Pensions Ombudsman Focus 51st Edition

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1 May st Edition In this issue: Welcome Welcome to the 51st edition of the for the period to May This edition looks at the level of due diligence a trustee and administrator of a SIPP should make into a proposed investment; the Trustee s duty to provide information to members about their benefits in uncertain times; and there is another reminder that in order to claim incorrectly quoted benefits the member must show that he took steps which he otherwise would not have taken and suffered financial loss as a result. Please do not hesitate to get in touch if you would like to discuss any of these issues and how they might affect you or indeed any contentious issues on which the Linklaters Pension Dispute Resolution Group may be able to assist. 01

2 Commentary Mr Richardson against Carey Pensions UK LLP and Carey Pensions Trustees Limited The limit of the administrator s responsibility was to consider whether or not an investment fell within the list of investments permitted by HMRC. On 10 July 2012, Mr Richardson applied to Carey Pensions Trustees Limited ( Carey Pensions ) to establish a self-invested personal pension plan (a SIPP ). Through this SIPP, Mr Richardson invested 30,000 in Green Oil Plantations, an unregulated collective investment scheme. Green Oil Plantations went into administration in 2013, and Mr Richardson now believes that he has lost his investment as a result of this. Mr Richardson complained to the Pension Ombudsman that Carey Pensions were negligent in that they did not carry out proper due diligence with regard to his proposed investment in Green Oil Plantations. He argued that he was a complete novice in relation to pensions, and that the provider, Carey Pensions, had an obligation to verify the suitability of investments. The Ombudsman noted that the role of Carey Pensions was that of administrator and trustee of the SIPP, rather than adviser. The application made by Mr Richardson on 10 July 2012 was made in a way designed for direct clients acting without financial advice, and the form itself which he used stated that You have made this decision independently and are aware of the implications of this decision. In a further document dated 1 October 2012, Mr Richardson signed a declaration which confirmed that he had carefully considered the information from Green Oil Plantations, that he had a good understanding of the investment, and that Carey Pensions was acting on an execution only basis. The Ombudsman noted that the role of Carey Pensions was that of administrator and trustee of the SIPP, rather than adviser. Carey Pensions was acting in accordance with the rules of the SIPP, which did not prevent investment in this type of asset. The Ombudsman also considered the concept of the statutory duty of care under the Trustee Act The Ombudsman noted that this is a default provision which can be excluded or modified by the terms of the trust. The Ombudsman held that in his opinion, the statutory duty of care did not apply to Carey Pensions, as the selection of investments was not a decision of the administrator, and that the contractual documentation with Mr Richardson made very clear that investments were to be selected by the members personally. The limit of Carey Pensions responsibility as administrator was to consider whether or not an investment fell within the list of investments permitted by HMRC. HMRC allowed SIPPs to invest in a very wide range of investments. As such, Carey Pensions had acted within its powers. The Ombudsman also decided that FCA guidance around giving investment advice in relation to SIPPs (which includes SIPP providers putting in place certain controls to flag instances of unsuitable investment advice) did not apply to Carey Pensions, as Mr Richardson completed an application as a direct client, in other words one acting without advice. As such, Mr Richardson s complaint was not upheld. 02

