Pensions Ombudsman Focus March Edition

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1 March 2017 March Edition In this issue: Welcome Welcome to the for the period to March The first determination we comment on considers whether a request for a transfer quote amounts to intent to transfer and confirms that an IFA appointed as the member s representative is responsible for passing information provided by the scheme to the member. The following two determinations look at when it is appropriate to apply the Edge principles (i.e. to an exercise of discretion) and when it is not (i.e. to a factual decision based on the evidence available). Please do not hesitate to get in touch if you would like to discuss any of these determinations and how they might affect you or indeed any other contentious issues on which the Linklaters Pension Dispute Resolution Group may be able to assist. 01

2 Commentary Mr Y v HSC Pension Service A request for a cash equivalent transfer value (CETV) does not amount to an intent to transfer. Further, where an IFA has authority to liaise with the scheme directly, the IFA is the member s representative and a scheme can expect the IFA to pass on information to the member. Mr Y was a member of the HSC Pension Scheme (an unfunded DB public sector pension scheme) administered by HSC Pension Service ( HSC ). Mr Y engaged Portafina LLP, an FCA regulated financial advisor (the IFA ) when considering whether to transfer out. A CETV does not constitute showing intent to transfer. Mr Y was not aware that from 6 April 2015, legislation changes meant that it was no longer possible for him to transfer out into certain types of DC schemes. In June 2015, Mr Y requested his CETV from HSC and HSC advised the IFA that there had been legislative changes which meant that HSC needed to know whether the intended receiving scheme was a DC scheme. HSC did not receive an answer to this question. When HSC received a request to initiate the transfer of Mr Y s benefits in November 2015, HSC informed the IFA that the transfer may not be possible due to the legislative changes in April In February 2016 HSC informed the IFA that their review concluded that the receiving scheme was a DC arrangement, therefore the transfer could not be legally implemented. Mr Y complained that his CETV request and correspondence should have made it clear to HSC that he intended to transfer but they did not advise him of this change in legislation. In the expectation of receiving a lump sum, he claimed to have made purchases of essential items for his home. He requested compensation for this and for the anxiety caused. The Adjudicator decided that a request for a CETV does not constitute showing intent to transfer. Therefore, it cannot be reasonably concluded that HSC should have known and informed Mr Y at this point that the transfer was not possible. In fact, HSC had brought legislative changes to the IFA s attention and asked whether the receiving scheme was a DC scheme. The Ombudsman agreed with the Adjudicator. He stated that it would be unrealistic for a scheme to treat every CETV request as showing intent to transfer. The Ombudsman also held that it is not unreasonable to expect members to be aware of this change in law especially as members with a CETV of over 30,000 must obtain financial advice in order to transfer. Although the IFA is not regulated by the Pensions Ombudsman, his opinion was that the IFA should also have been aware of the April 2015 changes. The IFA was given authority to liaise with HSC directly and therefore, as Mr Y s representative, he should be expected to pass on important information from HSC to Mr Y. The Pensions Ombudsman found no maladministration and no compensation was awarded. 02

