In this month’s Pensions E-Bulletin we look at a number of recent Pensions Ombudsman determinations which emphasise the importance of good administration and member communication. The cases deal with issues ranging from incorrect statements in scheme booklets to “promises” of early retirement factors and death benefits on TUPE transfers.
Paffey: member able to rely on representation in scheme booklet
The Pension Ombudsman has upheld a complaint by a member who applied for an ill-health pension without meeting the scheme’s two-year minimum service requirement. Mr Paffey had joined the scheme at age 55 and at that time had transferred two of his personal pensions into the scheme in reliance on an incorrect statement in the scheme booklet that this would immediately satisfy the scheme’s two-year minimum service requirement. Mr Paffey indicated that he would have transferred one of his four occupational pensions, rather than his personal pensions, if the scheme booklet had been correct (and this would have satisfied the service requirement). The Ombudsman held that issuing incorrect information in the booklet constituted maladministration and Mr Paffey had relied on it to his detriment. Accordingly, the scheme was directed to pay Mr Paffey compensation equivalent to the ill-health benefits he would have received under the rules had he satisfied the service requirement.
The Ombudsman in this case unusually determined that a representation in the scheme booklet was binding despite the fact that it did not reflect the scheme rules. It is worth noting that it is not clear in this case whether a disclaimer that the scheme rules were overriding was included in the scheme booklet.
Harris and Hancock: representation that payment was pensionable is not binding
In these recent cases, the Pensions Ombudsman held that despite representations by the employer, there was not a legally binding agreement to treat “subsistence payments” as pensionable earnings. Mr Harris and Mr Hancock had received daily payments of £20 to cover additional expenses for working on a relocation project that would ultimately result in redundancies. At a meeting to discuss the project, the personnel officer had indicated that without receipts the subsistence payments had to be taxed as income and therefore were automatically pensionable. Following their redundancies, Mr Harris and Mr Hancock were told that their subsistence payments (of approximately £5,000) would not be treated as pensionable earnings.
The Ombudsman held that the representations by the personnel officer were not sufficient to create a legally binding agreement to treat the subsistence payments as pensionable, however, the employer had clearly misrepresented the position and this was maladministration. The Ombudsman held that the misrepresentation would not have been sufficient for the members to decline working on the project, but they had lost the opportunity to negotiate for higher subsistence payments. On that basis that Ombudsman directed the employer to pay the two members £5 net per day for each day that they worked on the project and £250 each in recognition of the distress and inconvenience caused by the maladministration.
Wallace: employer not bound by early retirement factors “promised”
The Pension Ombudsman did not agree with Mr Wallace that the early retirement factors “promised” by the employer entitled him to an early retirement pension calculated on that basis. On redundancy, Mr Wallace had entered into a compromise agreement under which he received a redundancy payment in excess of the statutory amount to which he would have been entitled. In addition, he received a separate letter from the employer which stated that if he elected to take early retirement as a deferred pensioner, the maximum reduction factor that would apply to his benefits would be 3%. On reaching age 50, Mr Wallace applied for early retirement on these terms but was refused on the basis that it was not cost neutral.
The Ombudsman held that whilst it was maladministration not to have informed the member that the application of the 3% factor was subject to employer consent (and by implication that if that consent was not given, other factors may be applied), the statement did not give rise to a binding contractual agreement. The Ombudsman also held that the letter had not induced the member to sign the compromise agreement – he had no choice in taking redundancy and if he had not signed the compromise agreement he would have received a substantially smaller redundancy payment – and neither was the letter an unequivocal promise that the member would be given early retirement. The Ombudsman did however agree that the letter was misleading and amounted to maladministration which raised Mr Wallace’s expectations and caused distress. He awarded £250 compensation.
Hallard: Ombudsman orders administrators to pay member for loss of earnings
In the recent case of Hallard, the Pensions Ombudsman upheld the complaint of a member who had retired on the basis of an incorrect retirement quotation. Having received a retirement quotation from the scheme administrator, Mr Hallard prepared a yearly income forecast in consultation with his financial adviser and decided to leave his existing job and retire. A subsequent statement estimated his yearly pension at around £3,000 less per annum and advised that the previous quotation had been mistakenly overstated. The Ombudsman upheld the complaint against the administrators (though dismissed it against the trustees), holding that the provision of the incorrect benefit quotation was maladministration and that there was sufficient evidence showing that Mr Hallard had relied upon the quotation in deciding to leave his job and that would have continued working for a further period of around two years had the statement been correct. The administrators were ordered to pay the member his loss of earnings for that period.
McKinney: trustees directed to compensate member for loss of enjoyment of monies
This case involved a complaint by Mrs McKinney, the wife of a deceased member, arising from the underpayment of her widow’s pension for a period running from the death of her husband in 1991 until 2008. On realising the error, the trustees paid Mrs McKinney the arrears of pension (totalling almost £48,000) and offered £300 for her distress and inconvenience (which she refused). Mrs McKinney complained to the Pensions Ombudsman that she had not been adequately compensated for the underpayment. The Ombudsman held that the underpayment of Mrs McKinney’s pension was maladministration and directed the trustees to pay £1,500 compensation for the non-financial loss associated with the loss of enjoyment of the monies when she was younger and capable of being more active, and the distress and inconvenience of settling her tax liability with HMRC.