Determination.

Pensions Ombudsman Focus for the period March 2014 to May 2014

Welcome to the 41st edition of the

Pensions Ombudsman Focus for the period

March 2014 to May 2014.

Our aim is to provide you with a quarterly

review of important determinations of the

Pensions Ombudsman and alert you to Ombudsman-

related issues of practical relevance. If you

wish to discuss these issues and how they might

affect you, please contact Mark Blyth, Partner

of our specialist Pensions Litigation Group, on

(+44) 20 7456 4246.

If you would prefer to receive this booklet in electronic format in the future, please email: pensionsgroup@linklaters.com

Mr Michael Stephens against Friends Life Services Limited

Mr Stephens was discussing retirement options with his Independent Financial Adviser (“IFA”) in 2012. In August 2012, he asked Friends Life Services Limited (“FLSL”) to provide him with annuity quotations. He received a quote on 9 August 2012 from Just Retirement which was guaranteed until 22 September 2012 if Mr Stephens applied before 22 August 2012. Mr Stephens told FLSL on 10 August he wished to purchase this annuity and requested the relevant annuity discharge forms. FLSL sent these forms to the IFA on 17 August but warned in the correspondence that FLSL could not guarantee the purchase of the annuity before any quote guarantee date. FLSL then received correspondence from Just Retirement on 28 August with the relevant transfer documentation which again stated that Mr Stephens’ quoted annuity rate was only guaranteed until 22 September. On 6 September, FLSL asked Deutsche Bank to transfer the disinvestment proceeds to the Plan bank account at RBS.

Mr Stephens called FLSL daily between 11 to 14 September 2012 to follow up on the transfer into the Plan bank account. The payments were transferred in two instalments on 13 and 14 September and were cleared on 14 and 17 September respectively. The IFA called on 21 and 26 September to ask why the transfer to Just Retirement had not yet taken place. FLSL then transferred the funds on 28 September (after the 22 September deadline), which were used to purchase an annuity at a rate of 25.913 (inferior to the original quoted rate of 25.652).

Mr Stephens complained that FLSL’s administrative service had caused him to miss out on the better annuity rate. He contested FLSL’s assertion that it needed to transfer funds from the Plan Bank Account at RBS to another account at RBS in order to calculate interest payable and close the account. He asserted that the funds from Deutsche Bank were available on 14 September 2012 yet were not transferred until 28 September 2012 despite him and the IFA repeatedly reminding FLSL of the imminent deadline for the annuity quote.

FLSL accepted that its earlier correspondence had been delayed and that it had provided misleading information regarding the transfers of funds to RBS for the calculation of interest. However, it denied sole responsibility for the missed deadline, stating that the IFA did not initially chase regarding transfer forms until July 2012, and that FLSL could not finalise the transfer of funds without a closing statement (which was not sent by Deutsche Bank until 17 September 2012). Furthermore, it pointed out that Just Retirement’s 22 September deadline fell on a Saturday and that it only had four working days from 17 September to complete the closure process, and as its timescales were based on “best endeavours” only it would be unfair to be punished for the missed deadline.

Knowing that funds may take many days to be transferred, being told repeatedly of an imminent annuity purchase deadline, and breaching compulsory industry guidance all indicated that “best endeavours” had not been used to ensure a pensions product was set up within a required time frame.

In his determination, the Pensions Ombudsman stated that events prior to 9 August 2012 were irrelevant to the delayed application for the annuity as it was only from this date that the quoted rate was set. Since FLSL was made aware of the annuity guarantee deadline on 28 August 2012 and since it knew it would take Deutsche Bank up to 10 days to transfer the money to RBS, it was aware that quick action was required. While FLSL had stated it could not guarantee that any annuity purchase deadline would be met, it had waited seven days before contacting Deutsche Bank and, once the funds had been received, it had four working days to allow RBS the 48 hours it needed to calculate interest. It had also missed the deadline despite being told many times by Mr Stephens and the IFA of the urgent timing. With reference to the Association of British Insurers’ guidance, the Ombudsman stated that FLSL had not used best endeavours as it hadn’t ensured the annuity was bought within the compulsory 30 day target stipulated by industry guidance. As such, the Ombudsman ordered that FLSL should pay Mr Stephens a lump sum representing the foregone amount he would have received under the superior annuity option and £200 in compensation for inconvenience suffered.

