In this round-up of complaints to the Pensions Ombudsman, we look at:
- Incorrect Benefit Quotations – what happens when pension scheme members are given incorrect pension quotations?
- Death Benefits – does an employer or administrator have a duty to inform of the two-year time limit for paying authorised lump-sum death benefits?
- Additional Voluntary Contributions – what happens when there is a scheme failure to take employee AVCs?
Mrs Mather worked as a teacher and was a member of the Teachers' Pensions Scheme between 1974 and 1978. In August 1978, she wrote to the Department of Education and Science (DES) to ask whether she would be entitled to receive a refund of her contributions. Mrs Mather sent DES the relevant form in March 1979. The DES issued a refund of £747.48 but did not alter its records to reflect the fact that her four years and 108 days' service were no longer pensionable.
Mrs Mather returned to teaching in 1986 and resumed her scheme membership. When Teachers Pensions (TP) was subsequently established, it inherited her incorrect service record from DES. TP sent Mrs Mather annual estimates of retirement benefits. Each statement noted that "the figures in this Statement are for illustration only. Every effort has been made to ensure accuracy, however this Statement confers no right to the benefits quoted".
Mrs Mather applied for retirement at her normal pension age (1 August 2013). TP spotted the error and corrected its records to show that her service from 1974 to 1978 was non-reckonable for pension purposes. On 13 July 2013, TP sent Mrs Mather a notification of the benefits to be paid to her, but did not mention the error. She telephoned TP to complain that her benefits were much lower than those set out in previous retirement estimates. The call handler was unable to provide an explanation and so she sent TP a letter and then issued a formal complaint, which was rejected in June 2014.
Mrs Mather then complained to the Pensions Ombudsman, arguing that TP should honour its overstated annual benefit statements because she relied on those figures when she decided to move house and take early retirement, changing her position irreversibly. She also submitted that she did not have any memory of requesting the refund of contributions as her ex-husband had completed the form and she was suffering from post-natal depression at this time.
The Deputy Ombudsman upheld the complaint. The Deputy Ombudsman was persuaded that:
- Mrs Mather relied on the figures in her annual benefit statements when she decided to move house and take early retirement, changing her position irreversibly.
- Mrs Mather was unaware of the mistake when she elected to take retirement. Although the wording of the benefits statements did not guarantee the level of benefits quoted, very little effort was made by TP to ensure accuracy. In particular, it was misleading for the annual benefit statements to say that "every effort has been made to ensure accuracy".
- Mrs Mather forgot about the refund of contributions in 1979 due to post-natal depression affecting her memory.
Although members cannot receive larger benefits to those which they are entitled, in this case it would be inequitable for TP to provide Mrs Mather with reduced benefits as she had relied on the misinformation to her detriment and she was not or could not have been aware of the mistake.
The Deputy Ombudsman also considered that TP's communications following discovery of the error in 2013, including the letter of 13 July 2013 (which did not refer to the significant error), constituted maladministration.
The Deputy Ombudsman held that Mrs Mather should be entitled to rely upon the incorrect figures that TP sent her. TP was to increase the complainant's pension as if her service between 1974 and 1978 were pensionable and pay her arrears of pension backdated to 1 August 2013 with interest, after subtracting an amount equal to the refund of contributions that was paid to her in 1979 with interest. TP was also to pay the complainant £500 for the significant distress and inconvenience that had been caused.
Despite the encouragement of the Pensions Regulator, perfect scheme data is a nirvana and there is always the risk that benefits may be overstated. In most cases, protection against errors on benefit statements is provided by warnings; that was not the case here because the warning notice was untrue.
Trustees should also ensure that communications following discovery of errors are clear and responsive, and bring all relevant information to members' attention.
Mr Lettman was employed by the London Borough of Hammersmith and Fulham (LBHF) from August 1997 to June 2008 and was a member of the London Borough of Hammersmith and Fulham Pension Fund (the Fund), which is part of the Local Government Pension Scheme (LGPS). The Fund's everyday administration was conducted by the London Pension Fund Authority (LPFA). Mr Lettman passed away on 21 November 2008, aged 44 and intestate.
Ms Lettman (Mr Lettman's mother) wrote to LPFA on 25 November 2008, informing them of her son's death and enclosing his death certificate. LPFA responded on 9 December 2008, informing her that a death grant was payable. It said that in due course, it would give details on receipt of letters of administration or grant of probate.
Ms Lettman approached the Fulham Legal Advice Centre (Centre) for help with obtaining the grant of letters of administration. On 23 February 2009, the Centre wrote to LPFA asking about the monies payable to the estate in respect of Mr Lettman's pension. LPFA replied to the Centre on 27 February 2009, confirming that the death grant payable was £21,095.52.
On 6 May 2009, LPFA confirmed it required a grant of letters of administration in order to make payment. Although the exact date of applying for the grant of letters of administration is unknown, Ms Lettman submitted that this was in late 2009. The LPFA chased Ms Lettman for this four times up until April 2010.
On 15 September 2010, the High Court issued the grant of letters of administration, naming Mr Lettman's three children as the beneficiaries of the estate and Ms Lettman and her daughter as the personal representatives. The grant of letters of administration was hand delivered to the offices of LBHF, and was stamped as being received on 9 November 2010.
On 6 December 2010, LPFA informed Ms Lettman that the death grant would be an unauthorised payment because it had not been paid within two years of when it knew of Mr Lettman's death, and as a result, the lump sum death benefit would be subject to a 40% tax charge. LPFA said that it was not possible for them to make a payment within the statutory period for reasons beyond their control.
