Cemex Uk Executives Pension Fund · CAS-43680-P8P8

CAS-43680-P8P8

Ombudsman’s Determination Applicant Mr Y

Scheme CEMEX UK Executives' Pension Fund (the Fund)

Respondent CEMEX UK Executives’ Pension Trust Limited (the Trustee)

Outcome

Complaint summary

Background information, including submissions from the parties Mr Y became a deferred member of the Fund in December 2005. His normal retirement age (NRA) is 62. On 8 February 2006, the Fund administrator sent Mr Y a letter informing him of his benefit entitlement from the Fund (the 2006 Letter). The letter said:

“The Excess Pension element will be increased for each complete year from leaving to retirement by the RMC Pension Fund by the increase in the [RPI] subject to a maximum of 5% per year…”

“There has been a recent change to the way in which deferred pensions should be [increased] in deferment. This applies to you if you used to be in the Fund but have since left and have yet to retire. The rules of the Pension Fund state that deferred pensions should be [increased] in line with statutory

1 CAS-43680-P8P8 regulations. This means that [increases] will be linked to the CPI and not the RPI…”

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1A copy of this Rule is set out in the Appendix.

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Adjudicator’s Opinion

The Trustee had to administer the Scheme in accordance with the Rules. The Rules state that the Excess must be increased in accordance with the percentage required by the revaluation laws, between the date the member left service and their normal retirement date. The Rules did not state that the Excess must be revalued in line with RPI. So, it was the Adjudicator’s view that there had been no maladministration by the Trustee concerning the way the Excess has been increased since 2012.

The Adjudicator accepted that the 2006 Letter had informed Mr Y that the Excess would increase in line with RPI. In the Adjudicator’s view, the Trustee did not provide Mr Y with incorrect information as that was the correct position at the time.

The Trustee had a duty to inform Mr Y of the change of index used to increase the Excess when the change was made. The Adjudicator noted that the Trustee had sent Mr Y the Statement. However, as the Statement had an incorrect postcode, she was not persuaded that Mr Y had received it. While this amounted to maladministration, for me to uphold a complaint, it was not simply the case that I must identify maladministration. I must also be satisfied that the individual has, as a result, sustained injustice.

The Adjudicator noted that the Trustee had sent members a newsletter in 2012, and that this also detailed the change of index. This newsletter was sent to Mr Y’s correct address at the time. So, it was likely that Mr Y was notified of the change of index at that time. The Trustee could not be held responsible if Mr Y did not receive the newsletter. As the maladministration (identified in paragraph 15 above) was corrected soon afterwards, the Adjudicator’s view was that Mr Y suffered no injustice by the Statement being incorrectly addressed.

Regarding Mr Y’s comments concerning the index used to increase pensions in payment, it was the Adjudicator’s view that pensions in payment were also being increased in accordance with the Rules and legislation, so there had been no maladministration by the Trustee in this regard.

Under Rule 17.2.1 the Trustee is entitled to increase pensions in payment by either RPI or CPI. The Trustee had explained that it reviews the index to be used when agreeing pension increases each year and considers all relevant factors including the funding position if the company ceased to be able to support the Fund. The Trustee had decided that CPI currently remained the most appropriate index for determining

5 CAS-43680-P8P8 increases for pensions in payment. It said the decision was one of prudence to ensure that all projected liabilities are met. In the Adjudicator’s opinion that I would not consider the Trustee’s decision to have been improperly made.

Mr Y did not accept the Adjudicator’s Opinion. He provided a spreadsheet detailing the financial impact the change in index has had on his future pension, to show in more detail the injustice he believes he has suffered. He also provided some additional comments and these are summarised below, in paragraphs 20 to 26.

The newsletter is a four page document containing accounts and lots of other detail with one short paragraph referencing the change of index. This communication is in total contrast to the 2006 Letter. He did not receive the newsletter. Even if he had, the Trustee had a duty of care to ensure that it communicated a fundamental change to his pension in the same way that it had sent the 2006 Letter.

In his view, the Trustee had not fulfilled its duty to inform him of the change of index. One line in a four page newsletter, referencing the Statement, which he did not receive, was not sufficient to fulfil its duty to inform him of such a fundamental change to his pension. As a result of this maladministration, he suffered injustice.

In respect of the index used to increase pensions in payment, the Adjudicator found that the Trustee was entitled to increase pensions in payment by either RPI or CPI under Rule 17.2.1. However, the Adjudicator did not look at the changes that were made to the Rules and whether the Trustee had the power to make those changes. He understood that the company had changed the Rules by amendment, on 17 October 1991, and those changes were implemented by the Trustee in 2003. This change allowed the Trustee to use CPI. He queried whether the company and the Trustee had the power to change the Rules.

The Trustee claims it had taken legal advice on whether it had the power to change the index to CPI. The Adjudicator requested a copy of the legal advice but the Trustee refused to provide it. He queried why the Trustee sought legal advice and why the Adjudicator was allowing the Trustee to withhold the legal advice it had received.

The Trustee has a duty to act in the best financial interests of the members. If the Trustee is supposed to be acting on behalf of the members, he could not see how it could justify reducing members’ pensions by using an index that is not in their best financial interests. CPI is in the best financial interests of the company that is required to make up any shortfall in the Fund. He could only conclude that the Trustee was acting in the best financial interest of the company. He argues that by choosing an index that is not in the best financial interest of the members, the Trustee has failed in its primary duty.

