Natwest Group Pension Fund Formerly Royal Bank Scotland Group Pension · CAS-102084-N1D3

CAS-102084-N1D3

Ombudsman’s Determination Applicant Mr N

Scheme NatWest Group Pension Fund (formerly Royal Bank of Scotland Group Pension Fund) (the Fund)

Respondents NatWest Group Pension Fund Trustee (the Trustee) NatWest Group (the Bank)

Complaint Summary

1 CAS-102084-N1D3 Summary of the Ombudsman’s Determination and reasons

Detailed Determination Material facts

NatWest Group Pension Fund. I shall refer to the merger of the two funds as the Merger.

Rule 10.4 of the Fund Rules (Rule 10.4), provided for increases to pensions in payment at least annually of RPI (over a reference period ending not more than three months before the increase date) capped at 3%. An extract

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The Initial Announcement enclosed questions and answers to address any immediate questions members might have about the changes and how they might impact them. It said that more detail about the proposed changes and more information to help members consider their options would be provided over the next few months.

“There is now a limit on the amount of any salary increase that counts for pension purposes. The maximum yearly increase in your pensionable salary will be 2% or the rate of increase in the UK Consumer Price Index (CPI), whichever is lower.

• Increases to pensionable salary will only take effect on 1 April, and

The cap on increase in pensionable salary will apply…

More details of how this works can be found on the Your Retirement pages of Insite > Human Resources > Retirement Savings.”

• Online retirement training modules

• A retirement planner, and

3 CAS-102084-N1D3 • Updated retirement intranet pages.”

Boost

Please also note that all references to pensionable salary in your plan booklet or other member communications regarding the plan should be read as subject to the terms and conditions attaching to the salary increase.”

It concluded with the statement, “Further information and FAQ can be found on Insite > Reward > Retirement Savings.”

The Fund Rules, at schedule 4, define ‘pensionable salary’ as follows:

“Pensionable Salary means in respect of any Member his basic annual salary received from the Employers plus the yearly average of such other earnings as the Employer by which he is employed may decide received from the Employers during the three preceding years (or during the shorter period in which they were received).”

As it was a condition of accepting an increase in pay that some of it might not be pensionable, Mr N agreed that the Fund Rules would be overridden to the extent required to give effect to the agreement. Therefore, although Mr N’s annual salary 4 CAS-102084-N1D3 increased by 4.5% in April 2010, applying the Pensionable Salary Cap meant that the increase in his pensionable salary was limited to 1.1% as Consumer Price Index (CPI) inflation in September 2009 had only been 1.1%. In April 2011, Mr N’s annual salary increased by 1.1%. As this increase was lower than the maximum increase that would have been allowed by the Pensionable Salary Cap (CPI inflation which, in September 2010 was 3.1%, capped at 2%), Mr N’s pensionable salary also increased by 1.1% in April 2011.

Section 51 introduced a requirement to increase pensions in payment which were attributable to pensionable service accrued from 6 April 1997, in summary as follows:

(a) the percentage increase in the RPI, or

(b) 5% pa,

whichever is the lesser.

It applied if, apart from this section, the annual rate of the pension under the scheme rules would not be increased each year by at least as above. Where schemes already provided for annual increases in line with the above, or were more generous, Section 51 did not apply. Therefore, it provided an ‘underpin’ to the increases set out in the governing documentation of the Fund.

Section 51 was later amended so that the requirement applicable to pensions in payment attributable to pensionable service from 6 April 2005 was to provide annual increases capped at 2.5% per annum.

5 CAS-102084-N1D3 Since 2012, statutory pension increases in relation to any pensionable service from 6 April 1997 have been calculated by reference to the CPI, rather than the RPI, and the revaluation Orders issued under Schedule 3 of the Pension Schemes Act 1993 have set out the revaluation percentages which are applied under Section 51 by reference to the CPI rather than RPI.

However, notwithstanding these changes to the statutory underpin, the Trustee continued to award annual increases subject to the rate cap which applied to pensionable service from 6 April 1997 to 5 April 2005, that is, subject to a cap of 5%. This was the case even though, from 6 April 2005, the statutory underpin had been reduced to 2.5%, which was lower than the 3% cap provided for in Rule 10.4. Therefore, while the underpin was not engaged where the rate of inflation was below 3%, where it was above 3%, pension increases continued to be paid subject to a 5% limit, even though this was no longer a statutory requirement. This practice continued until 2020.

