PENSIONS OMBUDSMAN ROUND-UPMARCH 2017

IN THIS ISSUE

02 Introduction

03 Calculation of benefits

04 Provision of incorrect information

05 Ill-health benefits

06 Late retirement factors

07 Pension sharing

08 Statistics

09 Contact details

Welcome to DLA Piper’s Pensions Ombudsman Round-Up publication in which we report on recent determinations made by the Pensions Ombudsman (“PO”) and Deputy Pensions Ombudsman (“DPO”).

In this edition we look at determinations from January and February 2017 which cover the following issues.

■ A case in which the member complained that he was being provided with a lower level of benefits than previously quoted to him. The scheme said that the benefits had been overstated in the quote but the member argued that the quote could reflect that an augmentation had been granted.

■ Two cases where benefits had been overstated but the PO concluded that the Applicants should have realised that the information provided was incorrect.

■ Two cases concerning refusals to pay ill-health benefits which demonstrate possible issues that can arise with the approach taken to considering future treatment options.

■ Complaints about a trustee’s decision to change the late retirement factor and to apply the new factor for the whole of the period after age 60 rather than only from the date the change was made.

■ A complaint that there had been delays in the implementation of a pension sharing order and that the amount of the CETV had fallen.

In the statistics section we provide a breakdown of the overall outcome of the January and February determinations.

If you would like to know more about any of the items featured in this edition of Pensions Ombudsman Round-Up, please get in touch with your usual DLA Piper pensions contact or contact Cathryn Everest. Contact details can be found at the end of this newsletter.

INTRODUCTION

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FACTS

The Applicant in this case (PO-10463) left active membership of the scheme on 30 April 1984. On 31 July 1984 he was informed he had three options: (i) a deferred pension payable at age 65 of £4,758.24 per annum; (ii) a transfer to a new scheme or to buy an annuity; or (iii) a refund of contributions. The letter setting out the options apologised for the delay in providing the information and stated that the rules had been amended to add the option of buying an annuity. In June 1985 the Applicant chose option (i). The deferred pension was also confirmed by the scheme administrators in November 1996.

However, a retirement quotation provided to the Applicant in 2014 referred to a deferred pension at age 65 of £3,334.80 per annum. When the Applicant queried this, he was told that the benefits had been overstated and that the fall in value comes from the application of franking. Franking allows increases in Guaranteed Minimum Pensions to be offset against the pension and can result in a GMP only pension. Anti-franking legislation only prevents franking in respect of those who left service on or after 1 January 1985. As the Applicant left service in 1984, it was possible for franking to be applied to his pension. The administrators have not been able to reconcile the 1984 calculations and do not hold a copy. The administrators have also stated that the GMP of £3,334.80 has been confirmed by HMRC.

The Applicant argues that the scheme should pay him the higher amount of £4,758.24. He notes that the option of buying an annuity was introduced after he left service but was offered to him. He believes that a decision could have been taken in 1984 not to frank his pension due to the upcoming introduction of the anti-franking legislation.

PO’S DECISION

The case was first considered by an Adjudicator who concluded that as the July 1984 letter specifically mentioned that the option to buy an annuity was being made available to the Applicant, had it been decided that anti-franking would be applied, this would also have been mentioned. The Adjudicator did not think that

the trustees’ offer of £200 compensation was sufficient and thought that they should pay £500 in recognition of the significant distress and inconvenience caused by the maladministration of providing incorrect information. The Applicant did not accept the Adjudicator’s Opinion. He argued that the trustees had not been able to exclude the possibility that his benefits had been augmented. He thought that the trustees had already augmented his benefits by offering the option of buying an annuity and therefore they could also have decided to augment his benefits by not applying franking.

