Mr Hayes was a member of the final salary scheme run by Inspec Fine Chemicals Ltd until 31 March 2000 when his employment transferred over to Schenetady Europe Limited who offered him membership of their final salary scheme.

Mr Hayes and each of his colleagues who transferred employment over to Schenetady were asked whether they would like to take their benefits from the Inspec scheme as early leavers or whether they would rather have a transfer to Schenetady's final salary scheme.  Those members transferring their benefits into the Schenetady scheme were offered service credits with a 25% uplift for each year of pensionable service they had accrued.  Men and women were offered the same transfer credit and uplift.

The main reason for the uplift was because of a difference in the early retirement terms between the two schemes.  The Inspec scheme allowed members to take benefits at age 62 without reduction, whereas the Schenetady scheme required members to reach age 65 before they could take their benefits without any early retirement reduction being applied.

Mr Hayes accepted the offer to transfer his benefits to his new employer's scheme and he was awarded 18 years and 8 months' pensionable service under the Schenetady scheme, having accrued just 14 years and 11 months' pensionable service under the Inspec scheme.

Eleven years later, in 2011, an error was discovered.  The bulk transfer value had not properly taken into account the judgment in Barber v Guardian Royal Exchange and consequently the bulk transfer value (in respect of all transferring members) had been underpaid by £323,466.47.  The trustees of the Inspec scheme dutifully wrote to the trustees of the Schenetady scheme offering to pay the requisite amount.  In an unusual turn of events the trustees of the Schenetady scheme refused to accept the transfer value!  This was on the grounds that they no longer accepted transfers-in to the scheme.  The Schenetady trustees then wrote to the affected members, including Mr Hayes, to inform them that there had been an error, but crucially they used the following wording:

"...it has been identified that some members' benefits had been incorrectly calculated... some members may be entitled to an additional transfer value."

No doubt the recipients of these letters rubbed their hands with glee in anticipation of receiving an additional transfer value, leading to additional benefits under the Schenetady scheme.

After taking legal advice which confirmed that the liability now rested with the trustees of the Schenetady scheme the trustees of the Inspec scheme withdrew their offer of payment of the £323,466.47.

Mr Hayes complained to the Ombudsman, stating that:

(1)        he wanted his share of the £323,466.47 underpayment (which he calculated to be £8,433.45); and

(2)        that his 25% uplift must surely have been (a) calculated incorrectly because the Barber window had not been taken into account; and (b) eroded because the transfer value should have been higher.

In relation to the first of these points:  It was not contested that the bulk transfer value had been miscalculated.  However, the level of Mr Hayes' benefits had not been affected by this error.  The only party who had suffered a financial loss as a result of this error was the Schenetady scheme as it was legally required to provide benefits which were not funded by the bulk transfer it had received in 2001.

In relation to the second of these points:  Having investigated the actuarial method and assumptions used to calculate Mr Hayes' transfer credit it transpired that he had been granted a more generous level of benefits than he would have been entitled to under the Inspec scheme as: (1) full account had been taken of the difference in early retirement age; and (2) the calculation of the transfer was based on a staggered early retirement age from 59 with no actuarial reduction averaging at approximately 62 years of age - i.e. the same as under the Inspec Scheme.

Despite concluding that Mr Hayes had not been financially disadvantaged as a result of the bulk transfer being underpaid, the Ombudsman acknowledged it was  "hardly surprising" that Mr Hayes had believed he was entitled to more under the Schenetady scheme.  Whilst Mr Hayes' complaint was dismissed he was awarded £300 in recognition of the loss of expectation he had suffered and the trouble caused to him in pursuing this complaint.

A vast number of Ombudsman complaints arise as a result of careless communication with members.  If the trustees in this case had taken proper advice and based their communication to the affected members on that advice the confusion that ensued could have been avoided.

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