For pensionable service between April 1997 and April 2005, the Trustee applied increases calculated using the January RPI capped at 5% until 2020. However, the statutory requirement was based on:

As a result, while the underpin applied the same 5% cap that the Trustee applied, in practice, some differences arose from the use of a different reference month for inflation and from the use of CPI rather than RPI from 2012. The Trustee has confirmed that, where these issues resulted in an overall underpayment of pension for any member, corrective actions have been taken, and the underpayment made good.

discrepancy between the application of increases to pensions in payment for former members of the Staff Scheme and the provisions of Clause 10.4 in 2018. It then obtained the advice of Leading Counsel, Nicholas Stallworthy QC, as he then was, (Counsel) about what increases to pensions in payment applied as a matter of interpretation of the current and previous governing trust deeds. Counsel was also asked to consider whether as a matter of interpretation the Transfer Agreement had amended the governing provisions to escalation capped at 5% to post-1997 pension accrual. Counsel advised the Trustee, in an opinion dated 18 December 2019 (the Opinion). A copy of the Opinion has been provided to The Pensions Ombudsman (TPO).

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Counsel was referred to the note of a Staff Scheme trustee board meeting on 6 March 1997 (the Board Meeting). The minutes of the Board Meeting included the following note:

“Limited Price Indexation

The Trustees noted that benefits accruing from 6 April 1997 will carry a guarantee of post-retirement increases of Limited Price Indexation (5% per annum or RPI if less). [ Actuary] confirmed that in his actuarial assumptions for the Scheme, allowance was already made for 5% per annum increases and therefore this would not have an adverse impact on the funding of the Scheme.

There would need to be a rule amendment in due course.” (emphasis added).

In Counsel’s opinion, at the Board Meeting, the Trustees were simply noting the then impending overriding effect of Section 51, which would operate as an underpin to the escalation otherwise required by the Staff Scheme Rules. Counsel’s view was that the Trustees had not effected a rule change at that meeting, otherwise the words “a rule amendment in due course” would not have been used.

Counsel was also instructed that no intervening deed of amendment had been executed, as would have been necessary pursuant to the amendment power in Rule 16 of the Staff Scheme Rules. Therefore, at the time of the 2002 Transfer Agreement, the right of members under the governing provisions was to increases capped at 3%, albeit subject to the overriding statutory underpin under Section 51 in respect of post- 1997 accrual.

In relation to the Transfer Agreement, Counsel considered the provisions of Clause 3, under which the benefits of active transferring members were stated to be as follows:

“In respect of pensionable service under the [Staff Scheme] before the Transfer Date, benefits which are the same as those which would have been provided under the [Staff Scheme] except as otherwise set out in this Agreement or as set out in the announcements attached to the Agreement in Schedule A;

for pensionable service under the [Fund] immediately after the Transfer Date, benefits on the basis previously notified to the Transferring Members in the announcement attached to this Agreement at Schedule A (but subject to the power to amend or terminate the [Fund].

In particular but without limitation,

the provisions of the [Staff Scheme] Deed and Rules in relation to the rate of increase to pensions in payment and preserved pensions shall apply for and in respect of Transferring Members.”

7 CAS-102084-N1D3 Counsel stated that the scheduled announcement had informed members that “your benefits will remain unchanged apart from some improvements”. The improvements listed on page two of the announcement did not include any improvements to increases to pensions in payment. Therefore, as a matter of interpretation, Counsel’s view was that the Transfer Agreement had not effected any amendment to the 3% cap.

Counsel also considered the provisions and announcements relevant to deferred pensioners and pensioners and reached the same conclusion as for active members. He examined an announcement relevant to pensioner members which referred to a Q&A sheet with further information. Question six on the Q&A sheet provided:

“How will my pension increase be calculated in future? That part of your pension which is in excess of the Guaranteed Minimum Pension is guaranteed to increase in line with inflation up to a maximum increase of 3% a year for service up to April 1997 and 5% a year for subsequent service this guarantee is not changing in the group fund …”.

In Counsel's opinion, the description of the escalation was “an entirely apt summary” of the overriding effect of Section 51 as it operated at the time. Counsel did not consider that the description detracted from the prior clear indications that no amendment or improvement was being made from the escalation previously provided, which “was not changing”.

