Welcome to the Pensions Ombudsman Focus for the period to February 2017. In this edition we cover 3 recent complaints.
First, we have a useful reminder of the principles to be applied in overpayment cases. Social and ethical investment has been an area of focus in the industry lately and so it is interesting to see a complaint from a member with strong religious or ethical beliefs in relation to a scheme's investments and how the Ombudsman dealt with this. The final case highlights the importance of getting communications right and making clear who has responsibility for taking decisions relating to a member's pension benefits.
Mr R v Abbey Life Assurance Company Limited
Administrators can reclaim from scheme members amounts mistakenly overpaid, even where the overpayment is the Administrator's own fault.
Mr R brought a complaint against Abbey Life Assurance Company Limited ("Abbey Life"), the pension scheme administrator of Mayfair Construction Ltd Executive Pension Plan and the Mayfair Construction Ltd Directors and Executives Retirement Plan (the "Schemes").
Mr R was a member of both Schemes, and complained that Abbey Life was attempting to reclaim overpayments of tax-free lump sums paid to him. Mr R argued that he should not have to return the overpaid funds as he had detrimentally relied on them.
When he retired, Mr R elected to take the maximum tax-free lump sum available from each Scheme and Abbey Life paid him £73,785.91 and £13,278.77. However, both amounts were incorrect, resulting in a total overpayment of £56,966.78.
The overpayment occurred due to human error in calculating a protected tax free cash sum of £333,444.47, instead of £33,444.4.
Abbey Life demanded Mr R repay the £56,966.78 minus a goodwill reduction of £5,000 for the distress and inconvenience the overpayment had caused him.
Mr R stated that he could not repay the money; it was spent discharging credit-card debts, buying a new car and two holidays, and giving cash gifts to relatives. He also argued that Abbey Life's conduct caused him and his wife considerable distress.
The Ombudsman held that Abbey Life should be able to seek repayment. In analysing whether Mr R had changed his position at law in detrimentally relying on the overpayment, the Ombudsman found that that Mr R did not incur any excessive expenditure in light of the overpayment, Mr R's purchase of a car was completed after he was made aware of the overpayment and the Ombudsman thought that he would have incurred the expenditure on a holiday in any event. It was also noted that the change of position defence cannot apply to paying off debts (which would have needed to have been repaid in any event). Concluding that Mr R had not changed his position, he noted that Mr R had no good defence to the demand for repayment.
The Ombudsman also noted that Abbey Life's goodwill gesture of £5,000 was fair recompense for anguish and pain Mr R had suffered.
The Ombudsman therefore ruled that Abbey Life should be entitled to pursue Mr R for the overpaid amount, less the goodwill reduction of £5,000.
Mrs D against the West Yorkshire Pension Fund and City of Bradford Metropolitan District Council
For a defined benefits scheme, there is no requirement to disclose details of the assets under the fund and their performance to members. Where a member has strong beliefs which affect what they can invest in, it is their responsibility to make the necessary enquiries.
Mrs D was a deferred member of the Local Government Pension Scheme, which was administered by the West Yorkshire Pension Fund ("WYPF"). When she joined the scheme she was given an information guide but this did not have information on the types of assets that the fund invested in. In particular, the guide did not inform her that the fund would invest in shares, which Mrs D says was against her religious beliefs. Her complaint was about her ability to make an informed choice based on the information she was provided.
The Adjudicator looked at both the Disclosure of Information Regulations 2013 (the "Regulations") and the Public Service Toolkit (the "Toolkit") and decided that the information provided to members should explain the benefits payable and what the member is required to contribute to receive these benefits. As the benefits payable were not dependent on the performance of the assets in a defined benefit scheme, the member did not have to be given information about the assets the scheme invested in. The Regulations did not require disclosure of information that could be relevant to a person's religious or ethical beliefs. Whilst Mrs D could not be expected to know that there would be a fund which invested in shares, she was the one holding strong beliefs and therefore it was her responsibility to make the necessary enquiries to understand what she was entering into.
The Adjudicator also decided that the European Fair Trading Laws and the Consumer Protection from Unfair Trading Laws were not applicable here. These would be applicable to the purchase of goods/services, but they were found to be irrelevant to how a business conducts itself or what it does to provide the goods/services.
The Ombudsman agreed with the Adjudicator and disagreed with Mrs D on her submissions regarding the Toolkit. Some passages Mrs D pointed to only applied to DC schemes or money purchase arrangements, neither of which she had. The Toolkit stated that information should be provided on "how [benefits payable under the scheme] increase in payment", but this only related to benefits in payment, and the increases would usually be based on inflation and not the fund or its assets. As for the Regulations, the Ombudsman stated that any information not listed in the Regulations did not need to be provided to scheme members.
Mr B v Harrisons & Crosfield Plc
Employers will not be liable for a member's financial loss where the member acts on communications which make it clear that a member should seek independent financial advice.
Mr B was an employee of Harrisons & Crosfield plc ("H&C"), and was a member of the Elementis Group Pension Scheme. Mr B complained that in 1989, he was advised by Lane Clark & Peacock ("LCP"), providing advice through his employer, H&C, to opt out of the State Earnings Related Pension Scheme ("SERPS"), which caused him financial loss.
A 1989 member communication, received by Mr B, which was sent by H&C to its employees, contained information as to how to contract out of SERPS. The letter stated "[Y]ou may be able to gain from contracting out of SERPS and taking out something called a minimum personal pension instead." The letter continued "the action you need to take is to contact your financial adviser or fill in the form headed 'Application to contract out of SERPS'... by 13th January 1989 at the latest." Finally, the letter stated "if you are undecided what to do, fill in the forms anyway and send them in. Lane, Clark & Peacock will advise you if it is not in your interest to contract out."
Subsequent to H&C's letter, Mr B decided to contract out of SERPS in 1989, by completing the relevant forms. Mr B asserted that this decision caused him financial loss, and he contracted-in again four years later, in 1993. Mr B claimed that if he had not received H&C's 1989 letter, he would not have opted out of SERPS, and would not have suffered financial loss.
In 2016, Mr B complained to the Scheme trustees under the Scheme's internal dispute resolution procedure. The trustees found that although H&C communicated LCP's advisory service and other general information to employees, LCP were ultimately responsible for any financial advice given. Therefore, Mr B's complaint was not upheld.
The Adjudicator also found in favour of H&C, stating that the 1989 letter did not constitute financial advice. It was clear that the decision whether or not to contract out of the SERPS was that of the individual, and moreover H&C's letter suggested that individuals considering contracting out of SERPS ought to take their own independent financial advice.
The Ombudsman agreed and noted that although H&C's letter stated that contracting out may be in the interests of certain H&C employees within a specific age range, this was not specific enough to be considered financial advice. Furthermore, the Ombudsman noted that the letter confirmed that LCP or an individual's own financial adviser could provide financial advice.
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