The PO did not agree that the trustees were augmenting benefits by offering the option of buying an annuity to those who left the scheme before it was added to the rules. As to whether an augmentation had been made so that the Applicant’s pension would not be franked, the PO noted that the scheme rules state that augmentations are made at the discretion of the trustee, on request from the company. However, there was no evidence of a request by the company. The PO stated that an augmentation “is not the type of benefit that would be silently awarded” and, had an augmentation been granted, he would have expected it to be clearly shown in the member’s leaving statement. The Applicant also thought that the trustees had failed in their duty in the scheme rules “to keep or cause to be kept a complete record of all matters essential for the working of the Scheme”. The PO did not agree and concluded that this duty does not necessarily mean that every piece of correspondence issued and calculation performed must be kept, but rather it means the information required to run the scheme. However, the PO agreed with the Adjudicator about the level of the distress and inconvenience payment and directed that the trustees pay £500.

CALCULATION OF BENEFITS

Schemes may find this determination of interest if they are dealing with any cases concerning overstated benefit quotes where the member is arguing that the overstated benefits in fact correctly reflect an augmentation. This case shows the difficulty in making such an argument in the absence of any evidence that an augmentation was awarded.

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PROVISION OF INCORRECT INFORMATION

In this section we report on two cases where benefits were overstated but the PO concluded that the Applicants should have realised that the information provided was incorrect. These cases demonstrate that this can result in the failure of a claim that the higher amount should be paid, although compensation for distress and inconvenience may still be payable.

PO-6742

In June 2014 the scheme administrators provided two illustrations of the Applicant’s retirement benefits, one for the benefits being paid at age 55 and one for age 65. The two illustrations were received on the same day, and both set out the figure for the full pension and the figures for a cash sum and residual pension. Whilst the lump sums in each illustration were different (£15,685.67 for retirement at 55 and £36,897.90 for retirement at 65), the pension figures were the same with the illustration for benefits at age 55 and the illustration for benefits at age 65 both referring to a full pension of £6,861.07 and a residual pension of £5,534.69. The Applicant requested early retirement with effect from 2 August 2014 at age 55, taking a cash sum and residual pension. However, on 9 September 2014 she was informed that the benefits previously quoted were incorrect. The pension figures she had received applied for retirement at age 65, but for retirement at age 55, the figures should have been a full pension of £2,607.21 and a residual pension of £2,352.85. The Applicant argues that she should be entitled to the incorrectly quoted residual pension at age 55 of £5,534.

An Adjudicator concluded that it was not reasonable for the Applicant to have relied on the incorrect illustration. Given that the illustrations quoted the same pension for retirement at age 55 and at age 65, the Adjudicator thought that the Applicant ought to have known the figures were incorrect and queried them with the administrators. The case was referred to the PO who noted that the Applicant acknowledges that she noticed the pension figures for age 55 and 65 were the same. The PO also thought that the Applicant should have queried those figures “as they were clearly incorrect”. The PO therefore only upheld the complaint in

relation to the distress and inconvenience caused by the maladministration in providing incorrect information and directed the administrators to pay £500.

PO-13535

In this case the Applicant was a member of two public service schemes during her employment with her previous employer. The error related to one of those schemes and it arose because her service relating to that scheme had been overstated such that, leading up to her retirement, she was informed that for the period between 1999 and 2005 she had 913 days service when in fact her actual period of service was 112 days. The Applicant claims that, as a result of this, her annual pension is approximately £1,000 less and her lump sum is 17% less than expected.

The complaint was not upheld, with an Adjudicator and the PO both concluding that the Applicant ought to have known that her service history was incorrect because she had access to payslips and annual statements in order to check the information. The PO’s conclusions included noting that all but one annual benefit statement between 2008 and 2016 show that between 1 April 1999 and 31 March 2002 her service was 1 year and 165 days. However, for the same period, the Applicant’s payslips show that the total days worked in relation to this scheme was 9 days. The PO thought that it was not unreasonable for the Applicant to have reviewed this information when she raised previous queries concerning her membership of both schemes, particularly when in 2013 she looked in detail at her service in the other scheme of which she was a member. The PO thought that it “is easy to see that the amount of service and contributions on her payslips are well below that shown on her annual benefit statements” and concluded that it was reasonable to assume that the Applicant ought to have known of the error.