The Section 48 Administration of Justice Act 1985 Order

The Trustee has stated that it was confident that it could and should proceed to apply increases in accordance with the rules once the error came to light and discontinue the more generous practice of escalation up to that point. However, it decided to apply to the High Court, for a ‘Section 48 order’, permitting it to do this prospectively. It has explained that it did this to provide reassurance, to affected members, that it was applying the correct rate of pension increase going forward.

The matter was decided by Mr Justice Nugee, as he then was (Nugee J). There was no hearing and scheme members were not party to these proceedings. Nugee J permitted the Trustee’s proposed approach, ordering as follows:

“The Trustee is authorised to administer the Fund in reliance on the Opinion of Nicolas Stallworthy QC dated 18 December 2019 by hereafter, pursuant to Clause 10.4 of [the Fund Rules], increasing the pensions in payment of former members of the Royal Bank of Scotland Staff Pension Scheme (and beneficiaries entitled through such members) by the increase in the Retail Price Index (as defined in that deed) up to a cap of 3% p.a. (subject to any underpin required by sections 51 to 55 of the Pensions Act 1995), rather than up to the higher cap of 5% p.a. which to date has been treated as applicable under the Fund’s governing provisions for increases to any part of their pension which is attributable to pensionable service on or after 6 April 1997.”

8 CAS-102084-N1D3 He went on to say:

“The only question which really arises, given the history of the relevant provisions, is whether the Q&A Sheet for Pensioners, enclosed with the Announcement scheduled to the Transfer Agreement dated 5 April 2002, had the effect of conferring an entitlement to 5% LPI increases on those pensioners. By clause 2 of the Transfer Agreement their benefits from the Fund were to be the same as those which would have been provided under the Transferring Scheme (the Staff Scheme) except as set out in the Announcements attached. The relevant Announcement provided that their benefits “will remain unchanged, apart from some improvements”. So the question is whether the reference to pension increases in the Q&A sheet (which referred to a guaranteed increase in line with inflation up to a maximum of 5% a year for service from April 1997) was one of those improvements. For the reasons given in Mr Stallworthy’s Opinion at paragraphs 28 to 30, I agree that it was not.”

Nugee J said, “I have no hesitation in saying that I agree with the views expressed in the Opinion.” For ease of reference, I have set out below the relevant paragraphs of the Opinion, which Nugee J endorsed:

28. Within the Q&A sheet, question 6 said:

“How will my pension increase be calculated in future? That part of your pension which is in excess of the Guaranteed Minimum Pension is guaranteed to increase in line with inflation up to a maximum increase of 3% a year for service up to April 1997 and 5% a year for subsequent service. This guarantee is not changing in the Group Fund …”

The final sentence quoted, stating that “This guarantee is not changing in the Group Fund” is entirely consistent with my interpretation of the body of the announcement as not describing any substantive amendment or improvement from the escalation previously provided by the Staff Scheme. Far from there being any amendment or improvement, escalation “is not changing”.

29. Further, the description of the escalation which the pensioners would continue to receive (underlined above) is an entirely apt summary of the overriding effect of s.51(2) (as it operated at that time), which operated as an underpin to the escalation otherwise required by the Rules. Indeed, it is a summary description of the overriding effect of s.51(2) in similar terms to the terms in which the trustees noted the impending effect of s.51(2) in their minutes in March 1997: “benefits accruing from 6 April 1997 will carry a guarantee of post-retirement increases of Limited Price Indexation (5% per annum or RPI if less).” Such a description of the overriding effect of s.51(2) does not detract from the prior clear indications that no amendment or improvement was being made from the escalation previously provided, which “is not changing”.

30. Standing back from such textual analysis, it additionally seems wholly improbable that the parties would have intended to improve escalation for such 9 CAS-102084-N1D3 Pensioners alone, and not for Deferred Pensioners or Active Members. By definition, such pensioners were unlikely to remain employees whom the Bank had any financial incentive to favour over Active Members. Still less likely is it that the parties would have intended to improve escalation for Pensioners alone without expressly identifying the improvement so as to get credit for it.”

reviewing the governing documentation for [the Staff Scheme] and the Fund, Trustee minutes and a wide range of member communications, and reviewing electronic and hard copy files held by the Group”. It also considered the information that the Trustee had compiled, took “extensive professional advice” and obtained advice from leading counsel, who was a different individual from that consulted by the Trustee.

