Pensions Ombudsman update. March June 2015

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1 Pensions Ombudsman update March June 2015

2 Incorrect valuations Pension provider bound in contract by an incorrect valuation due to statements made to the member 18 March 2015 Bone (PO 5416): The Pensions Ombudsman has given his determination in a complaint by Mrs Maureen Bone against Friends Life, provider (the Provider) of the Friends Life Personal Pension Plan (the Scheme). Prior to her scheduled retirement date, Mrs Bone received a fund valuation of 55, The Provider later wrote to her to say that the valuation was incorrect and should have been 46, Mrs Bone complained to the Provider and they said they would honour the incorrect valuation in this case. When Mrs Bone received her transfer she realised that only 50, had been transferred, which represented the correct valuation at the date transferred but not the amount the Provider said they would honour. The Ombudsman decided that following the initial incorrect valuation, Mrs Bone would only be entitled to her correct valuation. It was further decided that in this case, she was entitled to the higher amount due to the statements made by the Provider that it would honour the incorrect amount. The Ombudsman said that these statements formed a contractual promise to Mrs Bone. The Provider was ordered to pay Mrs Bone the difference in what was received and the incorrect valuation as well as 100 compensation. Pension providers need to be careful when communicating with members that they do not make binding contractual statements which could cause them to have to pay out benefits they would not otherwise have had to.

3 Incorrect information from Trustees Increases in deferred members' benefits will be made in line with statutory provisions, where the Scheme Rules state that this is the case, even if the Trustees have incorrectly told members otherwise 23 March 2015 Mrs Dring (PO-5700): The Deputy Pensions Ombudsman has given her determination in a complaint by Mrs Dring against the Trustees of the GR Lane Health Pension Scheme (the Trustees) of The GR Lane Heath Products Limited Pension Scheme (the Scheme). Mrs Dring complained that the Trustees incorrectly told her, in good faith, that her deferred pension would be revalued in line with the Retail Price Index (RPI) where the Scheme Rules only provide for statutory increases. However, it became clear that the then Trustees had told her the correct position as at that date, as RPI was then the statutory measure of inflation for pension revaluation and increases. In October 2011, the Trustees made an announcement that the Scheme would be changing in accordance with the statutory move from RPI to Consumer Price Index (CPI) as the measure for price inflation for occupational pension schemes. Mrs Dring complained as she said that she was told her pension increases would be in line with RPI. Mrs Dring's complaint is that had she known the Scheme's governing rules as at the date of the Trustees' statement provided for the statutory, not hard-wired RPI increases that she would otherwise have transferred her deferred benefits to the employer's executive pension scheme. The Scheme Rules stated that deferred members' benefits should be revalued with reference to the increase in inflation as measured by the relevant statutory index. On this basis the Trustees said that the Scheme Rules were binding on the Trustees, who had to switch to CPI. The Deputy Ombudsman did not uphold Mrs Dring's claim but stated that the Trustees could have been clearer in their communications. The Deputy Ombudsman did not consider that the Trustees had mislead her and the references they made to RPI were not incorrect at the time they were made. The Trustees used the term 'RPI' and 'statutory increases' interchangeably, which both parties here acknowledged, and as such may have caused confusion. However, the Deputy Ombudsman did not consider that the reference to RPI was a significant factor in Mrs Dring's decision to remain in the Scheme. Trustees should be cautious in making references to current statutory indices in communications, which could change in the future, so as to not cause confusion for scheme members and to avoid complaints. However, they may take comfort that, in this case, the Scheme rules were binding and prevailed over contradicting statements made by the former Trustees.

