Sothebys Pension Scheme · CAS-86492-T9Z3

CAS-86492-T9Z3

Ombudsman’s Determination Applicant Mr N

Scheme Sotheby's Pension Scheme (the Scheme)

Respondents Trustees of the Sotheby's Pension Scheme (the Trustees)

Sotheby's (the Employer)

Complaint Summary

Summary of the Ombudsman’s Determination and reasons

Detailed Determination Material facts

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• He was dissatisfied with the announced wind-up of the Scheme.

• The Trustees’ stated intention to not provide an annual cost of living review of his Pre 97 Excess Pension meant he could no longer rely on the Scheme to provide the benefits promised when he joined.

• The Scheme booklet dated March 1978 (the Booklet) stated in ‘Section E. Pension Increases after Retirement’:

“It is the intention of the Trustees, as at present, to review the pensions being paid out of the Scheme and to adjust them from time to time in the light of economic conditions prevailing at the time of the review and provided the Scheme’s resources permit.”

• It also stated elsewhere in the Booklet that:

“The Scheme is constituted as a Trust for you and your dependants, and its assets will always remain quite separate from those of the Company.”

and: “The Company intends to keep the Scheme in force indefinitely, but changing circumstances may call for amendment or even termination of the Scheme and the Company must reserve the right to do so. Neither 2 CAS-86492-T9Z3

amendment nor termination will reduce the value of the benefits secured for you prior to amendment or termination.”

• A letter of 6 May 1987 to Scheme members sent with the Scheme’s annual statement said:

“You are presently a member of a company scheme which has clearly defined benefits on which you can totally rely […]”

• The Booklet provided a description of the benefits provided by the Scheme at the time it was issued in 1978.

• Mr N’s benefits from the Scheme were being secured by the purchase of an insurance policy (the Policy). The Policy would provide the same benefits as detailed in the Trust Deed and Rules that governed the Scheme (the TD&R). It was being arranged on the basis that all future pension increases, required as of right under the TD&R and legislation, would continue to be paid. This represented Mr N’s legal entitlement to the benefits that were due to him.

• There had never been a promise to increase Mr N’s Pre 97 Excess Pension. Any increase had always been described as discretionary, including in the Booklet and the TD&R. The Trustees could only provide a discretionary increase with the consent of the Employer.

• This element of Mr N’s pension would not receive increases after the wind-up of the Scheme. In three of the last five years, 2017, 2020 and 2021, no discretionary increase had been applied.

• The Booklet made it clear that the Scheme’s circumstances may change, and it may be terminated in the future. The reference to any termination not reducing the value of Mr N’s benefits referred to the benefits he was entitled to and not the possible exercise of a discretion.

• The Booklet made it clear that Mr N’s entitlement was governed by the TD&R and, in the event of any inconsistency, the TD&R prevailed.

• Its past correspondence to members provided no assurance that any discretionary increases would continue indefinitely.

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• A split would take place creating individual policies for each member. These policies would initially be owned by the Trustees but would then be assigned to each member individually.

• From June 2022, his pension would be paid by Just. The Employer would no longer make an annual decision on whether to grant discretionary pension increases.

• The Employer had confirmed that it was not willing to make additional funding available to insure any future increases to members’ pensions over and above their legal entitlement under the Scheme.

• The benefit of an inflation protected pension had been used as the justification by the Employer for poor or non-existent pay reviews.

• Until 2008, with few exceptions, a discretionary increase had been agreed which recently had been linked to the rate of inflation.

• He would like the Employer to purchase an insurance policy for him that provided pension increases linked to a recognised inflation measure.

• All the Scheme booklets state that increases on Pre 97 Excess Pension are discretionary. They also state that the booklets are intended as a guide and the TD&R take precedence.

• Mr N had referred to the August 2014 letter, which made it clear that discretionary increases were likely to be awarded in more limited circumstances in the future.

