Pension Ombudsman: administrators cannot rely on disclaimers where explicit reassurance provided

The decision (PDF, 28 pages/3.3mb) underscores the importance of accurate record-keeping and robust query-handling processes for those administering pension schemes.

Mr E, a member of the Teachers’ Pension Scheme (TPS), had complained that his pension entitlement had been overstated by Teachers’ Pensions (TP). This error led him to leave teaching earlier than planned and take up consultancy work, believing his pension was sufficient to support his retirement plans. Later, he discovered that his pension benefits were significantly lower than projected.

Mr E originally joined the TPS in 1986 but opted out in 1990, later transferring his TPS pension (his ‘original pension’) to a personal pension scheme. He rejoined the TPS in 1995, and transferred his original pension back into the TPS in 1999.

Over the years, TP issued benefit statements showing Mr E’s pensionable service and projected benefits. In 2014, there was an unexpected jump in the pensionable service figure included in Mr E’s benefit statement.  Mr E called TP to query the figures. Two call handlers reassured him that the figures were correct, repeatedly attributing the increase to the value of his transferred-in pension.

Relying on these assurances and subsequent statements, Mr E left teaching in 2015 and pursued consultancy work. In 2020, when applying for early retirement, he learned that his actual pensionable service was less than he had previously been told, reducing his annual pension by more than £3,000 per annum and his lump sum by approximately £8,500. TP admitted that a computed error had inflated Mr E’s service record and offered £500 as a goodwill gesture, which Mr E rejected.

Mr E argued that the incorrect information and reassurances he had received from TP caused him to make irreversible career decisions, resulting in financial loss. He stressed that he had explicitly sought confirmation in 2014, stating he did not want to rely on inaccurate figures.

TP acknowledged the error but maintained that benefit statements are illustrative and pointed to disclaimers stating that the figures were not guaranteed and would be scrutinised at retirement. It argued that members are responsible for checking records and querying discrepancies and suggested that it had not been reasonable for Mr E to rely on the assurances and explanations provided by TP’s call handlers. TP noted that it cannot pay benefits beyond statutory entitlements under the Teachers’ Pensions Regulations, regardless of prior estimates.

The Ombudsman acknowledged that disclaimers typically prevent members from reasonably relying on estimates provided in benefit statements.  However, in this case, Mr E had queried the figures he was given. TP had then reassured his that the figures were correct and provided a reasonable explanation for the discrepancy with earlier statements. These reassurances were not qualified by any disclaimer. It would have been open to TP’s call handlers to investigate Mr E’s concerns more deeply or to have warned him not to rely on the information they provided. For these reasons, their assurances created a reasonable basis for reliance.

The Ombudsman upheld the complaint, finding that TP’s actions had caused Mr E substantial financial detriment and distress. The information provided influenced significant life decisions, including leaving a secure teaching role and making financial commitments, such as taking on a new mortgage. While TP cannot provide benefits beyond those legally due, it should compensate Mr E for the consequences of its error.

TP was ordered to compensate Mr E for financial loss, the calculation to be conducted by an actuary following a formula set out by the PO, and to pay £1,000 for distress and inconvenience.

In an interesting move, the Ombudsman reduced the compensation for financial loss by 20% with the intention, broadly, of putting Mr E in the same net tax position he would have been in, if the inaccurate statement had not been made.

He noted, however, that HMRC may seek to levy income tax on the payment, in which case TP should pay Mr E an additional sum to put him in the position he would have been in if such additional tax liability had not arisen. TP would also be required to pay Mr E an additional sum to meet any additional tax liability, if HMRC were to treat the payment as an unauthorised payment for the purposes of the Finance Act 2004. 

This clearly illustrates the unhelpful uncertainty that exists around the tax treatment of compensation payments to pension scheme members.