the importance of regular and accurate communication of relevant details about employees to any relevant pension scheme. Where negligence leads to pension / death in service grant losses, there is a real risk that the employer could find themselves liable for very large sums in damages.

In some cases, employers have a positive duty to draw an employee's attention to contractual benefits, such as pension benefits. This occurs where the terms of the contract have not been negotiated with the individual employee, the contract includes a valuable benefit which the employee will only receive if they take some action themselves, and the employee cannot reasonably be expected to know about the benefit unless it is drawn to their attention.  This is known as the "Scally duty" following the case of Scally v Southern Health & Social Service Board [1991] IRLR 522. This duty did not apply to Mrs S as it was shown that she knew she had the right to apply for ill-health retirement.

The Department for Education commented in submissions that it was "extremely unusual" for a teacher to remain an unpaid employee, as happened in this case. Employers, including schools and academy trusts, should note that remaining on payroll is not necessarily the same as being in pensionable service under the rules of a pension scheme and it is important to be clear with employees about this difference.

Although it was not relevant here, in cases where long term sickness benefits are only available if the employee remains employed, there is a risk of disability discrimination claims arising following dismissal. (See our recent article on this point here.)

Chris Billington, Head of Education at Wrigleys comments: "All cases are specific to their facts but we do come across similar situations where employers have sought to protect the TPS entitlements of teaching staff who have moved into non-teaching, often executive roles and particularly within academy trusts.  This case should be a wake-up call to employers who put the school at risk of a significant financial liability where those roles cease to satisfy "pensionable service".

If you would like to discuss any aspect of this article further, please contact Alacoque Marvin or any other member of the Employment team on 0113 244 6100. You can also keep up to date by following Wrigleys Employment team on Twitter The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.