• It had noted Mr N’s comments on inflation-proofed increases being used as a justification for poor or non-existent pay reviews. He had not referred to a specific 4 CAS-86492-T9Z3

document or verbal representation made by the Employer in this respect. Even if it was said, there was nothing that constituted a clear representation, a promise or a guarantee that the practice of awarding discretionary increases would continue into the future. Such a guarantee or promise would contradict the TD&R and Booklet.

• The Employer was under no obligation to provide any further funding in relation to the provision of future increases on Mr N’s Pre 97 Excess Pension.

Mr N’s representations

• As he was made redundant in 1998, his Pre 97 Excess Pension makes up almost the entirety of his entitlement from the Scheme. This element of his pension will no longer keep pace with inflation.

• He is disappointed by the Trustees’ reliance on the TD&R, as this took no account of the intention of the Employer when it introduced the Scheme. He considers its intention at the time was to benefit staff. Throughout his employment, he had received regular communications informing him how good the Scheme was and how he would benefit from being a member. As a result, he had entrusted his family’s financial future to the Employer. The communications included references to:

o the Scheme helping members plan for a comfortable retirement, free from financial anxiety; and

o while increases were not guaranteed, the Scheme having had an excellent record. For instance, between 1974 and 1988, increases on all pensions had been made each year, ranging between 5% and 10%.

• He had been led to believe that, while his Pre 97 Excess Pension may not increase each year, it would keep pace with inflation over time.

• Although he could not recall exactly when, he had a number of conversations with Sotheby’s Personnel Director. He had been told that he should consider the Employer’s contribution to the Scheme as being part of his compensation package and that securing his retirement income would be of long-term benefit. This was used as justification for why his salary could not be increased in the short-term, which was of little benefit to him in meeting his financial obligations at the time.

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Conclusions

“19.2 In the event that:

(i) The Principal Employer notifies the Trustees of its decision to terminate the Scheme on a specific date […]

the Scheme shall be wound up […]”

“B22.1 Any pension or annuity currently payable out of the Scheme shall be reviewed annually and may with the consent of the Principal Employer from time to time be increased by such amount and at such times as the Trustees after taking the advice of the Actuary shall decide.

B22.2 Pensions payable under these Rules shall be increased to such extent and on such dates as is necessary to comply with the provisions of Sections 51 and 54 of the Pensions Act in relation to the increase of pensions in payment.”

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Dominic Harris

Pensions Ombudsman 1 August 2023

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Appendix Extract from the Pensions Act 1995

“51 Annual increase in rate of pension

(1) Subject to subsections (6) and (7) this section applies to a pension under an occupational pension Scheme if—

(a) the Scheme—

(i) is a registered pension Scheme under section 153 of the Finance Act 2004, and

(ii) is not a public service pension Scheme, and

(iii) in the case where the pension becomes a pension in payment on or after the commencement day, is not a money purchase Scheme, and

(b) the whole, or any part of, the pension is attributable—

(i) to pensionable service on or after 6 April 1997, or

(ii) in the case of money purchase benefits where the pension is in payment before the commencement day, to payments in respect of employment carried on on or after 6 April 1997, and

(c) apart from this section—

(i) the annual rate of the pension, or

(ii) if only part of the pension is attributable as described in paragraph (b), so much of the annual rate as is attributable to that part,

would not be increased each year by at least the appropriate percentage of that rate.

[…]

(2) Subject to sections 51A and 52, where a pension to which this section applies, or any part of it, is attributable to pensionable service on or after 6 April 1997 or, in the case of money purchase benefits where the pension is in payment before the commencement day, to payments in respect of employment carried on on or after 6 April 1997—

(a) the annual rate of the pension, or

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(b) if only part of the pension is attributable to pensionable service or, as the case may be, to payments in respect of employment carried on on or after 6 April 1997, so much of the annual rate as is attributable to that part,

must be increased annually by at least the appropriate percentage.”

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