The Respondent had already offered the Applicant £700 in recognition of the non-financial loss she had suffered as a result of the incorrect information being given and the PO thought that this was “more than reasonable”.

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In this section, we look at two cases concerning refusals to pay ill-health benefits which demonstrate issues that can arise when considering future treatment options.

PO-9253

In this case, the scheme rules define incapacity as the situation where the employer considers the member permanently and totally unable to carry out any employment. They also state that entitlement to an ill-health pension is conditional on the trustees and employer receiving evidence from a registered medical practitioner in relation to the criteria for incapacity. The employer’s occupational health advisers stated that the Applicant was not permanently unfit for work because it was reasonable to expect improvement of her condition as a result of further treatment. The application for an ill-health pension was refused. An appeal was also refused. However, the medical opinions from the occupational health advisers did not specify the treatments, the improvement that was expected from them and the timescale. An Adjudicator concluded that the employer’s decision rested on incomplete medical opinions. The employer did not agree with this Opinion and the case was passed to the PO.

The employer argued that omitting to ask a medical practitioner to provide more detailed evidence for their opinion does not amount to maladministration and that, under the scheme rules, it is simply required to obtain evidence from a registered medical practitioner as to whether the relevant incapacity test is met and to make its decision following the proper consideration of the available evidence. The PO stated that while the employer is not responsible for the acts of its medical advisers, it is required to understand the reasons for their opinions and if there is a shortfall such as an omission in the adviser’s report the employer “should not blindly accept it”.

The PO concluded that the employer: (i) accepted the opinion of three doctors from its occupational health advisers without knowing the treatments they had in mind, the improvements they expected and over

what timescale; (ii) accepted the opinion of another occupational health adviser without knowing why he was of the opinion that it remained reasonably likely that the Applicant would be able to resume office-based work; and (iii) dismissed the opinions of the Applicant’s treating doctors citing a shortfall of information without asking the occupational health advisers to request this information and to confirm whether, once provided, it changed their opinion. The PO thought that this amounted to maladministration by the employer and remitted the case for reconsideration. He also directed that £500 compensation be paid in respect of significant distress and inconvenience.

PO-9995

In this case the Applicant was a member of a public service pension scheme and for “tier 1” benefits to be payable the member had to be permanently incapable of efficiently discharging the duties of her employment. The application for ill-health benefits was refused because the occupational health adviser had stated that further therapeutic measures may be used. However, the measure suggested was something which the Applicant’s specialist physician did not think was appropriate for her. At stage one of the IDRP, it was decided that the Applicant was entitled to tier 1 benefits.

An Adjudicator and the PO noted that the maladministration was addressed by the IDRP decision but thought that the administrators should pay the Applicant £500 in respect of the distress and inconvenience caused. Comments made by the PO in relation to the initial decision to refuse the application for an ill-health pension included that: (i) the medical adviser seemed to have disregarded without explanation the specialist’s recommendation that the particular therapeutic measure was not appropriate; (ii) the decision maker should have asked why this treatment had been referred to; and (iii) other than the fact that by the time of the IDRP it was known that physiotherapy had been unsuccessful, the evidence that therapeutic measures were not appropriate was available at the time of the initial decision.

ILL-HEALTH BENEFITS

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FACTS

Two cases determined in January (PO-14177 and PO-14440) relate to complaints by two members of the same scheme about the trustee’s decision to change the late retirement factor (“LRF”).

In 2004 Normal Pension Age (NPA) in the scheme was changed from 60 to 65. As a result of this, members became entitled to the part of their pension accrued before the date of this change to be calculated with reference to an NPA of 60 and the part of their pension accrued after the change to be calculated by reference to an NPA of 65. In 2011 the scheme was closed to future accrual and both Applicants became deferred members.