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Your pension will increase each year by the lower of:

• The increase in an index agreed between the Bank and Trustee (currently Retail Price Index); and

• 3% for Pensionable Service before 6 April 1997 and 5% for Pensionable Service after that date.”

ame materials were used to communicate both the cap on pensionable earnings and the higher cap of 5% on pension increases

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Following the complaint being referred to TPO, Mr N and the Trustee made further submissions that have been summarised below.

Mr N made the following additional submissions:-

CMS Cameron McKenna Nabarro Olswang LLP (CMS) made the following additional submissions on behalf of the Trustee:-

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The tone of the Respondents’ responses to the PD was that the Pensionable Salary Cap was communicated in 2009 to be implemented in 2010, while the letter he sent related to a pay rise from 1 April 2011, so was unrelated. He could not remember what pay rise he received in 2010 or how it was communicated. However, the 2009 communication said that further information would be available internally from early 2010, so it was possible that the implementation was delayed, and 2010/11 pay rises were the first time that the Pensionable Salary Cap was formally applied.

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RBS4_76579 and a further version had a reference of RBS5_76579. So, the four and the five appeared to be revision numbers. The revision number five presumably came “a year after the other, and yet contains the same statement providing a 5% cap”. Given that changes were generally made annually, it would be reasonable to assume that three earlier versions existed, dating back to 2009. Given that it is highly improbable that the Bank would have a factsheet that did not reference the 5% cap, and then subsequently introduce a reference to it in later revisions, it is equally reasonable to assume that the version of the factsheet issued with the communication on the Pensionable Salary Cap also contained the 5% cap, and that it continued the practice established in the previous decade, of issuing brief letters referencing changes to Terms & Conditions, which were tied to pay rises.

A later version of the Fund Factsheet had been amended to represent what the Bank maintained was always the case in relation to pension increases. However, updating this document did not enable the Bank to rewrite history.

While Mr N understands the general point that, in law, the provisions of the Fund’s trust deed and rules take priority, he hopes that the above illustrates that “the Bank adopted an unwise practice of communicating changes in Terms and Conditions in what I understand now the law would regard as an informal manner. However, it was presented to employees as being formal and superseding or overriding other sources such as the Trust Deed and Rules. The Bank then compounded the problem […] by neglecting to ensure the formal changes were applied to the Trust Deed and Rules, leaving an opportunity for later management to exploit in the years leading up to 2020, where they could reduce actual funding for pensions, and therefore save cost at a time when cost saving had become critical for the Bank and for the new round of Executives leading the Group, who came from a NatWest heritage.”

The 2021 Rules show that Fund members from a NatWest heritage have a 5% cap on pension increases whereas those from an RBS heritage have a 3% cap. The Trustee said that it needed the Bank’s approval to adjust the cap for RBS heritage

19 CAS-102084-N1D3 members. However, the Trustee had the ability to make discretionary enhancements to members’ benefits. It had the opportunity, on a number of occasions, to use these powers.

The minutes of the Board Meeting stated that: “There would need to be a rule amendment in due course”. This could be interpreted as an acknowledgement of the Trustee’s duty to request such an amendment.

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It did not accept Mr N’s submission that it had failed to take steps to protect members (see paragraph 61 above). When the error was noticed, the Trustee took a number of steps to protect the interests of members. The Trustee considers that Mr N has overlooked the fact that it requested (and the Bank agreed) that members be allowed (a) to keep any net overpayments that resulted from the error; and (b) to retain their current pension in payment without reduction (even when it was higher than their correct entitlements). As a consequence, many members had benefited from the error in this case. The Trustee also undertook an extensive communications exercise to explain the impact to members, and rather than correcting pension increases immediately, sought a court order before making the changes to make sure that they were acting in accordance with the law.

21 CAS-102084-N1D3 It was satisfied that its investigation into the correct level of pension increases had been “appropriately wide-ranging and rigorous”.

In relation to Mr N’s more general comment that its response to his complaint at IDRP was insufficient, this appeared to be based on the incorrect premise that communications about the introduction of the Pensionable Salary Cap had referenced the 5% per annum cap, and so further information should have been provided about the decision not to maintain it. This was not correct. For completeness, the Bank has noted that most of Mr N’s IDRP complaint had been addressed by the Trustee in its responses, with which the Bank agreed, and the Bank had only been asked to respond on limited points.

