Pensions Ombudsman Update August 2018
Scheme information requirements: RPI and CPI Mr W: (PO-17523) The Pensions Ombudsman did not uphold a complaint from a member of the Carlton Clubs Retirement and Death Benefits Scheme (the Scheme) regarding concerns about a change of the revaluation basis to his deferred benefits. Mr W left the Scheme in 2007 and became a deferred member. The 1992 Scheme Rules were in force at this time. The 2008 Scheme Rules became effective on 27 March 2008. The 1992 Scheme Rules referred to an increase in pension benefits by 5% per annum compound or such lesser amount as specified by the Secretary of State. This is in contrast to the 2008 Scheme Rules which expressly referred to Retail Prices Index (RPI) valuation. From April 2011, the Secretary of State changed the statutory revaluation from RPI to Consumer Prices Index (CPI). In 2011, the Scheme Trustee, Dalriada Trustees Ltd (the Trustee) took the view that the Scheme should be administered on the RPI based revaluation irrespective of the date on which they left pensionable service. On 30 March 2017, Thomson Dickson Consulting, the Scheme Administrator explained to members that the Trustee, on legal advice, had concluded that any member who had left employment on or after 27 March 2008, would receive increases in line with RPI. Members who had left service before this date would receive increases in line with CPI. The communication also detailed increases to pensions in payment for those members governed by the 1992 Scheme Rules. These were CPI increases capped at 5% for service between 1997 and 2005 and increases capped at 2.5% for service post 2005. Mr W queried the change and raised the complaint under the Internal Dispute Resolution Procedure. He said that he had previously received information that his benefits would be subject to RPI revaluation between his leaving date and retirement date and that he was entitled to rely on previous quotations he had received. He submitted that he should be entitled to RPI-based increases up until the Trustee's announcement on 30 March 2017. The Trustee explained that, as the 2008 Scheme Rules were not in force at the date Mr W left pensionable service, those Rules could not apply to him (and all other members in the same position). The 1992 Scheme Rules referred to statutory revaluation and therefore the Trustee had to apply CPI revaluation to the benefits payable to those members. The Pensions Ombudsman dismissed the complaint stating that the wording of the 1992 Scheme Rules did not afford the Trustee discretion to alter the revaluation increase. The Ombudsman did acknowledge that the Trustee could have established the position sooner but held that the Trustee was not obliged to seek legal advice. The Ombudsman determined that when the Trustee made its communication to members in March 2017, that they were rectifying an error and made the correct decision. The Ombudsman did note that the Trustee was only required to provide a copy of the scheme rules on request and therefore it was not relevant that the member had not seen a copy of the scheme rules, despite the scheme rules being overriding. Whilst acknowledging that Mr W did receive incorrect information initially, this did not entitle him to the incorrect quotations he had received. The Ombudsman addressed the submission by Mr W of financial loss but surmised that this amounted to loss of expectation and therefore he did not think that the distress and inconvenience suffered warranted compensation. This acts as a useful reminder to trustees of the importance of accurately interpreting the scheme's rules, and communicating those rules to members. Whilst there was a disparity between the 1992 Scheme Rules and the 2008 Scheme Rules which was initially missed, the trustees still had an obligation to pay the correct benefits. It should be noted that Mr W had not been able to demonstrate reliance on the incorrect quotations that had been given and therefore, the Ombudsman did not conclude that compensation should be awarded.