Mr Richard Bonail against GlaxoSmithKline Services Unlimited

Mr Bonail joined GlaxoSmithKline Services Unlimited (“GSK”) and became a member of the money purchase section of the Glaxo Wellcome Pension Plan (the “Plan”) in September 2001. Between August and November 2001, members of the money purchase section of the Plan were offered three choices: (1) to remain in the money purchase section of the Plan, (2) to move to the final salary section of the Plan or (3) to join a new GSK pension plan (a money purchase plan).

To help members decide, GSK provided an information pack (which Mr Bonail received), stating that members had to select an option by 15 November 2001, otherwise they would have no right to change plans or sections in future. The pack recommended that members attend one of the presentations relating to the available choices, and additionally offered the option of consulting a helpline, seeing an independent financial adviser (at a specially secured discount rate) or using an interactive computer tool to support members in making their decision. The pack also contained a decision guide, which compared the merits of both the money purchase and final salary scheme options. Mr Bonail chose to join the new money purchase GSK pension plan with effect from 1 January 2002.

Mr Bonail complained to the Ombudsman stating that he had later realised with the benefit of hindsight that money purchase plans were almost universally worse when compared with final salary plans, and that the materials shown to him and the members had placed an incorrectly positive emphasis on the money purchase option. Mr Bonail alleged that, had the information been presented more transparently and not in the manner it had been, he would have chosen the final salary option. In particular, Mr Bonail pointed to the fact that the information pack stated that a pension under a money purchase pension scheme could be “more or less” than under a final salary scheme (he now understood that a final salary scheme would almost always provide more) and that the pack implied that a money purchase plan was better for younger persons (which he did not believe to be true). Mr Bonail also stated that he had very little time to secure independent advice before making his final decision (having only recently joined GSK).

GSK argued that the complaint was time-barred as Mr Bonail should have realised he had suffered an alleged financial loss on the basis of statutory money purchase statements provided since 2004. GSK maintained that the information presented was impartial, clear and sufficient in content, pointing to the fact that 58% of members who had made a positive election at the time had chosen the final salary option and that Mr Bonail had not used all the sources of information available to him to help with his decision. Moreover, Mr Bonail had failed to prove that he would have chosen the final salary option had he received different information, as he had failed to evidence his considerations or which advice he had read or requested when making his decision. Finally, GSK stated that Mr Bonail’s loss was unquantifiable as he had not yet retired and it was unknown whether or by how much a final salary pension would exceed his pension at retirement.

A statement to members that a pension amount under a money purchase plan could be “more or less” than under a final salary scheme was not unfair or unbalanced.

In her determination, the Deputy Pensions Ombudsman stated that the complaint was not time-barred, as the time limit ran from the date when Mr Bonail had gained the “benefit of hindsight” as to the facts he complained of and not from when he received statutory information relating to his pension before this date. On the substance of the complaint, she determined that there was nothing in the materials presented to Mr Bonail which suggested that a money purchase plan was better than a final salary plan, and pointed to several sources of further guidance recommended by GSK to members to help with their decisions, including the interactive computer tool, which Mr Bonail had not shown he had used. The Deputy Pensions Ombudsman also stated that Mr Bonail had sufficient time (two months) to seek independent financial advice, and could have at least tried to ask GSK if he had wanted more time before making his choice. She could see nothing unfair or unbalanced in the statement that a pension amount under a money purchase plan could be “more or less” than a final salary scheme, and had the presentational material presented the final salary option as the better option, this would have been financial advice, which would have been prohibited. Consequently, the complaint was not upheld.

Mr Anthony Barrett against Prudential

Mr Barrett joined the Bloomberg Group Personal Pension Plan (the “Plan”) on 1 December 2007. Mr Barrett contributed enough to the Plan in order to receive the maximum amount of matching employer contributions (£6,000) for 2008 and 2009 but then stopped contributing to the Plan in August 2009.