While not directly relevant to Mr N’s complaint, the Fund Factsheet was produced in connection with changes to pension introduced in October 2012 and at that time was provided under cover of a letter from the Group, which provided additional context and noted the overriding nature of the Trust Deed.

The pensionable salary restriction applied to all salary increases from 25 August 2009. It was communicated in 2009 and then again as part of each annual salary review from 2010 onwards. Members were notified of any proposed salary increase and that it was conditional on them accepting the pensionable salary restriction.

The Fund Factsheet did not exist until 2012. No similar factsheet was issued as part of annual salary review communications in 2010 or 2011 (and indeed it does not currently form part of those communications).

Conclusions

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I have seen no evidence that the Fund Rules were amended following the Board Meeting. The required any amendment to those Rules to be effected by deed, having obtained the Bank’s approval. Although the minutes of the Board Meeting imply that a discussion took place and it was noted that “the rules would need to be amended in due course”, I have seen no evidence that the Bank’s approval to such an amendment was sought or obtained, or that any deed putting in place such amendment was executed to entrench the statutory cap within the Rules.

As I have explained above, Section 51 explicitly applied if, apart from that section, the annual rate of the pension under the scheme rules would not be increased each year by at least as provided for in the legislation. Where schemes already provided for annual increases in line with, or more generous than, the legislation, Section 51 did not apply. Therefore, the override was automatic. The scheme rules did not need to be changed to give effect to the statute. Consequently, there did not need to be a rule amendment to give effect to Section 51 in relation to the Staff Scheme, whatever the view expressed at the 1997 Board Meeting, and even though there appears to be no record of a later decision not to amend the rules in light of what was said at the Board Meeting.

I do not need to decide this point because the Staff Scheme Rules were not changed, but even if the view at the 1997 Board meeting had been that the Staff Scheme Rules would need to change to reflect the statutory underpin, there is no indication that this would necessarily have been a permanent change. If the comment at the Board Meeting was motivated by the impending change in the legislation, as it appears to have been, it seems logical that the Staff Scheme Rules would have been changed

23 CAS-102084-N1D3 again to reflect the 2.5% cap when it was introduced in 2005, or that any such amendment would have been made by way of an express reference to the provisions of Section 51 in force from time to time.

Regarding the Merger, in the Opinion, Counsel considered the communications that had been issued to Staff Scheme members at the time of the Merger in 2002, and whether those communications guaranteed increases to pensions in payment capped at 5%, particularly given that some of those communications referred to the pension increase as being “guaranteed”. However, as these communications were sent at a time when the statutory requirement for pension accrued from April 1997 was to apply increases based on inflation capped at 5%, in my view they were not incorrect. In addition, the announcements at the time did not indicate that there would be an improvement in the terms upon which pensions in payment would be increased for inflation. I agree with Counsel’s view that the announcements accurately reflected the legal position at that time, as the statute overrode the rules. Finally, in 2005, the amendment deed, explicitly, only changed the position for new joiners with effect from 1 July 2005. As Mr N had joined the Staff Scheme prior to 1 July 2005, increases to his pension were not within the scope of the deed of amendment.

Other documentation

Rectification

The Trustee has explained that, when the matter of the continued practice of capping increases at 5% came to light, it considered whether the Fund Rules were incorrect 24 CAS-102084-N1D3 and needed to be amended by rectification. With the benefit of legal advice (not all of which has been disclosed to me, as the Trustee relies on legal privilege) and following the Order of Nugee J, the Trustee concluded that there was inadequate evidence of an intention to change the rules, so rectification was not required.

Even though members may disagree with the Trustee about this, rectification is a remedy which can only be achieved through court proceedings and is outside my jurisdiction, so I have not considered this point further.

Mr N and other members have expressed dissatisfaction with the conduct of the Section 48 Court proceedings, on the basis that they were not given notice of them and were not allowed to participate. The effect of the Order is to protect the Trustee, from the time of the Order, from complaints that it is wrongly administering the Scheme by applying increases capped at 3%, as this approach has been sanctioned by the Court. However, it does not prevent members who were not party to those proceedings from challenging the opinion on which the Trustee relies, and which was presented to the Court in seeking the Section 48 order. I note that Section 48 does not require a hearing to take place in which scheme members may participate. Furthermore, the Court can only give an order under Section 48 without holding a hearing where it is satisfied that there is no dispute which would make it appropriate to hold a hearing. In any case, I would not have the power to make any Determination concerning the process followed under Section 48; this would be a matter for the courts.