Incorrect calculation of contributions: member should take reasonable steps to mitigate impact Mr N: (PO-17750) The Pensions Ombudsman partly upheld a complaint by a member of the Standard Life Auto Enrolment Scheme (the Scheme) that AmTrust Europe Limited (AmTrust) had paid incorrect contributions. AmTrust contacted Mr N in June 2014 to inform him that, as of 2016, employer contributions would increase from 3% to 6% while employee contributions would also increase from 0% to 3%. In June 2017, Mr N received an update from AmTrust which prompted him to review his payslip. As a result, Mr N formally complained to AmTrust on 27 June 2017, stating that he had discovered that AmTrust had not implemented the increased contributions as communicated to him in June 2014. Employer contributions were paid at 3% and employee contributions had not been deducted from 2016 onwards. AmTrust responded on 26 October 2017 to confirm that its auto-enrolment staging date was July 2014 and its 3% contribution was the minimum required to meet their legislative requirements. AmTrust stated that the information Mr N had received was incorrect and accepted that due to this, Mr N had assumed that employer and employee contributions had increased from 2016. AmTrust offered to backdate the employer contributions from 2016 to 6% on condition Mr N backdate employee contributions at rate of 3%. AmTrust requested feedback by 31 October 2017. Mr N responded on 31 October 2017 stating that he would be unable to meet the backdated employee contributions and questioning why it had taken AmTrust four months to respond. As of 31 March 2018, the outstanding employee contributions, backdated to 2016 amounted to 2,031. The Pensions Ombudsman acknowledged that this was a significant amount of money. The Pensions Ombudsman noted that he had not seen any evidence that AmTrust failed to meet its auto-enrolment responsibilities. He suggested that Mr N could have noticed earlier that he was not paying employee contributions and therefore could have taken steps to mitigate his position. In addition, the Pensions Ombudsman noted that Mr N was aware from June 2017 that he had not been contributing to the Scheme and should have further mitigating his losses by setting aside an amount to cover the employee contributions. He acknowledged that if employee contributions had been correctly deducted, Mr N could have benefited from available tax relief. However, he noted that Mr N could contact HMRC for assistance on this point. He noted AmTrust s offer to backdate the contributions and acknowledged that this was reasonable but he suggested that AmTrust be flexible in their arrangements in organising a repayment plan for Mr N in regards to the employee contributions. The Pensions Ombudsman did acknowledge the impact that this matter had on Mr N and therefore did award 500 compensation for significant distress and inconvenience. Whilst these situations are relatively rare, this is a good example of the different interpretations of the quantification of loss of contributions over time. The decision by the Pensions Ombudsman is a balanced one and acknowledges that a reasonable offer was made by AmTrust, despite the financial implication on Mr N. It is also worth acknowledging the recommendation by the Pensions Ombudsman that Mr N should have mitigated his financial loss.
Misquoted information: steps taken by Trustee to mitigate held to be reasonable Mr D (PO-17984) The Deputy Pensions Ombudsman did not uphold a complaint by a member of the Centrica Pension Plan (the Plan) that the pension and tax-free cash lump sum paid to him was lower than quoted. Following a restructure of the company he was employed by, Mr D had the option of applying for a new role within the company or opting for redundancy. He opted to take voluntary redundancy in 2016. On 9 September 2016, Mr D received a pension statement which informed him that option 3b included an annual pension of 30,865.94 and a tax free cash lump sum of 147,826.33. The statement caveated that the figures were for information only and subject to review before payment. Following the receipt of his pension statement, Mr D took voluntary redundancy and opted for option 3b. On 23 March 2017, Mr D was informed by Mercer Limited (Mercer) on behalf of the Centrica Pension Plan Trustees (the Trustees) that 153,933.01 had been paid to into his nominated bank account. Mr D actually received 147,826.33 Mercer also informed Mr D that his annual pension was 28,693.51 and that his benefits had been recalculated to take into account April 2017 increases resulting in an annual pension of 28,764.72. Mr D complained on 28 March 2017 that his annual pension was over 2,000 less than the statement he had received. The Trustees acknowledged that Mr D s pension had initially been overstated and that the second letter also had an error in it. Whilst they would not provide the misquoted amounts, the Trustees did offer a payment of 1,000 for distress and inconvenience. The Deputy Ombudsman acknowledged that the Trustees had provided incorrect information to Mr D that amounted to maladministration. However, the Deputy Ombudsman also stated that Mr D would only be entitled to benefits under the Rules of the Plan unless Mr D had been provided with a clear and unequivocal statement upon which he could have shown that he reasonably relied to his detriment. Whilst the information contained in the initial estimate was wrong, the Deputy Ombudsman did note the fact that it contained a prominent warning. She considered the warning sufficient enough to put Mr D on notice to check the benefits that he would be entitled to and reiterated that she did not consider it reasonable to base such a significant decision of voluntary redundancy without first checking the estimate. The Deputy Ombudsman suggested that Mr D could have mitigated his circumstances on becoming aware that his retirement income would be lower than expected, such as seeking employment elsewhere. In regards to the offer for payment for distress and inconvenience, the Deputy Ombudsman considered the award to be in line with awards that she would normally make, clarifying that it was still available to accept. In conclusion, the Deputy Ombudsman noted that providing an incorrect statement of benefits did amount to maladministration but acknowledged that a sufficient award was offered to Mr D for his distress and inconvenience. Despite finding that maladministration had occurred, it should be reassuring to trustees to see that the Deputy Pensions Ombudsman acknowledged the steps taken to put matters right were held to be reasonable and sufficient. It is also interesting to note that under these circumstances the member as well as the trustees should take steps to mitigate the impact of the error upon becoming aware of its existence.
