Out-Law Analysis | 25 Apr 2022 | 1:06 pm | 4 min. read
The Pensions Ombudsman (PO) has delivered decisions highlighting the need for schemes and members alike to take action when receiving a notification or request for information.
The cases show that inaction can lead to losses, and also demonstrate the importance of clear, early correspondence to keep members up to date with their pensions.
The PO set out the importance of properly implementing pension sharing orders promptly when schemes are notified of them in a recent decision (CAS-31053-J5J5). If the correct steps are not taken and recorded, there is a risk that the order will be overlooked in future and incorrect benefits paid by the scheme.
The case also highlights the legal tests that apply when a scheme seeks to recover funds paid out in error on the basis that a beneficiary has been ‘unjustly enriched’. Beneficiaries will sometimes argue that they cannot repay sums paid in error because have irreversibly changed their position, but the PO said members must show they have acted in good faith before they can rely on this defence.
The successful complaint was brought by a scheme member, Mr S, who complained that, after failing to implement a pension sharing order in favour of his ex-wife, the provider made a payment to his ex-wife and sought to recover the funds from Mr S.
In 2011, Mr S’s pension scheme benefits were all allocated to his ex-wife under a pension sharing order. The provider was advised of this by the ex-wife’s solicitor and asked for further information, but closed its case when this was not provided. In 2014, the provider confirmed to Mr S that it had not been notified of a pension sharing order, and transferred the scheme benefits to a small self-administered scheme (SSAS) at Mr S’s request.
As with many Pensions Ombudsman cases, clarity of communication from the provider is key in avoiding successful claims
The provider later confirmed that it had in fact been notified about the pension sharing order, but had failed to implement the order and had continued to send Mr S annual benefit statements suggesting that the scheme funds were still his. The provider requested the return of most of the transferred funds – except for just over £2,000 in lieu of compensation for the errors made.
Mr S denied that he had requested this transfer in bad faith. He had a number of pensions at the time of his divorce and was not aware that these scheme funds no longer belonged to him. He argued he had changed his position irreversibly by putting most of the transferred funds into a loan from the SSAS to his business – which was written off when the business failed.
The provider argued that Mr S should repay the transferred funds because he had been unjustly enriched at the provider’s expense.
The PO disagreed, finding Mr S was not personally enriched as the transferred funds were loaned to a business with two corporate shareholders, one of which was liquidated, and the other was not connected to Mr S.
The PO also decided that there could not be any enrichment at the provider’s expense. The provider appeared to believe it was discharging a debt owed by Mr S to his ex-wife. However, she did not have a claim against Mr S, although she may have had a claim against the provider. The provider had therefore compensated the ex-wife for her loss, because the pension sharing order was not implemented, and this compensation could not be recovered from Mr S.
The PO said that if the provider had successfully made out its claim, Mr S would not have been able to rely on a change of position defence, because he could not show he had acted in good faith. The evidence showed that Mr S was aware there was a risk he was not entitled to the funds but decided to proceed with the transfer anyway.
There was maladministration because the provider had not informed Mr S about the unimplemented pension sharing order and had made a transfer to the SSAS. However, the transfer was beneficial to the SSAS and to the business which received the loan, so the PO did not think Mr S had been caused distress and inconvenience for which he should receive an award.
In another recent case (CAS-40327-H9F0), the PO dismissed a claim from a scheme member who complained his pension provider had failed to notify him that he had reached the scheme’s normal retirement age (NRA), which meant he missed the deadline to claim a guaranteed annuity rate (GAR).
As the member, Mr I, failed to respond to correspondence from his provider, the provider’s decision to withdraw the entitlement to a GAR was not unreasonable.
In 2017 and 2018, Mr I received various letters and a retirement quotation from the provider which referred to GARs that would apply if benefits were taken under the terms of the scheme. The provider told Mr I that he needed to confirm his chosen retirement option, and mentioned the date of his retirement without explicitly informing him of the NRA under the scheme.
In November 2018, acknowledging that it had failed to write to Mr I as soon as he reached his NRA, the provider extended the GAR expiry date to 22 January 2019.
In the course of further correspondence and telephone conversations, the provider provided a retirement quotation and questionnaire and extended the GAR deadline twice.
Mr I initially returned an incomplete questionnaire and sent pre-April 2006 salary details separately. He then went on holiday, which delayed the completion of a ‘risk warning’ check in accordance with Financial Conduct Authority guidelines.
When Mr I asked for a further extension, the provider initially said that the GAR entitlement would be honoured, but it later withdrew this offer.
The PO said the provider took adequate steps to inform Mr I of the GAR entitlement, its link to the NRA and the urgency with which he should make related enquiries. The provider could not be held responsible if Mr I did not clarify what information was required, or if he was unable to locate the necessary information.
The provider had mitigated its own delays by extending the GAR deadline and it was not unreasonable for the provider to withdraw its offer of a final extension, considering the three previous extensions and the lack of urgency of Mr I’s responses.
The provider offered Mr I £250 in compensation for its failure to contact him on reaching his NRA and the error made when agreeing to a final extension which was later withdrawn, and the PO said this award was adequate.
The decision highlights that it would be helpful for correspondence sent before a member’s NRA to state explicitly where a GAR will expire on a particular date – this may avoid similar complaints arising in future. As with many PO cases, clarity of communication from the provider is key in avoiding successful claims.
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