The Pensions Ombudsman has dismissed a complaint by a pensioner member, Mr S, concerning the Trustee’s decision to return a surplus of approximately £12m to Bristol Water on the winding up of the relevant section of the Water Companies Pension Scheme.
The Rules of the Scheme provided that, if there were surplus funds remaining after the members’ benefits had been secured in full with an insurer, the Trustee, in consultation with the Employer (Bristol Water), could:
- use the surplus to augment the members’ benefits, “if it considers it just and equitable to do so”, then
- return any remaining surplus to the Employer.
Having secured the members’ full benefits with an insurer, the Trustee considered how the surplus had arisen and concluded that the main contributory factor was significant additional contributions (amounting to over £16 million between 2005 and 2016) made by the Employer to allow the Trustee to adopt a less-risky investment strategy, which in turn improved the security for members’ benefits. Furthermore, the Employer had borne all the downside risk during the life of the scheme, whereas the members were to receive their promised benefits in full, with most being fully inflation-linked. The Trustee determined, therefore, that it was reasonable to return the surplus to the Employer.
Mr S contended that the Scheme’s funds should be used only for the benefit of its members and that the surplus consisted of various elements, including members’ contributions and investment returns. Therefore, he considered that it was “morally indefensible” for the Employer to benefit from the surplus.
The Ombudsman was satisfied that the Trustee had followed the requirements of the Scheme Rules and interpreted them correctly in reaching its decision, as well as having considered all the potentially relevant factors, including (but not limited to) the views of the Employer, the source of the surplus and members’ expectations. Therefore, he considered that the Trustee had acted properly and made a reasonable decision, so he did not uphold Mr S’s complaint.