3 Mrs B v Barclays Bank When considering medical advice, the status of member s health is a question of fact. Trustees or employers should not rubber stamp medical opinions where they contain obvious shortcomings. Whether a member was incapacitated was a question of fact. Mrs B was a member of the Barclays Bank UK Retirement Fund (the Fund ). She brought a complaint against Barclays Bank (the Bank ), her former employer, for its refusal to award her an ill-health early retirement ( IHER ) pension. Mrs B claimed that this refusal was unfair and based on incorrect or incomplete medical advice. In June 2010, Mrs B went on long-term sick leave, suffering from a chronic pain condition. In October 2011, Mrs B received a letter terminating her employment on the grounds of incapacity due to ill-health. In the same letter, Mrs B was advised that she was not entitled to an IHER pension. Mrs B disputed this. The Fund rules allowed a member to take an IHER pension at any age at the discretion of the Bank but only where the retirement was caused by Incapacity. The Fund rules defined Incapacity as the situation where the Bank considers him or her permanently and totally unable to carry out any employment, or where the member will continue to be medically incapable of continuing his or her current occupation.... The case turned an evidentiary dispute about the state of Mrs B s medical condition. The Bank relied on the opinions of four doctors to conclude that Mrs B s disability did not render her permanently incapable of carrying out any employment. However, some of the Bank s medical experts found that it was too premature to come to that conclusion without requesting more information from Mrs B s physicians. Mrs B sought the advice of two of her own medical experts whose opinions were that Mrs B s disability was sufficiently severe to meet the Fund s incapacity test. Mrs B argued that, in circumstances where the Bank s own medical experts had suggested that the Bank solicit more information from her doctors, the Bank could not reasonably purport to have made a final decision. The Ombudsman ruled in favour of Mrs B, stating that whether a member was incapacitated was a question of fact. The decision-maker cannot rely on the principles set out in Edge v Pension Ombudsman [1999] to justify its decision making. These principles relate to exercising a discretion rather than a finding of fact based on appropriate evidence. The Bank, as the decision maker under the Rules, was required to understand the factual reasons for the doctors opinions, and if there was an information gap, it should have sought further information rather than rubber stamping a deficient medical inquiry. If the evidence upon which the decision is based is flowered, the decision has not properly been made. Finding that Mrs B s claim had been mishandled, the Ombudsman awarded her 500 for distress and inconvenience, and remitted her case to the Bank to remake the decision. This decision supports the approach that Trustees (or other decision makers under the rules) should adopt a questioning approach when considering medical evidence. They do not have to be medical experts but should understand the recommendations given and look for any gaps in the information provided. Please see the final case in this for more on exercising a discretion. 03

4 Mrs N v BAE Pension Fund Trustees The Ombudsman reaffirms that it can only interfere with Trustee discretion in certain circumstances. It is not for the Ombudsman to decide whether it agrees with the Trustee s decision, the Trustee will only be judged on whether there was a proper exercise of the discretionary power. He is not there to decide whether Mrs N s relationship with Mr N was of equal value to his relationship with Ms S. Under the rules of the BAE Systems Executive Pension Scheme (the Scheme ) if a member and their spouse were not living together as husband and wife at the date of the member s death, and in the opinion of the Trustee the marriage had broken down, then the Trustee has the discretion to reduce or decline to pay a pension to the spouse. Further, if at the date of the member s death, that member was living with a person as husband and wife but they were not legally married, then the Trustee had a discretion to treat that person as the member s surviving spouse or to apportion the survivor s pension between them. In this case Mr N was a member of the Scheme and passed away in August At the time of his death Mrs N was his legal wife and had been for 40 years, but they were in the midst of divorce proceedings. Mr N was living with Ms S at the time of his death. The Trustee decided to apportion the survivor s pension between Mrs N and Ms S with both receiving half of the lump sum and the annual pension. Mrs N disagreed with this decision and argued that she should receive the entire spouse s pension. She emphasised the length of her marriage with Mr N and provided evidence that she believed indicated that the marriage had not completely broken down. She also stated that her and Mr N had been in the process of separating their finances equally and provided minutes that confirmed the parties agreed that there should be an equalisation of pension income. She argued that had they divorced she would have received more benefit than she has from the Scheme. The Trustee stated that they had evidence that Mr N and Ms S were living together as husband and wife and that Mr N and Mrs N s marriage had broken down. Therefore, they believed that they exercised their discretion in line with the rules of the Scheme. The Trustee did not want to breach data protection regulation, so they would not provide certain documentary evidence to Mrs N, but they did provide it to the Ombudsman. The Adjudicator decided that the Trustee had acted appropriately and there was no maladministration. The Trustee had the discretion to split the survivors pension and had considered relevant evidence to support the decision. The Trustee considered the amount of time Mr N and Mrs N were married and his relationship with Ms S, and decided that the 50/50 split was reasonable. Mrs N was also considered as a dependent of Mr N. The Ombudsman agreed with the Adjudicator that it was a proper exercise of the discretion. He emphasised that he can only interfere with the Trustee s discretionary power in specific circumstances, namely: 1) the wrong question was asked, 2) the decision maker has wrongly interpreted the Rules, or 3) the decision was one which no reasonable decision maker would make. He is not there to decide whether Mrs N s relationship with Mr N was of equal value to his relationship with Ms S. The Trustee followed the Rules, considered the relevant information and made a decision that was not perverse. This is a helpful reminder from the Ombudsman of the well-established principles against which Trustee decisions will be judged. 04

5 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/03.17