3 Mr Mayo against the Trustees of the Kodak Pension Plan and the Trustees of the Kodak Pension Plan (No. 2) The only duty of the Trustees was to give the Member accurate information about his benefits available at the time. The KPP Trustees were under no obligation to provide him with advice on whether to take early retirement. Mr Mayo was employed by Kodak, and was a member of the Kodak Pension Plan ( KPP ). KPP s funding liabilities were guaranteed by its US parent, Eastman Kodak Company ( EKC ). EKC filed for chapter 11 bankruptcy protection in the USA on 19 January 2012 with the trustees of KPP (the KPP Trustees ) as its largest creditor. There were ongoing complex discussions between KPP Trustees and EKC about the implications of the filing, and KPP members were regularly updated. KPP was closed to future accrual from 31 March 2012, and Mr Mayo became an employed deferred member of the KPP from that date. Members were offered active membership in a new scheme, Kodak Pension Plan (No. 2) ( KPP2 ) from 1 April From July 2012 to March 2013, there were statements from the KPP Trustees stating that KPP was missing contributions, and may have to enter the Pension Protection Fund ( PPF ). Mr Mayo received an early retirement benefit quotation in August 2012 showing the estimated pension and lump sum he would receive if he retired early on 1 April He then applied for early retirement in September 2012 with an early retirement date of 1 April On 28 March 2013, KPP trustees were asked to approve the benefit redesign package for the KPP2 scheme, which would offer members better benefits. As part of this, the package included adopting early retirement factors in line with those offered by the PPF, which were more favourable than those in KPP. This new scheme was approved, and a moratorium on early retirement was put in place from 29 April 2013 to 1 November Applications received in that period, and applications received from 1 November 2013, received the more generous PPF factors. Mr Mayo complained to the Ombudsman that the trustees of both the KPP and KPP2 schemes had failed to inform him until after he retired on 1 April 2013 that if he delayed his early retirement until 1 November 2013, his pension would be far greater than its current value. He also argued that KPP Trustees communications around the poor financial state of Kodak had put him under duress and misled him into taking his pension early, or alternatively that the KPP Trustees should have imposed the moratorium sooner. The Ombudsman found that it was clear that at the time when Mr Mayo applied for early retirement in September 2012, he had received a lot of pessimistic information about the financial position of EKC, Kodak and KPP. However, at the time of Mr Mayo s early retirement application, the Ombudsman found that it was still possible that KPP might enter the PPF, or that KPP could be supported in a restructured format by EKC there was no way of knowing what the outcome would be at that time. The Ombudsman found that the only duty of the KPP Trustees was to give Mr Mayo accurate information about his benefits available at the time, which they did. It would have been unreasonable to expect information about the KPP2 scheme to be supplied, particularly when it was unclear at that stage whether such new scheme would actually be required. 03

4 The Ombudsman also found that the KPP Trustees were under no obligation to provide him with advice on whether to take early retirement, which was a personal financial decision. As such, the Ombudsman did not agree with Mr Mayo s argument that the KPP Trustees failed to act in his best interests. Finally, the Ombudsman found that the information given by the KPP Trustees did not put Mr Mayo under undue pressure, as his decision was based on the security of his pension. In exercising their discretion to agree Mr Mayo s application, the KPP had to take into account all relevant factors the Ombudsman held that they did consider the change in early retirement factors once its impact was clear, but by that point it was too late to affect Mr Mayo s case. The Ombudsman therefore did not uphold Mr Mayo s complaint. 04

5 Mr Stephen Gaughan against Teachers Pensions Although the Ombudsman found maladministration, there was no evidence that the member would have done anything differently with the correct information or that he suffered financial loss. Mr Gaughan became a member of the Teachers Pensions Scheme (the Scheme ) on 1 September On 7 June 2011, Mr Gaughan asked for a transfer value, should he decide to transfer his benefits from his plan with Aviva into the Scheme. On 12 August 2011, Teachers Pensions wrote to him, stating that his transfer-in benefits would buy an estimated service credit of 7 years and 332 days pensionable service in the Scheme. On 2 April 2012, Mr Gaughan called the Teachers Pensions helpline to confirm that the estimated service credit had not changed he was told that it had not changed, and the helpline confirmed the earlier figure. He then proceeded with the transfer. Mr Gaughan later discovered that the service credited to him was in fact 3 years and 294 days. Mr Gaughan complained internally, and was originally offered the opportunity to reverse the transfer, before Teachers Pensions realised that the transfer could not be reversed under the Scheme rules. Mr Gaughan then complained to the Ombudsman. The Ombudsman was not satisfied that Mr Gaughan would have done anything differently if he had known the correct transfer-in value. Teachers Pensions admitted that Mr Gaughan was led to expect a service credit of 7 years and 322 days. However, they said that this was because they did not have upto-date information around Mr Gaughan s salary, and were unable to inform him that the estimate had changed. The Ombudsman was of the opinion that whilst this was true, the helpline could have made this clear to Mr Gaughan, explaining that the number was an estimate only. Instead, Teachers Pensions confirmed to him that he would receive the estimated service credit previously given to him. The Ombudsman decided that this amounted to maladministration. The Ombudsman was not satisfied that Mr Gaughan would have done anything differently if he had known the correct transfer-in value, nor could the Ombudsman easily determine that Mr Gaughan had suffered any financial loss from carrying out the transfer. However, the Ombudsman found that Mr Gaughan had suffered significant distress and inconvenience caused by the maladministration, and the subsequent failure by the Teachers Pensions to handle his complaint correctly. As such, Teachers Pensions was ordered to pay 1,000 in compensation to Mr Gaughan. 05

6 Contacts Mark Blyth Partner, Pensions Dispute Resolution Group Tel: (+44) Madeleine Frost Managing Associate Tel: (+44) Geoff Egerton Managing Associate Tel: (+44) Sarah Opie Associate Tel: (+44) Simon Borhan Associate Tel: (+44) _F/05.16