In October 2011, Mr Barrett called Prudential asking about restarting contributions to the Plan. Prudential told Mr Barrett that the employer would match his payments to a maximum of £6,000 per tax year and incorrectly stated that he would have until the end of the tax year to contribute for this purpose. Mr Barrett then made contributions to the Plan of £2,500 per month from January to March 2012 with the expectation of receiving matching contributions of up to £6,000. When Mr Barrett called Prudential on 22 March 2012 to check he would receive matching contributions for 2011, Prudential told him that the matching period was in fact per calendar year and not per tax year. Prudential apologised for the error and paid him £300 in compensation for his loss of expectation.

In his complaint, Mr Barrett contested that it was unreasonable to assume that he knew the cut-off date for matching employer contributions, given that he previously contributed in excess of the amounts required to receive the maximum matched amount and therefore did not need to know when this was. He also did not think it reasonable to question information provided by Prudential, especially as it had been given in response to a direct question.

Prudential admitted its error but stated there were other sources available to Mr Barrett to verify this information, including the Plan documentation and a booklet he received on joining the Plan which both stated that employer contributions were matched “per calendar year”, as well as the employer’s intranet site which stated that the relevant period for contributions was “per the Company’s tax year (January 1 to December 31)”.

The Deputy Pensions Ombudsman determined that, while it was unfair to expect Mr Barrett to have kept his original Plan joining information, when viewed together with his previous contributions, which were matched on a calendar year basis, Mr Barrett should have reasonably been aware how the employer match worked, regardless of the amount or frequency of his contributions. Given he was aware of the availability of employer matching contributions, it was also reasonable to expect he understood how this worked. It also appeared to be the case that, prior to contacting Prudential in October 2011, Mr Barrett knew that contributions were matched per calendar year and that he should have confirmed that the matching period had changed when told otherwise by Prudential (which he could have done on the employer’s intranet site). The Deputy Pensions Ombudsman therefore concluded that Mr Barrett had merely suffered a loss of expectation as a result of Prudential’s misleading information and determined that the £300 paid by Prudential was already a sufficient final award.

Where a member was aware of the availability of employer matching contributions and had already taken advantage of this benefit in the past, it is reasonable to expect that the member should understand how the benefit works, especially where information is freely available to the member to clarify if necessary.

Mr S Anderson against Medical Services International Limited trading as Bupa Cromwell Hospital and the trustees of Cromwell Hospital Retirement Benefits Plan

Mr Anderson became a member of the Cromwell Hospital Retirement Benefits Plan (the “Plan”) when it was established on 6 April 1984. The Plan Rules provided for a yearly increase on a pension in excess of the guaranteed minimum pension by 3% per year. From April 1997, a statutory requirement provided for a minimum yearly increase by an “appropriate percentage” (subject to a statutory maximum cap of 5%) for occupational pensions accrued after 6 April 1997. This “appropriate percentage” was determined by reference to the rate of increase in the Government’s Retail Price Index (“RPI”) over a given period. The statutory maximum cap for this “appropriate percentage” was later reduced from 5% to 2.5% for amounts accrued after April 2005. However, the trustees decided to retain a 5% maximum cap on a discretionary basis for all post- April 1997 service, and in any case, this statutory 2.5% maximum increase was overridden by the 3% minimum increase stipulated in the Plan Rules. Following a change in Government policy, the inflationary basis for the “appropriate percentage” increase was changed from RPI to the consumer price index (“CPI”) in 2011, which affected the calculation for all Mr Anderson’s post-1997 pension increases.

Mr Anderson complained to the Ombudsman regarding the retrospective change to his benefits resulting from the shift to CPI, raising several different arguments in the process. Firstly, he stated that the minimum 3% increase provided under the Plan Rules was intended to represent RPI-measured inflationary increases, and therefore that it was unfair to change this basis. Secondly, he argued that while indexation changes could be made for future service, they could not be made to past service. He further stated that the Government’s own stance was that indexation was an accrued benefit and so could not be reduced retrospectively. He asserted that various Plan-related documentation provided to him showed that RPI was the basis for pension increases under the Plan. Additionally, he stated that the Rules contained a defined term for “Index” which referred to RPI, and that this definition should be read as applying to the whole document. He also cited case law that said that members had a right to future increases based on the definition of an “index”. Finally, he argued that his human rights had been breached as his pension was a “possession” and as such was protected.