He reviewed the funding position reported by the Trustee since it made the change to the index in 2011. The Trustee stated that it took the ongoing funding position into account when deciding to use CPI instead of RPI. However, it could be “clearly seen”

6 CAS-43680-P8P8 that the Fund had been running at a surplus since the Trustee switched the index to CPI from RPI.

He also provided details of how Member Nominated Directors (MNDs) are now appointed and why he believed this to be unfair.

Mr Y requested an oral hearing if the Adjudicator did not change her opinion, following his post Opinion submissions.

2 Relevant sections of the Original Rules and the Deed of Amendment are in the Appendix.

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Ombudsman’s decision

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I do not uphold Mr Y’s complaint.

Anthony Arter

Pensions Ombudsman 15 December 2022

9 CAS-43680-P8P8 Appendix Relevant extracts of the Rules for the CEMEX UK Executives' Pension Fund dated 21 April 2021

“9.1.3… (a):

If the Member leaves Service at least a year before Normal Retirement Date, the pension in excess of GMP will be increased by the percentage required by the Revaluation Laws (which is approximately equal to the percentage rise in the cost of living between the date the Member left Service and Normal Retirement Date, with a maximum of (i) 5 per cent a year compound for pension accrued before 6 April 2009 and (ii) 2.5 per cent a year compound for pension accrued on and after 6 April 2009);…”

“17.2.1 Each pension in payment, except for any GMP which is in payment, will increase on each 1 January as follows:

(a) increases to pensions in respect of Pensionable Service accrued before 1 December 2011 shall be increased in each year in line with the increase in the cost of living (determined by the Trustees) over the 12- month period ending on the previous 30 September, but shall be subject to a maximum of 5 per cent in the case of a Special Executive or 8 per cent in the case of a Top Executive or in either case such higher percentage as CEMEX decides; and…”

(b) increases to pensions in respect of Pensionable Service accrued on and from 1 December 2011 shall be increased in line with the increase in the cost of living (determined by the Trustees) over the 12-month period ending on the previous 30 September, but shall be subject to a maximum of 2.5 per cent or such higher percentage as CEMEX decides…”

Relevant Extracts of the Original Rules of the CEMEX UK Executives’ Pension Fund dated 24 October 1977

Power to modify Trust Deed and Rules

“11. THE Trustees may at any time and from time to time with the consent of the Company by deed modify all or any of the provisions of the Trust Deed and Rules provided that no such modification shall be made if it would :-

(i) … 10 CAS-43680-P8P8 (ii) diminish any Pension already being paid under the Scheme save with the written consent of the pensioner concerned unless such action is necessary to secure the Approval of the Scheme; or

(iii) diminish the rights of interests of any Member or other person in respect of benefits already accrued under the Scheme save with the written consent of the Member concerned unless (a) such action is taken prior to the Member’s Normal Retirement Date and while he is still in Service and would not prejudice continued Approval of the Scheme and the Trustees (having taken advice from the Actuary) have resolved that such action would be reasonable having regard to any increases in the level or other improvement in any benefits being provided for the Member pursuant to any legislation and other than under the Scheme or (b) such action is necessary to secure the Approval or the continued Approval of the Scheme…

DEFINITIONS

“Authorised Increase” means in respect of any Members in receipt of a Pension at any 1st day of January an increase proportionate to any increase in the Index since the previous 1st day of January (or later date of commencement of such pension); subject to a maximum increase of 3 percent. or such higher figure as the Company shall decide and which does not infringe any income policy of H.M. Government…

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

PAYMENT OF PENSIONS

10. Each Pension becoming payable under the Scheme shall be increased at each first day of January subsequent to the date on which the Pension commenced to be payable by the Authorised Increase based on the amount of such Pension immediately prior to such first day of January…

CONTRACTED-OUT EMPLOYMENT

19. (a)…

(b) In the Rule words and expressions which have particular meanings ascribed to them in the Social Security Pensions Act 1975 (hereinafter in this Rule called “the 1975 Act”) shall have the same meaning respectively…

(g) In the event of any Member ceasing to be in contracted-out employment before pensionable age the guaranteed minimum pension to which he is entitled under the Scheme from 11 CAS-43680-P8P8 pensionable age shall be calculated on the basis that the guaranteed minimum pension which has accrued up to such cessation shall be increased for each complete fiscal year after the fiscal year in which such cessation occurred up to and including the last complete fiscal year before attainment of pensionable age by such rate as regulations, made under section 45 (1) (b) of the 1975 Act, specify as being relevant to the date of termination…

Relevant Extracts of the Deed of Amendment of the CEMEX UK Executives’ Pension Fund dated 17 October 1991

“…

1. MEANING OF WORDS USED

…

“Revaluation Laws” means the laws as to revaluation of benefits introduced by the Social Security Act 1985…

9. Early LEAVERS

9A. PRESERVED PENSION. A Member who leaves Service before Normal Retirement Date will receive a pension from life from Normal Retirement Date calculated as the total of…

and increased as follows :-

(a) if the Member leaves Service at least a year before Normal Retirement Date, the pension in excess of GMP will be increased by the percentage appropriate under the Revaluation Laws (which is approximately equal to the percentage cost of living between the date the Member ceased to be in Pensionable Service and Normal Retirement Date, with a maximum of 5% per year compound…

19B. PENSION INCREASES. Each pension in payment, except for any GMP which is in payment, will increase as 1st January in each year in line with the increase in the cost of living (determined by the Trustees) since the previous 1st January, or date of commencement of the pension, if later, but subject to a maximum of 5% in the case of a General Executive or a Special Executive or 8% in the case of a Top Executive or in either case such higher percentage as the Principal Employer decides…”

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