Mellodey (75476/3)

In Mellodey, a member complained that that the trustees of the Kodak Pension Plan gave him incorrect information regarding his benefits, on which he relied to his detriment, both at the point he left service (in 1989) and subsequently (in 2005, just prior to retirement). He only learned of the correct position shortly before his retirement.

On leaving pensionable service, the member’s expected pension, noted in his benefit statement, was based on the assumption that his pension in excess of GMP would increase at 5% each year between his date of leaving and his normal retirement date. The trustees acknowledged that the assumption of 5% growth was overstated and the assumption made was not clearly expressed as such on the statement. The trustees also acknowledged that his 2005 normal retirement quotation was a further overstatement because increases were applied to the whole of the deferred pension rather than excluding service prior to January 1985.

In partially upholding the member’s complaint, the Deputy Ombudsman noted that the statement gave no indication of any growth assumptions or that it was not capable of being relied upon. The Deputy Ombudsman concluded that the lack of any warning that the statement was based on an assumption and that it might not be relied upon was maladministration by the trustees: “they might not have had a duty to set out the statement in any particular form, the way it was set out was misleading”. For the same reasons, the 2005 quotation constituted further maladministration.

However, the Deputy Ombudsman rejected the member’s contention that he was entitled to compensation based on the incorrect quotations he had received. She analysed “separately and carefully” a list of items of expenditure which the member claimed he would not have incurred but for the expectation of a higher pension. She concluded on the facts that it is likely that the expenditures were not luxuries and would still have been met in any event.

Comment: even though the assumption of a 5% revaluation rate is not unusual when calculating scheme liabilities, the case highlights the dangers of using this assumption in member benefit quotations and illustrations.

On the facts in Mellodey, the Ombudsman essentially concluded that there had been no reliance by the member on the incorrect illustrations. It is interesting to note that the Ombudsman gave careful consideration to each individual item of expenditure. Trustees and administrators should be aware of the risk that a similar claim could easily succeed, should the items at issue edge towards being classified as “treats” or “luxuries”.