The trustees and Bupa Cromwell Hospital (“BCH”) argued that the statutory requirement to increase post-1997 pensions was by reference to an index prescribed by statutory order, and that this percentage was only relevant if the amount calculated under the index exceeded the minimum 3% stipulated in the Plan Rules. They claimed the fact that the Government later changed the prescribed index to CPI led to an automatic switch in the indexation of its pension benefits which did not require a change in the Plan Rules, as the Plan made no reference to an index in the section of the Rules governing post-retirement increases. The fact that the trustees had decided at their

Where a Plan capped its maximum discretionary pensions increases at a level higher than the statutory maximum, a lack of an active decision by the trustees and the employer on the indexation basis for such increases led to ambiguity as to the level of increases due to members.

discretion to continue to use a 5% maximum cap on increases instead of the 2.5% set out in 2005 had no bearing on any decision (which, in any event, would have been discretionary) to provide increased benefits based on RPI. Furthermore, they pointed out that the various Plan-related documentation referred to by Mr Anderson was merely explanatory and had no contractual force so did not give rise to any benefit entitlement.

The Ombudsman stated that while legislation protected a member’s accrued rights, the right to increases using RPI was not an accrued right under the Rules. The Ombudsman rejected Mr Anderson’s argument that the term “Index” applied throughout the Rules, as the term was only used in two sections of the Rules (which were both irrelevant to the calculation of pension increases) and the differing definitions of ‘index’ contained in the statutory order and under the Rules (as separate instruments) needed to be interpreted separately. The Ombudsman dismissed as irrelevant whatever the purported “intention” was behind the Rules, stating that it was far more important what the Rules actually stated. He could find no unequivocal promises in the various documentation referred to by Mr Anderson that gave an entitlement to RPI increases under the Plan. The Ombudsman also agreed with the respondents that, with respect to pre-2005 accrued benefits, the change in indexation measure had occurred automatically by statutory order and did not require an amendment of the Rules. Had the Plan Rules contained a specific provision stating that increases were to be calculated with reference to RPI (which they did not), then an amendment would have been required. However, in relation to post-2005 accrued benefits, the fact that the maximum increase had been left discretionarily at 5% made it unclear whether the switch to CPI had been automatic as well. Had the trustees mirrored legislation by capping increases at 2.5%, the 3% minimum in the Rules would have overridden any increase calculated by CPI and hence made indexation irrelevant. However, as they hadn’t followed legislation by adopting the 2.5% maximum cap, it was unclear whether they had chosen to follow the legislation regarding the adoption of CPI, or whether to also opt for a more generous indexation measure than that provided by law. As no active decision had been made on this point, the Ombudsman directed that BCH determine the basis for increases from 2011 onwards, thereby upholding the complaint to a very limited extent.

Mr J Smith against the Trustees of the Global Shipping Services Group Money Purchase Pension Scheme, Global Shipping Services Group Limited, Abbey National Benefit Consultants, Mercer Limited and SMG Financial Services

Mr Smith was a member of the Global Shipping Services Money Purchase Scheme (the “Scheme”), which was administered by Abbey National Benefit Consultants (“ANBC”). Mr Smith left employment with Global Shipping Services Group Limited (“Global”) in 1996 and did not choose to transfer to another scheme upon leaving. In 1999, Mercer Limited (“Mercer”) became the new administrator of the Scheme. ANBC passed over its records to Mercer, which showed that Mr Smith was still a member of the Scheme but had no investment units on record. In 2001, Mercer stated that it was unable to reconcile the investment units held on record from the data it had received when it became administrator. In June 2001, SMG Financial Services (“SMG”) became the new administrator of the Scheme with the intention to wind up the Scheme and secure members’ benefits under Scottish Widows policies. Mercer subsequently informed the trustees that they had been unable to agree on the data provided by ANBC. As at October 2002, Mr Smith still showed up on the records as a member of the Scheme but with no unit holdings. The Scheme was wound up in June 2004.