The scheme rules provide that where all or part of a member’s deferred pension is to be calculated by reference to age 60 “that part of the pension shall be increased over the “Post 60 Period” by not less than such amount as the Trustees may determine, on the advice of the Actuary, to take account of the payment of that part of the pension being made after age 60”. In April 2016 the trustee announced that the LRF was being changed from 9% to 5.25% per annum and the change would have immediate effect in relation to future retirements. However, the change would not affect benefits already in payment or cases where the retirement process was already underway and retirement was to occur before 1 October 2016. At the time that this change was made, both Applicants were over age 60.

There are some differences in the detail of the submissions of each Applicant, but a key element of both complaints is that the change to the LRF is being applied from age 60 rather than from the date the change to the LRF was announced in April 2016. Figures to demonstrate the impact of the timing of the change are provided in one of the determinations - the Applicant’s annual pension as at his 63rd birthday in 2016 with the new LRF applied from age 60 is £23,738, but if the new LRF had been applied from April 2016 rather than backdated, the pension would be approximately £25,482.

PO’S DECISION

An Adjudicator and the PO concluded that the claims should not be upheld, with the reasoning including the following.

■ There is nothing to suggest that the new LRF has to be applied from the date it was changed. A change in the LRF for a member who is yet to draw their pension is not a change to an accrued right. Just because a member was over the age of 60 in April 2016, it does not mean that he has a right to the LRF that was applied when he was 60.

■ The Applicants argued that documentation implies that the LRF is applied on an ongoing basis. For example, one Applicant stated that his pension review statement says that the LRF “is” applied not that it “will be” applied. The PO disagreed with this interpretation as the statement does not state what the factor will be.

■ The rules do not state when the LRF is applied. The trustee has decided to apply the LRF applicable at the time the member retires and this is not an unreasonable approach.

■ In one of the determinations, the PO also stated that the normal practice under an occupational pension scheme is for the LRF applicable at the time a member takes their benefits to be applied to the entire period from the member’s NRA (which in this case is 60 for this part of the benefits).

LATE RETIREMENT FACTORS

This case is notable in showing that changing the LRF in this way was permissible and not a change to an accrued right. However, the reasoning includes reference to the scheme documentation and therefore trustees who are planning a similar change should check whether this is permitted by their scheme rules and also consider whether this is consistent with what has previously been communicated to members.

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FACTS

The Applicant in this case (PO-6972) and her ex-spouse have deferred benefits in the same scheme. Under a pension sharing order the Applicant receives 100% of her ex-spouse’s CETV from the scheme. There are two aspects to the Applicant’s complaint. Firstly, she argues that there have been delays in the scheme implementing the pension sharing order. Secondly, she argues that the amount of the CETV is less than previously stated. In February 2013 the administrators had written to the ex-spouse with details of his benefits for use in connection with the divorce proceedings, and in this statement the CETV was £154,660.98. The notes to the statement included that the CETV was not guaranteed and was for illustration purposes only, and that if a pension sharing order was made, the CETV would be recalculated and may be different. As from the start of March 2013 new conversion factors for calculating transfer values were implemented for the scheme. The revised figure for the CETV as at 6 February 2015 was £114,980.47.

PO’S DECISION

Both an Adjudicator and the PO concluded that neither aspect of the complaint should be upheld.

In relation to the delay in implementing the pension sharing order, the PO noted that it was unclear exactly when the administrators received the order as it was not date stamped. The trustee had initially stated that it was received in September 2013 but subsequently said that it was difficult to determine the precise date. However, an August 2014 letter from the administrators stated that it was received on 27 February 2013 and the PO concluded that, on the balance of probability, the order was received on that date. The administrators did not contact the Applicant until September 2013 and it was therefore concluded that there was unnecessary delay on the part of the administrators between February and September 2013. However, it was also concluded that this delay was not the main reason for the scheme failing to implement the order. Before the pension sharing order could be implemented, the scheme needed specified information from the Applicant and for any charges to be paid. The PO noted that the Applicant

has not paid the charges and so the order could not be implemented. The PO concluded that whilst the administrators were responsible for the initial delay, the Applicant is responsible for the ongoing delay. (It is also worth noting that the trustees had already offered to pay the Applicant £250 which the Adjudicator thought was adequate compensation for the non-financial injustice resulting from the administrators’ lack of proactivity during the process.)