Honouring contractual obligations on TUPE transfers Mr D and Mr L (PO-14197, PO-14185) The Pensions Ombudsman upheld complaints by two members (the Members) that Fortum O&M (UK) Limited (Fortnum) did not honour the agreement to match retirement benefits from their former employer. The Members had been employed by BP until a TUPE transfer to Fortnum in August 2005. A document dated 9 August 2005 stated that Additional salary of 1056 gross, per person pa to provide employee contribution. It also confirmed that the targeting of pensions would be initially undertaken by Alexander Forbes Financial Services Limited (Alexander Forbes). An employee representative wrote to Alexander Forbes in December 2005 with a number of queries about the targeting exercise and it was confirmed that the actuarial department would undertake an annual review to ensure that contributions levels would be adequate. This was also confirmed in a document sent to Mr D in 2007. In 2010, another member discovered that their pension was severely underfunded compared to that which he would have received with BP. Following the discovery, Fortnum replaced Alexander Forbes with Generation Financial Services who investigated and found that Alexander Forbes had not reviewed the underlying actuarial assumptions and concluded therefore that the contributions were incorrect. Fortnum did not discuss the issues until 2013 and Mr D notified Fortnum of his intention to leave employment in October 2013. The Ombudsman did agree with Fortnum that they had not offered to keep benefits perfectly in line with the BP benefits. However, he acknowledged that the documentation given to the members confirmed that a review would occur annually and the necessary contributions would be paid to keep the Fortnum pension broadly in line with BP. The Ombudsman also acknowledged that it was expected that Alexander Forbes would use suitable assumptions when carrying out such reviews. As a result of the inappropriate assumptions, the Ombudsman stated that Fortnum would need to correct the issue, particularly given that Fortnum had shown its acceptance that such assumptions were not appropriate. The Ombudsman made clear that this was a case of correcting a historic mistake which had amounted to a breach of an implied term during the course of the employment of the Members. Whilst acknowledging that the Members should cooperate in providing any information, the Ombudsman reiterated that the pensions contributions that the redress should account for the contributions that would have been made had the correct assumptions been used. The Ombudsman directed that arrangements be made for new calculations and any difference added to the Members funds along with interest. He also directed that Fortnum pay 500 to Mr D and Mr L respectively to recognise the significant distress and inconvenience suffered. The Ombudsman found an implied term in the documentation provided at the time of TUPE transfer. This is an important reminder that any such agreements to match retirement benefits provided by a former employer must be honoured. This may involve ensuring that an accurate record is kept in relation to any transfers with appropriate processes in place to ensure that benefits are correctly paid. In this determination, there was no reference to a requirement to mitigate although the fact that Fortnum did acknowledge that the assumptions were incorrect did play a part in the Ombudsman determination.
