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Pensions Ombudsman update December 2017

A regular update from the Pinsent Masons pensions team.

Failure to pay pension contributions in respect of PHI payments amounts to maladministration


Mr D complained that his former employer had significantly underpaid his pension contributions into the scheme. Mr D joined the company in January 2000. He went on long term sick leave in June 2001 and did not return to work again. When Mr D's contractual sick pay was exhausted after 26 weeks, he received benefits from a PHI Scheme, in accordance with its terms and conditions, until he attained age 60 in May 2013. The PHI scheme was designed to replace a percentage of Mr D's loss of earnings where he was unable to work due to illness. Mr D was made redundant and was sent a settlement agreement under which his employment terminated in April 2014.

Prior to being made redundant, Mr D had been in regular contact with his employer for about a year attempting to settle a dispute over possible shortfalls in his PHI benefit payments, including pension contributions. In April 2014 Mr D sent his employer details of his accountant's calculations which showed a shortfall in the region of around £82,000 in pension contributions. Mr D asked his employer for additional time to sign the settlement agreement because he wanted the payment issue sorted first. On 30 April 2014 the employer wrote to Mr D stating that his PHI benefit and pension contributions had been overpaid but it would not ask him to repay the difference in order to settle his complaint amicably. Mr D asked the employer for a breakdown of its calculations but the employer refused. Mr D complained that there had been maladministration, negligence and a breach of contract.


The Ombudsman held that further action was required by the employer to put matters right. Although Mr D's complaint was primarily for breach of contract, he should not be precluded from bringing a claim under the Limitation Act as it was rational for Mr D to hold a reasonable belief that the employer was making the relevant contributions on his behalf until the point that he saw his solicitor's calculations. The available evidence indicates that the employer had intended to follow the PHI guidelines by paying full employer and employee pension contributions into the Scheme. Failure by the employer to comply with this duty was maladministration, and Mr D had suffered an injustice as his pension fund was lower than it would have been if the contributions had been paid at the appropriate time.

The Ombudsman directed that within 90 days, the employer should calculate the full employer and employee contribution payments for the period Mr D was in receipt of PHI benefits up to his 60th birthday; compare these calculations with what was actually paid into the scheme; calculate the investment return Mr D would have received; pay the underpaid contributions with investment return into Mr D's personal pension plan; and pay Mr D £500 for the significant non-financial injustice he suffered. Mr D (PO-6622)

No obligation to process transfer until relevant paperwork received


Mr S complained about a delay in transferring his benefits to a drawdown provider after he left employment. He said that this delay was due to the administrator and resulted in a reduction in the value of his benefits as they were disinvested at a later date than they could have been.

On 6 May 2015, Mr S returned his retirement option forms requesting to transfer. He believed this constituted an instruction to disinvest. The administrator said it was standard practice not to disinvest until all the information relating to the proposed transfer was received, and at that point, it had not received all the relevant paperwork from Mr S' employer. Mr S contacted the administrator on 20 May 2015 and 15 June 2015. On 19 June 2015, the administrator arranged for disinvestment of Mr S' benefits to begin early the following week, although it had still not received the completed transfer paperwork. On 25 June 2015, the administrator received the completed transfer paperwork and the transfer payment was authorised on 30 June 2015. The final value was less than the original quotation Mr S had received prior to completing his retirement form.

Mr S maintained that if the transfer paperwork had been included with his retirement paperwork, or if this had been treated as a disinvestment instruction, he would have received a higher transfer value. The administrator said it would not have been possible to process Mr S' transfer until it had received the relevant paperwork from Mr S' employer, and it was standard process not to disinvest until all information had been received. Mr S complained to the trustees under the fund's two stage IDRP; however, the complaint was not upheld at either stage.

The adjudicator concluded that no further action was required by the administrator. The transfer could not have been processed until the administrator had received the relevant information from Mr S' employer. If Mr S believed there had been a delay in providing this he should have contacted his employer. While it was unfortunate that Mr S' fund value dropped between him receiving his retirement quotation and completion of the transfer, no maladministration was found. The retirement paperwork explained that the value of Mr S' benefits was not guaranteed and further paperwork would be required to complete a transfer. The Ombudsman agreed with the adjudicator.  Mr S (PO-12188)

Trustees can take scheme's financial position into account


Mr Y complained that the trustees had rejected his application to access his Scheme pension before his Normal Pension Age ("NPA") at preferential, rather than cost-neutral, reduction factors. On 13 February 2015, when he was approaching age 55, Mr Y applied for the payment of his deferred scheme benefits before his NPA of 60. In accordance with the Scheme Rules, the trustees delegated Mr Y's application to a pensions committee, who had discretion as to whether Mr Y could receive his pre-NPA pension payments at preferential reduction factors. Payment at preferential reduction factors was only available to members who could demonstrate that their personal circumstances were exceptional, on the grounds of incapacity, financial hardship or otherwise. Mr Y submitted evidence to show that he was out of work and had a number of household expenses which would require an outlay of approximately £5,000. Mr Y also noted that the scheme's June 2014 newsletter contained a graph which showed assets had increased.

On 2 June 2015, the committee wrote to Mr Y to tell him that although the value of the scheme's assets had increased, the rise in liabilities outweighed this improvement. The committee concluded that there was insufficient evidence of exceptional personal circumstances, and whilst Mr Y was permitted to access his deferred benefits before his NPA, this would be on the basis of cost-neutral, not preferential, reduction factors. Mr Y appealed to the Trustees under the scheme's two stage IDRP but his appeal was rejected.