The evidence I have seen indicates that, apart from at the 1997 Board meeting, amendment of the Rules was only canvassed after the practice of capping annual pension increases at 5% was discovered to be wrong, whereupon the Bank withheld its consent. For these reasons, I do not consider there is any basis on which to differ with the Counsel’s opinion, which was accepted by Nugee J. Therefore, in the absence of evidence of amendment of the Fund Rules, I find that, as a matter of construction, the pension increases paid to Mr N since April 2020, that is, subject to a cap of 3%, are in line with the terms in the Fund’s governing documentation and pensions legislation in force at the time.

Mr N’s agreement to the Pensionable Salary Cap

Mr N says the same materials were used to communicate both the introduction of the Pensionable Salary Cap and the cap on increases to pensions in payment and that those communications included the commitment to an increase in the cap on pension increases, from 3% to 5%. Mr N has submitted that: the Initial Announcement stated that the salary increase for that year was dependent on accepting the revised conditions, and that it referred to the Fund Factsheet as a source of further detail; and at page seven of the Fund Factsheet, increases to pensions in payment capped at 5% were stated to be “guaranteed”. On that basis, Mr N argues that the Fund

25 CAS-102084-N1D3 Factsheet is part of the contractual documentation containing promises that override the escalation provisions in the Fund Rules.

I have considered these documents. The Initial Announcement set out three proposed changes: a limit on increases to pensionable salary; change to redundancy options for early retirement; and the change to the minimum pension age as introduced by statute. These three changes were confirmed in the Purple Letter following the consultation process. Neither document referred to any proposal to amend the annual rate of increase to pensions in payment.

The Supplement Mr N has provided relates to any salary increase from 1 April 2011, which was after the Pensionable Salary Cap was introduced. It appears to be a document issued to Fund members alongside their respective pay letters for that year. I have not been provided with a copy of a similar document for the previous year, but Mr N’s pay increase in 2010 had also been subject to the Pensionable Salary Cap, as detailed in paragraph 17 above. The Supplement explicitly states that it contains the important terms and conditions attached to accepting any salary increase from 1 April 2011 and that the salary and ValueAccount displayed on the member’s pay letter is subject to accepting the terms and conditions set out in the Supplement. Under the heading “What does this mean to me?”, the Supplement states:

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It is clear that the terms and conditions contained in the Supplement relate to pensionable salary alone and do not incorporate any change to the rate at which pensions in payment are increased annually. I have not seen any communication which purports to incorporate into that agreement a condition that annual pensions in payment will be subject to a higher cap than the 3% cap provided in the Fund Rules. The pre and post consultation correspondence – the Initial Announcement and the Purple Letter - are evidence of the remit of the changes consulted upon. All three documents, including the Supplement, are consistent about the changes proposed and subsequently confirmed. Although members were referred to “Insite”, this was not explicitly stated to be a source of the terms and conditions of the agreement to accept the restriction to pensionable salary.

I shall consider now Mr N’s submissions that the Fund Factsheet contained terms and conditions that related to his acceptance of the Pensionable Salary Cap. Mr N appears to have obtained the Fund Factsheet some years after the introduction of the Pensionable Salary Cap (and after he had retired). The Fund Factsheet is a comparison document provided to illustrate benefit differences depending on the choice made by the member to maintain their normal retirement age or change it to 65. The Bank has confirmed that the requirement for members to make this choice did not arise until 2012, which was after Mr N’s acceptance of the Pensionable Salary Cap in relation to his 2010 and 2011 pay rises. Mr N had retired from the Fund by the time members were presented with the choice to maintain or alter their normal retirement date. The Fund Factsheet does not, from the evidence I have been provided with, relate to the Pensionable Salary Cap agreement, and it cannot have related to Mr N’s acceptance of the Pensionable Salary Cap in 2010 and 2011, given that it did not exist at that point. It is not expressed to have contractual effect and thus differs from documents such as the Supplement, which explicitly says that it contains terms and conditions. Further, the cover letter that was sent with the Fund Factsheet

27 CAS-102084-N1D3 when members were invited to choose whether to retain or alter their normal retirement date included a statement that the provisions of the Trust Deed and Rules would prevail.