Misinformation: Terminal illness The Estate of the late Mr R (PO-17639) The Pensions Ombudsman upheld a complaint by the widow of a member that the Administrator of the Simons Group Ltd Pension & Life Assurance Scheme (the Scheme) acting on behalf of the Trustees of the Simons Group Ltd Pension & Life Assurance Scheme (the Trustees) had failed to inform Mr R that benefits payable during his terminal illness would be lower if not taken during his lifetime. Mr R, a deferred member of the Scheme was diagnosed with terminal cancer in November 2012. In April 2016, Mr R contacted the Administrator to inform them of his terminal illness and to discuss his options. On 18 April 2016, the Administrator wrote to Mr R acknowledging his terminal illness and informing him of two options available to him; 1) a cash lump sum of about 19,000, an annual pension of about 12,000 and a widow s pension of about 7,000 a year; or 2) a cash lump sum of about 61,000, an annual pension of about 9,000 and a widow s pension of about 7,000 a year. The Administrator also stated that if Mr R s life expectancy was under 12 months, the benefits could be paid in full as a tax free lump sum. They requested that if Mr R wanted to pursue this option, Mr R should contact them directly with evidence of his life expectancy. Mr R passed away in August 2016. Mrs R received a letter in September 2016 from the new Administrator stating her entitlement to receive a widow s pension of 5,500, less than previously quoted. The new Administrator explained that the benefits related to benefits payable during Mr R s lifetime and that as Mr R did not retire, he remained a deferred member and therefore no lump sum was due. Mrs R complained, stating that the benefits offered were considerably less than those stated in April 2016, that the Trustees had failed to make Mr R aware of the options available and had failed to inform him that if the benefits were not taken during his lifetime, then Mrs R as his surviving widow would be severely disadvantaged. The Trustees did not agree, stating that they had provided the information requested in relation to early retirement options and, as they were not aware of what Mr R s life expectancy was, did not provide the additional information. The Ombudsman noted that the Trustees are ultimately responsible for acts or omissions on the part of the Administrator. He noted that there was no suggestion that the new Administrator had acted incorrectly. Whilst the Ombudsman did not have full details of the call Mr R made in April 2016, he did not agree with the Trustees that it could be concluded that Mr R only asked about early retirement options, particularly given the fact that Mr R mentioned his terminal illness. The Ombudsman acknowledged that the Trustees knew or ought to have known that Mr R had an incurable condition and therefore had an obligation to take this into account when providing information, and particularly, to mention that certain benefits would be invalid if he died. He stated that the Trustees should have satisfied themselves that, as Mr R would be preoccupied with his ill health, he had received the letter and understood the significance of the information contained. He reminded them that it was reasonable to expect that a member with no specific pension s knowledge would not fully understand the implications of the options. The Ombudsman reiterated that the Trustees had a fiduciary duty to provide Mr R with all relevant information needed to make an informed decision and they had breached this duty. He concluded that the letter sent to Mr R did not make clear that Mr R needed to take action or even referred or implied that the benefits were conditional and therefore it was reasonable for Mr R to assume both options would be available on his death. He directed that the Trustees calculate the amount of lump sum that would have been payable had Mr R selected option 2 and pay the difference between the amount of pension that Mrs R was receiving and should have been receiving had Mr R selected option 2 prior to his death. In addition, he directed that the Trustees pay 500 in recognition of the significant distress and inconvenience.
The Ombudsman has emphasised clearly that Trustees have a fiduciary duty to provide members with all relevant information. In addition, he has stated an extended duty on Trustees in relation to those members with terminal illnesses to ensure that they are fully aware of any conditions attached to benefits offered and what the implications may be. This would appear to impose a greater duty on Trustees to provide information to members suffering from terminal illnesses than other scheme members. Where Trustees find themselves in this position, this determination should provide guidance on the standards to be met. In these cases it is clear that Trustees should act expeditiously, ensuring that the member has been provided with sufficient information to enable the individual to make an informed decision. This should not be interpreted as requiring the Trustees to give advice to the member, which they should of course ensure they do not do. However, this determination is helpful as it highlights that extra steps should be taken in explaining the conditions and implications of benefits offered to those who are terminally ill. 'The Ombudsman noted that the Trustees are ultimately responsible for acts or omissions on the part of the Administrator.'
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