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Ombudsman pension award against Police Commissioner overturned by court

A term in a settlement agreement that a public sector employer would use its "best endeavours" to maintain a former employee's full pension entitlement was not a binding commitment, enforceable against a successor body, the High Court has ruled.

The judgment overturns findings by the Pensions Ombudsman, Anthony Arter, in favour of former Greater Manchester Police Authority (GMPA) employee Catherine Butterworth. Butterworth left her role with the GMPA in 2011, with the assurance that she would be allowed to access her full pension from the age of 55 "to the extent that it is and remains lawful for the employer to do so".

The case was one of the first in which the Pensions Ombudsman intervened, following his announcement of July 2016 that he would be more proactive about doing so in cases of wider public interest. Arter took the decision to do so in order to "obtain clarity" as to whether a public body could "avoid the effect of its contractual commitment to Mrs Butterworth on the ground that making the commitment lay beyond its powers".

In a statement, Arter said that the High Court's judgment was "largely disappointing".

"We had hoped that the issue outlined about would have been addressed so as to provide clarity for our service, and others, going forward," he said.

"Furthermore, on the particular facts of Mrs Butterworth's case, it is disheartening that the court was not able to remedy the underlying injustice here that (as it was accepted by the [employer's] advisers) Mrs Butterworth 'probably was encouraged to think that she would receive an unreduced pension at age 55'. Nevertheless, I cannot fault the legal reasoning adopted by deputy judge Crow in this complex case," he said.

Had the case involved a private sector pension scheme, the employer would not ordinarily be able to argue that it lacked the power to fulfil a commitment made to a pension scheme member, according to the Ombudsman.

Butterworth had been an employee of the GMPA since 1996, and in 2008 was appointed to the six-year fixed term post of HR and development director. Her employer had promised to use its "best endeavours" to allow her to retire early, with "maximum augmentation" of her pensionable service, "in so far as the pension regulations in force at the time allow the force to do so" when her contract ended.

In May 2011, after the employment relationship deteriorated, Butterworth and the GMPA negotiated a compromise agreement stating that she would be allowed to access her pension without reduction at the age of 55 to the extent that it was "lawful" for the employer to allow this. In 2014, in anticipation of her 55th birthday, Butterworth requested an unreduced pension from the GMPA's successor body, the Police and Crime Commissioner for Greater Manchester. However, this request was refused. The Commissioner argued that the relevant clause in the settlement agreement did not bind it in the circumstances of the case and that, even if it did bind it, it was not within its powers to provide her with an unreduced pension.

In an April 2016 determination, the Pensions Ombudsman found that the GMPA had made a commitment to Butterworth, and that there was no justification for its successor to refuse to comply with that commitment. However, the High Court disagreed. On the wording of the relevant clause, "the future performance of that commitment was avowedly conditional on such performance being lawful", which was not the case here, he said.

The judge was not required to directly tackle the question of "whether a public authority can avoid the ostensible effect of a contractual commitment on the ground that making the commitment lay beyond its powers" as part of the judgment. This remains "a vexed question on which the law remains uncertain", he said.

Pensions litigation expert Hayley Goldstone of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment raised "a number of interesting points around fettering discretions, estoppel, the powers of a public body and the ability of the Ombudsman to raise new issues of law on appeal".

"There are a couple of takeaway points," she said. "Firstly, to uphold his determination in the High Court, the Ombudsman ran a different legal argument – so, for anyone seeking to appeal a Pensions Ombudsman determination, take note that the Ombudsman may try to widen out his arguments. Secondly, in trying to square an underlying injustice with legal reasoning, the Ombudsman overlooked some key legal points which left him open to challenge."

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