When Mr Smith sought to start receiving his pension in January 2009, he was redirected through several different parties before being told by SMG that he had not been recorded as part of the Scheme buy-out arrangements organised by Global. However, JLT (formerly ANBC) and HMRC records showed Mr Smith had periods of contracted out service between August 1991 and January 1996 with the Scheme (and an older scheme that later became part of the Scheme).

The trustees submitted that the blame for the misallocated funds principally lay with JLT and Mercer as Scheme administrators (including their alleged failures to keep accurate records and valuations and to perform reconciliations). One trustee also asserted that the blame lay with Mr Smith for failing to monitor his fund over many years. Global also denied blame and alleged that the administrators were at fault.

Mercer stated that it had received electronic data from JLT which did not show that any units should have been allocated to Mr Smith, and it had no reason to question this. A reconciliation exercise performed by Mercer had also revealed discrepancies in funds held by the Scheme. However, JLT had been unable to clarify why these differences existed.

SMG stated that Mr Smith’s benefits were transferred from the Scheme to an asset manager, and when Mercer identified a surplus in the Scheme in 2001, this surplus included the value of Mr Smith’s benefits, which was used to settle employer contributions to the Scheme.

The Ombudsman determined that as there was no evidence that Mr Smith’s benefits had been transferred out of or misappropriated from the Scheme, the most likely

The Ombudsman apportioned blame equally between the scheme administrators and its trustees for a failure to keep proper records of a member’s benefits.

explanation for the misallocation was that the funds were transferred from the Scheme to an asset manager in 1995 but that this was not recorded. As the civil standard of proof applied to the case, it merely needed to be shown this was more likely than not to have happened. The Ombudsman found fault with ANBC and Mercer for failing to keep accurate records and to perform an audit following each transfer of administrators. However, he also found that the trustees had a statutory duty to protect Mr Smith’s rights, and they had remained responsible for these as he had left his benefits with the Scheme (whether Mr Smith had monitored his funds was irrelevant to this duty). The Ombudsman upheld the complaint and directed that ANBC, Mercer and the relevant trustees acting at the time (the trustees to be treated as one person) should each pay one-third of the sum needed to put Mr Smith in the position he would have been in had his benefits been secured in 2004, in order to secure an annuity for him. Given that the trustees were entitled to seek reimbursement from Global (as employer), the Ombudsman directed that Global pay the trustees’ share of compensation to shorten the payment process to Mr Smith.

Mr J Hawkins, Mr S Hawkins and Mr M Hawkins against Friends Life

Mr Melvyn Hawkins, a member of the Center Parcs Group Pension Plan (the “Plan”) used a beneficiaries nomination form to nominate that each of his three sons and his partner (Ms M) should receive a 25% payment under the Plan upon his death. This form was incorrectly filed by Friends Life upon receipt.

Following Mr Melvyn Hawkins’ death in August 2012, Mr J Hawkins responded to a letter from Friends Life submitting details of himself, his two brothers and Ms M as potential beneficiaries of a lump sum death benefit of £51,559.58. In September 2012, Friends Life communicated that the trustees had made the decision to split the money equally between Mr J Hawkins and his two brothers. However, Friends Life subsequently wrote again in November 2012 stating that their father’s nomination form had since come to light and as such the trustees had not considered his nominations when it had paid out the benefits in September 2012. As a result, Friends Life required each of them to return the requisite portions of their respective funds in order to distribute a 25% share equally between the parties in accordance with the nomination form.

The applicants contested Friends Life’s requested return of funds and asked that Friends Life reimburse them for unnecessary solicitor’s fees allegedly incurred as a result of Friends Life’s original filing error and slow response time to the applicants’ correspondence.

Friends Life admitted that the beneficiaries nomination form had been wrongly filed when received in 2007. It maintained that, in light of this document, it now wished to revise its original decision. However, it had also come to light that Friends Life had already paid a 25% ex gratia payment to Ms M and wished to recover this sum. Friends Life erroneously sought to justify its power to reverse its original decision by reference to the rules of a separate scheme of which Mr Melvyn Hawkins had also been a member.