The adjudicator concluded that no further action was required by the trustees. The committee had taken the decision to apply cost-neutral early retirement reduction factors to scheme benefits taken before NPA on the basis of an actuarial valuation, which revealed a significant shortfall of assets over liabilities. The committee had given appropriate consideration to the factors in its guidance note and had considered all relevant evidence. It could not reasonably be said that the committee had reached its decision improperly. The Ombudsman agreed. The Ombudsman's role should be limited to assessing the committee's decision making process. It is for the committee to determine what weight to give the available evidence and the committee can take the financial position of the Scheme into account when reaching its decision.  Mr Y (PO-16067)

Administrator is responsible for ensuring retirement quotation is correct


Mrs K received an incorrect estimated retirement quotation in respect of her pension benefits. Based on this information Mrs K left employment and claimed her pension benefits. Mrs K complained that her benefits were lower than expected and as a result she was left in financial difficulty.

Mrs K's retirement paperwork provided details of a pension that was considerably lower than the initial quotation. Upon making enquiries, Mrs K learned that the administrator's quotation was incorrect. Mrs K complained to the administrator but it did not investigate her complaint and attempted to place responsibility on the Trustee. The administrator also said it was not required to check the accuracy of any details provided in a quotation and it was solely the responsibility of Mrs K to spot the error.


The adjudicator concluded that further action was required. Although Mrs K understood the quotation was an estimate and accepted that she could not be compensated for financial loss, she had suffered significant distress as a result of the original error, especially given the incorrect reassurance she received from the administrator. The approach taken by the administrator in failing to investigate Mrs K's complaint was unprofessional. The administrator was ordered to pay Mrs K £1,000 in respect of the significant distress and inconvenience it had caused and also write Mrs K a full letter of apology in respect of how it had handled her complaint. Mrs K (PO-16841)

No award given for reduction in Cash Equivalent Transfer Value


Mr E complained that his Cash Equivalent Transfer Value ("CETV") was less than he was originally quoted. Mr E was sent a CETV on 18 November 2016 which was valid for 3 months. On 25 January 2017, Mr E contacted the pension administration team and, after asking a number of questions, said he wanted to go ahead with a transfer. However, Mr E was informed that he would not have time for the transfer to be completed within the guaranteed period and was advised to wait until his next pay rise, when his pension pot would be bigger. Mr E took this advice.

However, before Mr E had received his pay rise, the trustees of the scheme held a meeting, and on taking advice from the scheme actuary, decided to change the way in which CETVs were calculated. The scheme actuary estimated that the change in assumptions would lead to approximately a 10% reduction in CETVs. Mr E was unhappy about this so raised a complaint under the scheme's IDRP. He said that the information he had been given over the telephone was incorrect, meaning he had suffered a financial loss. However, his complaint was not upheld.


The adjudicator concluded that no further action was required. It was unreasonable for Mr E to conclude that the information given over the telephone by the pension administration team was financial advice. Adequate information had been provided to Mr E at the time of his initial quotation for him to be aware of when the CETV deadline expired.

The Ombudsman agreed with the adjudicator. Mr E should have been well aware from written correspondence that the CETV expired on 18 February 2017. He had already established the fact that CETVs could change as a result of market factors so must have appreciated that the person on the telephone could not have known with any certainty that a later CETV would be higher. Mr E (PO-17290)

Trustee must consider potential beneficiaries


Mr Y disagreed with the trustee's decision not to award him and his wife the death in service benefit following the death of his son, and the decision to award it to the estate instead. Shortly before he died, Mr Y's son made a will which provided for the repayment of debts to his parents and the residual of the estate to be split between his niece and nephews and his ex-partner. A few weeks after his son's death, the trustee received a completed death grant information form from Mr Y which named Mrs Y as the next of kin. In the additional information Box, Mr Y only provided details of an AVC and a possible transfer into the scheme. On the basis of the information available, the trustee made the decision to pay the benefit to the estate.

Mr and Mrs Y were unhappy with the decision and appealed on the basis that they did not want their son's ex-partner to benefit from the death grant. They also said their son was not aware of the substantial amount payable following his death and if he was, he would have made his will differently. The trustee requested further information in relation to the ex-partner, who gave details explaining that she did not believe she was entitled to either a co-habiting partner's pension or the death grant. However, the trustee still made the decision to pay the grant to the estate. Mr and Mrs Y made a further complaint which was considered under the Scheme's two stage IDRP, but was not upheld.


The adjudicator concluded that further action was required by the trustee. The adjudicator considered that the trustee's decision making process was flawed. The trustee did not consider any of the relatives named by Mr Y's son as potential beneficiaries, and had not considered all the details of the will. Therefore the trustee did not explore the option of potential beneficiaries enough and so failed to ask itself the correct questions or take into account all relevant factors. The trustee also failed to establish whether Mr and Mrs Y could be beneficiaries in their own right. The trustee has a responsibility to consider any potential beneficiary, as set out in the relevant rules. The Ombudsman agreed with the adjudicator's decision. It ordered that within 28 days the trustee must reconsider its decision to pay the death grant to the estate, taking into account all of the relevant rules; and also pay Mr Y £500 compensation in respect of the distress and inconvenience he suffered.  Mr Y (PO-17599)

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