Out-Law / Your Daily Need-To-Know

Pensions disputes: Ombudsman backs providers' commercial common sense

Out-Law Analysis | 28 Jun 2022 | 10:28 am | 4 min. read

Two recent decisions by the UK Pensions Ombudsman (PO) confirm that pension providers are entitled to exercise their own commercial judgement when setting the terms which apply to their pension products.

In a third decision, the PO decided that it was reasonable for the provider to adopt its standard approach to applying early retirement factors where the contract did not provide for a fixed reduction factor.

Commercial judgement and terms and conditions

In the first decision, the PO dismissed a complaint by a saver, Mr E, who claimed he had received substandard service from his provider when he requested to transfer assets from his self-invested personal pension (SIPP) to another SIPP. The transfer ultimately took three months to complete, but the PO found that the provider had acted in accordance with the rules of its SIPP by requiring both Mr E and the receiving SIPP to complete the relevant paperwork.

Where members raise complaints about personal pension products, the PO often turns to the provider’s terms and conditions as a starting point. In this case, the PO confirmed that it was not his role to impose internal processes and practices on how the provider conducts its business and what it requires of those it undertakes business with. The provider is entitled to exercise its own commercial judgment when setting those processes.

Kemp Michael

Michael Kemp

Senior Pensions Technician

Where members raise complaints about personal pension products, the PO often turns to the provider’s terms and conditions as a starting point

Mr E requested a transfer in September 2019. The transfer process was initiated by the provider in October, after the receiving SIPP confirmed that it was able to accept the transfer. There were delays with the paperwork: relevant documents had to be re-sent after they failed to arrive in the post; forms were received by the provider only partially completed; and there were discrepancies in some of the asset details provided. The provider notified the receiving SIPP that it could not proceed until Mr E completed and signed discharge papers. The transfer was completed in January 2020.

Mr E complained about the delays, claiming that he lost out on a £125 bonus payment from the receiving SIPP due to the provider’s delays. He also sought compensation for time and effort dealing with the provider. His complaint was not upheld: the PO confirmed that Mr E had to fully comply with all the transfer requirements stipulated by both SIPP providers. It was not unreasonable or unfair for the provider to insist on receiving a fully-completed discharge form before making the transfer, and it was also proper for the provider to seek an explanation for the discrepancies in the asset details given in the transfer paperwork.

Commercial judgment and products for overseas customers

The PO also dismissed a complaint by a Ms G, who had complained that her provider unreasonably refused to provide her with a pension drawdown policy to claim her retirement benefits because she lived overseas. As in the case of Mr E, the PO confirmed that the provider was entitled to make particular commercial decisions, in this case about the retirement products it offered.

The provider sent Ms G a retirement pack setting out various options available to her ahead of her selected retirement date. In subsequent telephone conversations and correspondence, it confirmed to Ms G that it did not offer a pension drawdown policy – Ms G’s preferred option – and that its partner company did not offer such policy to customers who, like Ms G, were living outside of the UK.

The PO found no fault with the provider’s approach. It had “clearly made a business decision not to provide pension drawdown which it was entitled to do”, regardless of whether Ms G lived in the UK or overseas.

The provider’s correspondence stated that Ms G would need to seek financial advice or find another provider if she wished to purchase a drawdown policy in the UK. The PO confirmed that there was no requirement for the provider to offer any further explanation or guidance to Ms G regarding the possibility of transferring her benefits.

Guaranteed minimum pension calculations

The PO’s final decision was to dismiss a complaint brought by a Mr S who claimed that his pension – which included guaranteed minimum pension (GMP) benefits – had not been calculated correctly.

Mr S, a company director, had until 1996 been an active member of the company’s contracted-out pension scheme. The scheme was wound up in 2001, with members transferred to a buy-out plan with the provider. Mr S took early retirement in 2002, at the age of 50, and his pension was put into payment.

After he reached the state pension age (SPA), Mr S complained that the provider had not calculated his pension correctly. He said that he had not been informed that the early retirement reduction factor was changed from 30% to 46.7%, and he also wanted the provider to pay him a GMP of £2,500.68 per year from his retirement date in addition to his pension at age 65.

GMP benefits are complex and difficult to explain to members. Providers should ensure communications are as clear as possible, although this will not always prevent members from challenging calculations. In this case, however, the PO dismissed Mr S’s complaint. He was satisfied that the provider had calculated Mr S’s pension in line with the buy-out contract and relevant pensions legislation.

When the company scheme was transferred to a buy-out plan, the trustees had not secured a fixed early retirement factor. The provider therefore applied its standard approach of a cost neutral early retirement factor. The PO decided that this was not unreasonable. The provider had not been supplied with any scheme booklets or literature from the time Mr S joined the scheme – but, in any event, its responsibility was to apply the terms of the buy-out contract.

The GMP was not, as Mr S had argued, a separate additional pension on top of the member’s scheme pension. Rather, when Mr S reached his SPA of 65, the provider was required to apply the statutory revaluation that was due on the GMP. This meant that the provider was required to increase Mr S’s annual pension by £7,856.30 at this point, but not also to apply an increase for each year since Mr S took early retirement.

The PO added that Mr S was entitled to appoint his own actuary if he was dissatisfied with the provider’s calculations.

Co-written by Valentina Kass-Vertic of Pinsent Masons.