4 Personal pensions SIPP provider obliged to check high risk investments chosen by a member 30 March 2015 Beasley (PO 5670): the Ombudsman has given his determination in a complaint by Mr Michael Beasley (Mr Beasley) against Berkeley Burke SIPP Administration Ltd (the Provider), the provider of the Berkeley Burke Private Pension Plan (the SIPP). The Provider, in its joining documentation which was sent to Mr Beasley, made it clear that they would not carry out checks on the suitability of investments nor was it authorised to provide financial advice. Mr Beasley had stated that he wished to invest in Green Oil Plantations and Harlequin Property (the Investments). The Provider pointed out some high level risks involved with the Investments and Mr Beasley signed to say he would indemnify the Provider against any losses arising from them. Green Oil Plantations entered administration in 2013 and Harlequin Property has been the subject of a number of warnings by the Pensions Regulator, with some investors seeking compensation from the Financial Services Compensation Scheme. Mr Beasley claimed that the Provider had a duty to provide a high standard of due diligence and offer suitable investments to SIPP members, especially in relation to those who had limited investment experience. The Ombudsman dismissed Mr Beasley's arguments that the Provider owed him a duty of care and held that there were no wider due diligence responsibilities on the Provider by its regulator, the Financial Conduct Authority. The Ombudsman stated that the Provider had a duty to check that the Investments were permitted under HMRC guidance, which it had, but that this did not confer on it any duty to perform an assessment of suitability. Providers of SIPPs should be warned of the risk that claims might be made as a result of members making losses due to poorly chosen investments. However, reassurance can be taken by this decision that they are not being inadvertently put into the role of financial advisor. The Ombudsman's decision turned on the fact that the Provider did not owe a statutory duty of care to Mr Beasley under the Trustee Act This was because the Provider did not select the investments (and it was made clear from documentation that the member did). Also, the Provider made it very clear in documentation that it accepted no responsibility for deciding the suitability of investments and that members should seek financial advice if needed. It is possible that the outcome could have been different if this was not the case.

5 Trustees' breach of trust Trustees who transferred funds to a scheme's employer in breach of scheme rules found to have committed a wilful breach of trust and should not be entitled to rely on the scheme's exoneration clause 31 March 2015 Bridge Trustees Ltd (PO 763): the Deputy Ombudsman has given her determination in a complaint by Bridge Trustees Ltd (Bridge Trustees) against Mr Dean Burrows and Mr Stephen Lloyd, trustees of the Pilkington's Tiles Pension Scheme (the Scheme). Mr Lloyd and Mr Burrows were trustees of the Scheme and employees of Pilkington's Tiles Limited (the Company), holding positions of managing director and personnel manager respectively. Jean Hirst and David Gratrix (the MNTs) were member nominated trustees of the Scheme at the time. Around the time of a transfer of the Scheme's administration from Capita Hartshead (Capita) to Scottish Life, Mr Lloyd and Mr Burrows were told by Mr Harper of Capita that the Scheme's excess employer DC contributions (EECs), totalling 187,191.25, would be paid over by Capita. The Company's finance director ed KPMG stating that they were expecting a 187,000 cash refund of EECs. Mr Burrows claimed that Mr Harper told him that the EECs must be returned to the Company, something Mr Harper denied. Capita later transferred 177,000 to the trustee's bank account and then 187, was transferred to the Company, followed by a further payment bringing the total to 193, The Company then went into administration and Bridge Trustees were appointed as the Scheme's new trustee. Bridge Trustees complained to the Deputy Ombudsman that Mr Lloyd and Mr Burrows had breached the Scheme's rules and that the funds should be returned. The Deputy Ombudsman upheld the complaint, finding that there was no evidence to say that Mr Harper had advised Mr Lloyd and Mr Burrows that they must return the EECs to the Company and, in any case, the trustees have a duty to question advice and to seek appropriate advice. The Deputy Ombudsman further found that Mr Lloyd and Mr Burrows had not acted prudently, reasonably or in the member's best interests. Finally, Mr Lloyd and Mr Burrows could not rely on the Scheme's exoneration clause as the Deputy Ombudsman stated that they had deliberately disregarded scheme rules and therefore were guilty of conscious wrongdoing. Mr Lloyd and Mr Burrows were directed to reimburse the Scheme for the total EECs of 193, The MNTs were not in breach of trust because they were found not to have known about the payments. Clearly Mr Lloyd's and Mr Burrows' actions were not normal and these circumstances are extreme. However, all trustees should be aware of the fact that the duty to take advice extends to a duty to question advice received and take further advice if necessary (here the former trustees were not permitted to rely on being told by Mr Harper that they had to return the EECs to the employer). In addition, trustees should be warned that the exoneration clauses in the scheme rules may often have limits.