The Trustee has also confirmed that the Fund Factsheet did not exist in 2009, when the limit on pensionable salary increases was first introduced, and it would not have been enclosed with the correspondence that Mr N has provided. Therefore, even though the Trustee has accepted that what the Fund Factsheet said about increases to pensions in payment was incorrect after 6 April 2005, this document is not relevant to Mr N’s submissions that the 5% cap on pension increases formed part of the terms under which he accepted the Pensionable Salary Cap.

Mr N has referred to a reference number on the Fund Factsheet, suggesting that it was the fourth version of this document, with previous versions dating back to 2009. I do not agree that this reference number is adequate to prove that: previous versions of this document had been in circulation; and any such previous versions dated back to 2009. Further, even if any earlier versions of the Fund Factsheet had been in circulation, without seeing these earlier versions, one could only speculate as to what, if anything, they may have said in relation to pension increases. Mr N has acknowledged that he has been unable to locate a copy of the earlier documents, which he alleges must have been issued. Even if, despite not having actually seen any earlier version, I were to accept that earlier versions of the Fund Factsheet: had been issued; dating back to 2009; and referring to the 5% cap on pension increases, this would not in itself have been sufficient for me to conclude that there was a link between such documents and the terms under which the Pensionable Salary Cap was introduced.

Mr N has also referred to the Bank’s approach to communications from 2000, which he has submitted, involved the Bank issuing brief communications that referred to online resources for further information. He said that the Bank had established an explicit link between receipt of pay increases and the acceptance of new terms and conditions which superseded the Fund Rules. I do not agree that any general approach suggested by Mr N is adequate to evidence that, when the Pensionable Salary Cap was introduced, there was an explicit link with the 5% cap on pension increases.

Mr N has also submitted that “management” had stressed at the time that the annual increase to pensions in payment capped at 5% was a benefit that potentially compensated for the limit to pensionable earnings. Mr N has not provided any further detail about, or evidence of, this. However, given that increases were already being applied on that basis to the whole of a member’s pensionable salary at the time, it is not clear how it could be regarded as compensatory to only apply such increases to a proportion of his salary.

I have found no evidence of any commitment by the Bank to raise the cap on inflation increases to pensions in payment from 3% to 5% at the time of the introduction of the Pensionable Salary Cap, and I do not consider there to be any basis on which Mr N 28 CAS-102084-N1D3 can claim a contractual entitlement to annual pension increases capped at 5%. Further, I have not seen sufficient evidence to conclude that Mr N’s decision to accept the limit to his pensionable salary was influenced by the practice of applying annual increases to pensions in payment capped at 5%. I find that, by accepting the Pensionable Salary Cap, Mr N agreed that the Fund Rules would be overridden only to the extent necessary to give effect to the Pensionable Salary Cap.

My role is not to make decisions on what is fair or reasonable. Rather, it is limited to a consideration of whether, or not, the Fund Rules and any relevant legislation have been followed properly by the Trustee. The Trustee’s obligation is to act in accordance with its legal and fiduciary duties, and these duties take precedence over any moral obligations which members might perceive the Trustee as having.

Mr N said that the Trustee’s actions suggested a bias against legacy RBS members. I have seen no evidence that this was the case. While a 5% cap on pension increases was in place for legacy NatWest members at the time of the Merger, I do not agree that the Trustee was obliged to adjust the provisions for legacy RBS members to increase the cap which, at the time, was 3%.

Mr N has referred to the Bank’s annual report of 2009 which he said demonstrated its intention to provide consistent and attractive benefits to all of its employees. The statements made by the Bank in this report are general in nature and I do not find that they amount to a promise of a 5% cap on pension increases.

I find -

While maladministration has taken place, I do not find that Mr N has suffered a financial loss as a result of the Trustee’s actions, because he has received more than he was entitled to under the Rules, over a number of years, and the Trustee has not sought to recover the overpayments, nor reduced his ongoing pension to the correct level.