In his determination, the Pensions Ombudsman stated that Friends Life was not unilaterally entitled to put aside its original decision. With reference to the rule in Hastings Bass [1975] and related case law, the Ombudsman stated that where a trustee acts within the terms of its discretionary power but breaches that duty (either by failing to consider a relevant factor or considering an irrelevant factor), then the trustee’s act is not void but rather voidable at the instance of the beneficiary adversely affected by the decision. As Ms M had no reason to complain (she had not been adversely affected as she had received an ex gratia payment) and accordingly no court had set aside the original decision, the decision remained valid. Furthermore, the trustees were merely obliged to take into account the nomination form but were not bound to act in line with Mr Melvyn Hawkins’ wishes.

The Ombudsman further stated that as Friends Life had mistakenly attempted to recover funds and that this was not an overpayment case, the applicants should not have had to defend themselves and had unnecessarily incurred legal costs (which had been exacerbated by Friends Life’s delayed response to the applicants’ communications).

Where a trustee acts within the terms of a discretionary power but breaches its duty, that act is not void but merely voidable. A member should not have to incur legal fees due to any mistaken attempt by a trustee to recover funds.

As a result, the Ombudsman determined that Friends Life could not seek to recover the funds from the applicants unless and until the original decision was set aside by a court. The Ombudsman also ordered that Friends Life reimburse the applicants in respect of their legal fees and pay each applicant £300 compensation for distress and inconvenience caused.

Misleading information regarding transfer allocations may render the scheme manager liable for any subsequent loss by the member.

Mr Gregory, formerly a member of a defined contribution section of the Mott MacDonald Pension Scheme (the “DC Scheme”), had 80% of his contributions invested in a UK equity fund and 20% in a cash fund. From December 2011, he instructed that 100% of his future contributions should be invested in a cash fund.

At a similar time to these instructions, the DC Scheme closed. Mr Gregory opted to transfer his pension and start contributing instead to the Mott MacDonald group personal pension plan (the “GPP Plan”). Mr Gregory confirmed to Friends Life in January 2012 that his default investment choice was “cash” and began contributing in February 2012 to the GPP Plan.

Mr Gregory was then sent a transfer information pack in April 2012 explaining the transfer conditions for his previously accumulated funds into the GPP Plan. The pack stated that the transfer value would be invested in the same way “as your existing contributions”, and in the FAQ section, it referred to the transfer payment being invested in the same way as “your regular GPP contributions”. At the same time, Mr Gregory completed a transfer form which stated that any transfer value would be invested in exactly the same “funds (and investment proportions) and follow the same lifetime investment programme as your existing policy”.

Friends Life transferred Mr Gregory’s pension to the GPP Plan on 25 May 2012, placing 100% of the money into a cash fund. When Mr Gregory realised this on 3 June 2012, he instructed Friends Life to invest the funds in the same proportions as they had been previously (80% in equities, 20% in cash), complained that the transfer had been invested contrary to his instructions, and claimed for the difference in value of the equity units in compensation. Mr Gregory claimed that the information provided to him had been unclear and that he had not read the FAQ provided. Had he understood the position at the time of transfer, he said that he would have instructed Friends Life to replicate his original portfolio.

Looking at each piece of transfer information provided to Mr Gregory, the Ombudsman found the information given was misleading and that this amounted to maladministration. The Ombudsman stated that the term “your existing contributions” in the transfer pack was unclear as to whether this meant contributions to the DC Scheme or the GPP Plan, especially as Mr Gregory had recently been contributing to both. The transfer form also referred ambiguously to a transferring member’s “existing policy”, which a lay person may have understood to mean the transferring scheme and not the GPP Plan. While the FAQ section provided the clearest indication of Friends Life’s intended meaning (that the transfer amount would be invested in the same proportions as a member’s current GPP Plan contributions), the Ombudsman stated that FAQs were only to answer additional queries a reader may have and should not be used to provide information to members for the first time. In any case, Mr Gregory had not read the FAQ. The Ombudsman was

Mr P Gregory against Friends Life Limited

further satisfied that Mr Gregory had not been properly informed as he had acted to change his investment structure soon after realising the transfer error. The Ombudsman directed that Friends Life recalculate and adjust Mr Gregory’s allocations as if his transfer had been moved into 80% equity 20% cash at the time of the transfer.

