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Ill-Health Retirement - Are You Aware of Your Duties?

on Friday, 16 August 2019.

The Pension Ombudsman found that an employer's failure to assess its employee for ill-health retirement until the end of her sick leave...

... and the consequent delay in dismissing her and commencing pension payments, was a failure in its duty of care and tantamount to maladministration.

Background

Mrs I was employed by Southwark Council when she was diagnosed with advanced cancer in September 2015. She went on sick leave for a year from October 2015, with six months full pay followed by six months half pay.

However her health wasn't assessed for ill-health retirement until after her sick leave had ended. She received a home visit in December 2016 followed by a referral to an occupational health provider who recommended ill health retirement. Southwark's decision making processes meant that Mrs I wasn't officially dismissed until June 2017, with her pension payable from that time.

Mrs I's pension payments only began in February 2018, and the amount was backdated to her dismissal June 2017 with interest. By this time she had been without proper pay for 22 months, since April 2016 when her sick pay was reduced to half pay. During this time she had been caring for her two young children while managing hospital appointments and chemotherapy, and had experienced serious financial hardship.

Mrs I attempted to raise the issue via an internal dispute resolution procedure, but was ignored. She also tried to access her additional voluntary contributions during this time but Southwark failed to provide the required letter of authority.

Mrs I therefore complained to the Pension Ombudsman that Southwark had failed in its duty of care by not assessing her earlier for ill-health retirement, causing her loss of income and financial hardship.

The Pension Ombudsman's Decision

On the facts of this case the Ombudsman found that Southwark's lack of action until the end of Mrs I's sick leave was not acceptable. Had Southwark acted earlier, Mrs I's pension would have begun in October 2016 when her sick pay ended.

The Ombudsman noted Government guidance stating that, with regards to ill-health retirement, an employer's role begins long before termination of employment when the question arises of whether an employee is entitled to ill health retirement benefits. Southwark had failed in duty of care to its employee and its lack of action was tantamount to maladministration.

The Ombudsman therefore ordered Southwark to pay the seven and half months outstanding pension payments, together with interest and £3,000 compensation for Mrs I's distress and inconvenience.

Best Practice

Where an employee is seriously unwell, an employer must take on board the gravity of the situation and be proactive in dealing with the question of ill-health retirement if this is provided for under the terms of their pension scheme. Urgent action is required given the impact that the stress of financial hardship may have on an employee who is already unwell. This decision makes it clear that the Ombudsman will not be sympathetic to employers who are slow to act in these circumstances.

It is also worth noting that Southwark tried to argue that this matter was solely an employment issue outside the Ombudsman's jurisdiction to consider. Employers should be aware that the Ombudsman has power to investigate complaints of injustice in consequence of maladministration in connection with any act or omission of the trustees or managers of an occupational or personal pension scheme. This includes the manner in which an employee is moved from employment to ill-health retirement.


For more information, please contact Michael Halsey in our Employment Law team, on 020 7665 0842, or complete the below form.

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