In relation to the change in the value of the CETV, the PO noted that the higher CETV of £154,660 was quoted to the Applicant’s ex-spouse and not to the Applicant. The PO’s conclusions also refer to the fact that the higher CETV clearly stated that the figure was not guaranteed and would be recalculated. The PO also noted that this CETV was considerably higher not only than the figures subsequently provided but also than a figure of £114,934.51 quoted in February 2011. The PO therefore thought it was questionable whether the £154,660 figure was correct but concluded that as the figure was not guaranteed, he did not need to consider the matter further.

PENSION SHARING

This case is useful in demonstrating some of the areas of complaint that can arise in relation to pension sharing orders and reasons why such complaints may not be upheld. Pension sharing also featured in another recent determination (PO-14389) which demonstrates the importance of ensuring that a pension debit is properly reflected in the member’s records. In PO-14389, the member received multiple incorrect benefit statements and the reason for the errors was that an earlier pension sharing debit had not been correctly calculated. This meant that the actual benefits were approximately 11% less than estimated. Whilst the member’s complaint of detrimental reliance on the incorrect information was not upheld, the DPO concluded that the discovery of the mistakes had added an unnecessary element of stress and uncertainty to the member’s retirement process. The trustees had already offered the member £1,000 compensation which the DPO noted is above the minimum usually directed and concluded that in this case the offer reflects the non-financial loss suffered.

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STATISTICS

* For these purposes, awards are considered by looking at what is payable by a single respondent to a single applicant. There may be some awards that are, in aggregate, higher than the awards listed here because more than one respondent is directed to make a payment in the same case.

** Three determinations were also given in the Ombudsman’s capacity as the PPF Ombudsman.

JANUARY

NUMBER OF DETERMINATIONS 47

Number of these determinations which are Ombudsman decisions following an appeal from an Adjudicator’s opinion

47

SCHEME TYPE Public service scheme 16

Private sector scheme 31

OUTCOME Upheld 9

Partly upheld 6

Not upheld 32

AWARDS FOR DISTRESS AND INCONVENIENCE*

Lowest award £500

Highest award £1,000

FEBRUARY

NUMBER OF DETERMINATIONS 36**

Number of these determinations which are Ombudsman decisions following an appeal from an Adjudicator’s opinion

31

SCHEME TYPE Public service scheme 14

Private sector scheme 22

OUTCOME Upheld 7

Partly upheld 7

Not upheld 22

AWARDS FOR DISTRESS AND INCONVENIENCE*

Lowest award £500

Highest award £1,000

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CONTACT DETAILS

Ben MillerPartner, Liverpool T +44 (0)151 237 4749 ben.miller@dlapiper.com

Claire BellPartner, Manchester T +44 (0)161 235 4551 claire.bell@dlapiper.com

Tamara CalvertPartner, London T +44 (0)20 7796 6702 tamara.calvert@dlapiper.com

Jeremy HarrisPartner, Manchester T +44 (0)161 235 4222 jeremy.harris@dlapiper.com

Vikki MassaranoPartner, Leeds T +44 (0)113 369 2525 vikki.massarano@dlapiper.com

Kate PaynePartner, Leeds T +44 (0)113 369 2635 kate.payne@dlapiper.com

Matthew SwynnertonPartner, London T +44 (0)20 7796 6143 matthew.swynnerton@dlapiper.com

David WrightConsultant, Liverpool T +44 (0)151 237 4731 david.wright@dlapiper.com

Cathryn EverestProfessional Support Lawyer, London T +44 (0)20 7153 7116 cathryn.everest@dlapiper.com

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