6 Pensions liberation No maladministration by Provider 18 May 2015 Hughes (PO 6375): the Ombudsman has given his determination in a complaint by Mr Anthony Hughes (Mr Hughes) against Aviva (the Provider), provider of the Aviva Personal Pension Plan (the Aviva Plan). Mr Hughes also had a policy with Countrywide Assured (Countrywide). In early 2013 Mr Hughes requested transfers to the Capita Oak Pension Scheme (the Capita Scheme). The Provider gave Mr Hughes all of the relevant transfer materials and strongly recommended that he seek financial advice. They received sufficient confirmations about the Capita Scheme to conclude that Mr Hughes had a statutory right to a transfer so they made the transfer in March Countrywide meanwhile insisted on seeing a policy schedule and sent Mr Hughes the Regulator's Scorpion materials. The transfer did not proceed, for reasons outside of the scope of this complaint. After failing to locate his funds, Mr Hughes complained that the Provider had not made adequate enquiries about the Capita Scheme. He said he would not have transferred his funds had the Provider taken a similar approach to Countrywide. The Provider stated that they did include the Scorpion materials in all responses to transfer requests after the Regulator's guidance, but that Mr Hughes' request preceded this. The Ombudsman dismissed the complaint, saying that the statutory right which Mr Hughes had overrode any duty of care the Provider owed to the member. The Ombudsman further noted that it was reasonable to allow some time for Providers to update procedures and literature following the Regulator's guidance being issued in February There was no maladministration from the Provider due to them not having updated procedures yet. This is another decision which has confirmed that if a member has a statutory right to a transfer, there is little trustees and providers can do except warn the member about pensions liberation and, if still insistent on a transfer, make the transfer. In addition, providers and trustees may take comfort from the fact that they may be allowed a period of grace following release of the Regulator's Scorpion materials to update their procedures for dealing with transfer requests

7 Surrender/compromise of pension benefits A member's right to an unreduced pension at age 50 was a disputed right capable of being settled via a compromise agreement 20 May 2015 White (PO 5304): the Deputy Ombudsman has given her determination in a complaint by Dr White against Thames Water Utilities Limited (Thames Water), the sponsoring employer of the Thames Water Mirror Image Pension Scheme (the Scheme). Under the scheme rules (Rule D2), members were entitled to an unreduced pension from age 50 if the employer certified that leaving employment was by reason of redundancy. Voluntary redundancies were advertised on the Thames Water intranet. It was stated on the intranet that an unreduced pension would not be available for voluntary redundancy. Dr White applied for such voluntary redundancy and received a draft compromise agreement which stated that an unreduced pension under Rule D2 would not be paid. Dr White spoke to his line manager and took legal advice before signing the agreement in an attempt to negotiate this, but without success. Section 91(1) of the Pensions Act 1995 (PA 1995) states that an entitlement under an occupational pension scheme cannot be surrendered. Case law adds an exception to this which is where such surrender comes from a member and employer having a bona fide dispute about such entitlement and entering into a compromise of such dispute. Dr White complained on the basis of breach of section 91(1) PA 1995 but the Deputy Ombudsman dismissed his complaint, stating that Dr White's future right under Rule D2 was a disputed right capable of compromise without contravention of section 91(1) PA This determination reiterates that employers can use a compromise agreement to surrender rights in the scheme rules. It is important to note that the dispute and the compromise agreement must be bona fide. Without this, parties might engineer disputes to circumvent section 91(1) PA 1995.

8 TLT's Pension Dispute Resolution team Pensions disputes have become a key issue for many employers and trustees. TLT s Pensions Dispute Resolution team are first and foremost pensions lawyers. We understand the issues facing companies and trustees, and provide clear and realistic solutions based on commercial and practical realities to help clients, whether employers or trustees, achieve the right result. The team is experienced in dealing with complaints to the Pensions Ombudsman, acting on behalf of individuals as well as employers and trustees. Disputes involving members and disputes between trustees and employers require careful handling and a pro-active approach. Most disputes the team have been involved in have not become public knowledge as we pride ourselves on pro-active case management to resolve matters at an early stage, avoiding wherever possible the unwelcome cost exposure involved in full blown litigation. TLTsolicitors.com/contact Sasha Butterworth Partner +44 (0) sasha.butterworth@tltsolicitors.com Ed Fiddick Partner +44 (0) edmund.fiddick@tltsolicitors.com BELFAST BRISTOL EDINBURGH GLASGOW LONDON MANCHESTER This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 26 June Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication. TLT LLP, and TLT NI LLP (a separate practice in Northern Ireland) operate under the TLT brand and are together known as 'TLT'. Any reference in this communication or its attachments to 'TLT' is to be construed as a reference to the TLT entity based in the jurisdiction where the advice is being given. TLT LLP is a limited liability partnership registered in England & Wales number OC whose registered office is at One Redcliff Street, Bristol, BS1 6TP. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under ID In Scotland TLT LLP is a multi national practice regulated by the Law Society of Scotland. TLT (NI) LLP is a limited liability partnership registered in Northern Ireland under ref NC whose registered office is at Montgomery House, Montgomery Street, Belfast, BT1 4NX. TLT (NI) LLP is regulated by the Law Society of Northern Ireland under ref 9330