Ms Lettman appealed under the LGPS' internal dispute resolution procedure but was unsuccessful (with Capita who took over as Fund Administrator in October 2011 acting as the stage one decision-maker). During this period, LBHF tried to claim for an easement from HMRC. HMRC said that they had no discretion to make easements where the two-year statutory time limit was missed. Ms Lettman then complained to the Ombudsman, arguing that the late payment of the death grant, resulting in an unauthorised payment charge was the respondents' fault. She argued that the LPFA did not mention a time limit in which to apply for the payment, or of a possible tax, and that she would have acted sooner to provide the grant of letters of administration if she had known (albeit that the process of obtaining it was made more difficult by there being three children by three different mothers, combined with the fact that she was grieving). Further, she argued that there was "unnecessary delay" – both LBHF and LPFA could have made payment within 13 days if they had reacted within the SLA timelines.
The Ombudsman upheld the complaint against LBHF and LPFA, but not Capita (as it was not involved in the administration of the Fund prior to 1 October 2011, which postdates the events complained of).
The Ombudsman considered that:
- LPFA knew of the death from 28 November 2008 (the date that Ms Lettman's letter was received). Therefore, payment would have needed to have been made before 28 November 2010 in order for it to be an authorised payment.
- Both LBHF (as Administering Authority of the Fund) and LPFA (as the pension administrator) ought to have been aware of the two-year deadline. The information about the two-year limit was factual information rather than advice. Even though there was no duty to disclose it, as it was not scheme-specific information, either LPFA or LBHF should have volunteered it. Failure to do so was maladministration.
- The period of 13 business days from handing the LBHF the grant of letters of administration was sufficient to make the payment by the deadline of 28 November 2010. LBHF should have taken urgent action and failure to do so amounted to maladministration.
The LBHF was to pay Ms Lettman an amount equivalent to the unauthorised payment charge (£8,438.34) from the Fund, plus simple interest. Both LBHF and LPFA were to pay Ms Lettman £250 for the significant distress and inconvenience caused.
This case highlights the severe penalties for missing the statutory two-year time limit for paying authorised lump sum death benefits.
Although the Ombudsman found there is no duty placed on Trustees to inform members of the two-year time limit, this decision shows that Trustees should nevertheless draw members' attention to legislation relevant to the specific circumstances or run the risk of being found in maladministration.
Mr Cunningham was employed by Parcelforce and was a member of the Royal Mail Pension Plan (Plan). In 1996, he began making additional contributions from his salary to the AddPlan section of the Plan, in order to purchase an additional nine years of pensionable service. In 2000, Mr Cunningham transferred from the employment of Parcelforce to Royal Mail, without any break in pensionable service. However, when his payroll details were set up by Royal Mail, they did not arrange for the deduction of contributions in relation to the additional service.
From 2000 to 2012, he continued to receive annual benefit statements showing a full nine additional years' service. However, following a data reconciliation exercise, the Trustee wrote to Mr Cunningham to inform him that no deduction of contributions for his additional service had been deducted from his pay since May 2000. There was therefore a sum of £17,472 outstanding in respect of his contributions. The letter provided two options for Mr Cunningham: first, he could cancel the contract and receive the additional service years based on the contribution up to May 2000, or he could bring his contributions up to date by paying a lump sum or instalments from his pay over a period of time.
Mr Cunningham complained under the Internal Dispute Resolution Procedure (IDRP), which was not upheld by the Trustee. He escalated the matter under Stage Two of the IDRP. The Trustee accepted that the non-collection of contributions constituted maladministration. It also emerged that Mr Cunningham had made a routine enquiry in relation to his AVCs in 2003; the pension administration centre had discovered that the contributions had not been made but did not inform Mr Cunningham or investigate the reason. However, the Trustee maintained that in accordance with the Plan rules, "where a benefit has not been properly provided for through the payment of the necessary contributions that benefit cannot be paid".
Mr Cunningham complained to the Pensions Ombudsman in October 2012. Following this, he entered into a contractual agreement with the Trustee in February 2013 to repay the arrears of AddPlan contributions to 4 March 2012. However, he maintained his complaint and rejected an offer of £1,750 compensation.
Mr Cunningham argued that he did not notice that the weekly deductions from his pension were not being made to his AddPlan because of his fluctuating income (he sometimes worked night shifts and took overtime). Further, once he joined Parcelforce, his payslips were in a different format. Additionally, he argued that he had spent the additional earnings on general household expenses over a period of approximately 10 years.
The Deputy Ombudsman upheld the complaint. The Deputy Ombudsman accepted that Mr Cunningham did not notice that no additional contributions were being deducted for the reasons outlined above.
The Deputy Ombudsman was persuaded that:
- Mr Cunningham changed his position irrevocably in reliance on the benefit statements he received. In particular, he spent the additional earnings as a consequence of not paying the additional contributions on general household expenses. The Ombudsman also noted that he was now five years away from retirement, had dependent children and had moved in to a newly mortgaged house.
- It would be inequitable to allow the Scheme to go back on the representations made to Mr Cunningham in the annual benefit statements that his benefits were accruing at the original contractual rate or to seek to recover the missing contributions past the point at which he retired.
- Therefore, the Plan should only be entitled to recover the contributions due since 20 January 2012 up to his last day of service at the original contractual rate.
Further, Mr Cunningham did not compromise his ability to pursue the complaint by entering into the contractual agreement outlined above. Neither did the fact that Mr Cunningham took a voluntary redundancy package in 2014.
This is a sensible and justifiable decision and illustrates the importance for Trustees and employers to ensure the accuracy of annual benefit statements. The facts are slightly unusual in that although the non-payment of contributions had been discovered in 2003, it was not notified to the member.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.