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Dominic Harris

Pensions Ombudsman 23 December 2024

30 CAS-102084-N1D3 Appendix 1 Extract from the Supplemental Trust Deed of the Royal Bank of Scotland Staff Pension Scheme 1985 dated 23 March 1988

“SCHEDULE 1

DEFINITIONS […]

“Index” means the All Items Index of Retail Prices published by H.M. Government or such other index as may from time to time be agreed for the purposes of the Rules by the Commissioners of Inland Revenue.

[…]

ALTERATION OF TRUST DEED AND RULES

16. (a) THE Trustees may by deed make any amendment to the Trust Deed or the Rules; PROVIDED THAT no such amendment shall:-

(i) take effect without the sanction of the Bank; or

(ii) affect prejudicially the accrued rights in the Scheme of any Member (or wife or children of such Member) or Annuitant at the date of such amendment without his written consent; or

(iii) vary the main purpose of the Scheme as set forth herein; or

(iv) result in the payment of any part of the Fund to the Bank or other Participant except a surplus remaining after the winding up of the Scheme in accordance with the Rules.

[…]

THE FIRST SCHEDULE TO THE RULES […]

COST OF LIVING INCREASES IN PENSIONS

10. The Bank and the Trustees shall on the 31st December in each year, or on such other fixed date annually as they shall determine, review the amounts of all pensions then in course of payment out of the Fund […] in relation to any increase which shall have occurred between the Index published three Months or thereabouts prior to the current review, and shall in the case of the Scheme and if they think fit in the case of the No. 2 Scheme with immediate effect increase all such pensions by whichever is the lesser of:-

(a) three per centum; and

(b) any such increase in the Index expressed as a percentage;

31 CAS-102084-N1D3 or by such larger percentage not exceeding the percentage referred to in (b) as the Bank and the Trustees having regard to the advice of the Actuary in their discretion decide.”

32 CAS-102084-N1D3 Appendix 2 Extract from the Definitive Trust Deed of the Royal Bank of Scotland Group Pension Fund dated 5 April 2006, as amended

“1 Definitions

RBS Scheme means The Royal Bank of Scotland Staff Pensions Scheme

[…]

9 Augmentation

9.1 Authorised Member Payments and Augmentation of benefits

The Trustees at the request of the Bank shall in relation to any Eligible Employee, Member or Beneficiary:

9.1.1 augment any Uncrystallised Rights or Pensions in payment; […]

provided that the Trustees are satisfied, after taking the advice of the Actuary, that the Fund Assets are sufficient to allow the proposed action to be taken or otherwise a special contribution is made by the Bank of an amount certified by the Actuary as sufficient to finance the benefit augmentation or provision and for the avoidance of doubt the benefit augmentation or provision may be financed partly by a special contribution by the Bank and partly from the Fund Assets;

[…]

10 Increases to Pensions and Preserved Pensions

[…]

10.4 Trustees’ Duty to Increase Pensions for Members who transferred from the RBS Scheme

In respect of Members who joined the Fund from the RBS Scheme under the Transfer Agreement, the Trustees shall increase with effect from such date as the Trustees decide being not more than 12 months since the date of the immediately preceding increase the annual rate of every Pension in excess of the GMP by the lesser of:

10.4.1 3%; and

10.4.2 the increase in the Retail Price Index over such period as the Trustees decide, being a period ending not more than three months prior to the date of the increase, […]”

33 CAS-102084-N1D3 Appendix 3 Extract from the Definitive Trust Deed of the NatWest Group Pension Fund dated 13 April 2021

“1 Definitions

RBS Scheme means The Royal Bank of Scotland Staff Pensions Scheme […]

7 INCREASES TO PENSIONS AND PRESERVED PENSIONS

[…]

7.5 Trustee’s Duty to Increase Pensions for Members who transferred from the RBS Scheme

In respect of Members who joined the Fund from the RBS Scheme under the 2002 Transfer Agreement, the Trustee shall increase with effect from such date as the Trustee decides, being not more than 12 months since the date of the immediately preceding increase, the annual rate of every Pension in excess of the GMP by the lesser of:

7.5.1 3%; and

7.5.2 the increase in the Retail Price Index over such period as the Trustee decides, being a period ending not more than three months prior to the date of the increase, […]”

34 CAS-102084-N1D3 Appendix 4 Data drawn from the Bank’s annual returns by Mr N

Mr N said that the RPI data was taken from the Office for National Statistics’ website.

35