While heavily dependent on the facts of each case, where pension overpayments are “subsumed” into a member’s income resulting in only a minor improvement to the member’s day-to-day standard of living, a change of position defence against recovery may nevertheless succeed.

Mr Dunne’s pension was put into payment from 29 October 2005. However, in June 2011 the trustees realised they had overpaid his pension and requested that Mr Dunne repay the sum due at £42 a month over a five year period. Mr Dunne tried to contest this via the scheme’s internal dispute resolution procedure (“IDRP”).

By May 2013, after unsuccessfully going through the IDRP, and following a subsequent recalculation of the amounts due (taking into account money already paid back under the repayment plan and tax adjustments), Mr Dunne rejected the offered option of repaying at £25 per month for 69 months. Mr Dunne argued that he had irrevocably changed his position by buying a house for £165,000 with his wife out of health considerations. He pointed to the fact that, after the purchase, he and his wife’s joint account only had £1,138 left in it. He further contested that the higher council tax payments of £40 per month and the chattels he had subsequently bought over a six year period for the house (at a value of £6,970) had been bought on the basis of their joint income and that any reduction in income would adversely affect their finances.

The trustees, on the other hand, found no evidence of a change of position and did not see how the overpaid sums involved could have affected a house purchase decision. They also asserted that the repayment plan was reasonable enough so as not to cause undue hardship.

The Ombudsman found that Mr Dunne and his wife would have still bought the house even if he had not received the overpaid pension. This was because Mr Dunne still had the money to buy the house even without the overpaid lump sum, as the money left in the joint account at the time of purchase exceeded the overpayment amount. The Ombudsman also determined that the purchase of chattels (such as furniture) would not have been a significant consideration when deciding whether to buy the house or to find a cheaper alternative. However, looking at Mr Dunne’s arguments relating to his financial position as a whole (with particular regard to his bank account expenditure and his income, which derived solely from his combined pensions), the Ombudsman found that Mr Dunne’s income had been “subsumed” into his monthly income and that he had adopted a slightly higher standard of living as a result. The Ombudsman directed that the overpayment was therefore unrecoverable and ordered the trustees to stop seeking recovery of the overpaid sum and return money already recovered with interest, in addition to £200 compensation for distress, disappointment and inconvenience.

Mr Michael Dunne against Industry-Wide Coal Staff Superannuation Scheme Trustees Limited

The Ombudsman criticised a paying agent’s disregard towards a binding decision made during a scheme’s internal dispute resolution process.

Mrs Barrow received a widow’s pension from the Principal Civil Service Pension Scheme (“PCSPS”) between 2005 and 2012. PCSPS’s rules stated that any widow’s pensions (other than the guaranteed minimum pension) ceased on remarriage. Mrs Barrow remarried in January 2008 and notified Capita of this in February 2008. She also contacted Capita regarding a change of address in 2010. However, following each occasion Capita continued to pay her the widow’s pension. When Mrs Barrow wrote to Capita for a third time in 2012, Capita realised its mistake, stopped payments and requested repayment of the £12,024 it had overpaid.

Mrs Barrow unsuccessfully complained regarding the attempted recovery of funds through PCSPS’s internal dispute resolution procedure (“IDRP”). She then elevated her complaint to the second stage of IDRP with the Cabinet Office’s Scheme Management Executive (“SME”). However, Capita continued to contact Mrs Barrow regarding repayment during this time. The SME partly upheld Mrs Barrow’s complaint, acknowledging that she had done everything expected of her when she remarried by promptly notifying Capita, and that the guidance provided to Mrs Barrow did not make it clear that payments would stop upon remarriage and so her assumption that her payments would continue was not unreasonable. The SME’s decision also highlighted that, while each case should be decided on its merits, a change of position made in good faith could be a potential defence to recovery. In conclusion, the SME ordered that Mrs Barrow should only repay one-third of the total overpaid amount. However, Mrs Barrow refused to repay this amount when requested by Capita, and took her complaint to the Ombudsman.

Mrs Barrow argued that she had changed her position in good faith in reliance on the widow’s pension payments, twice reducing her work hours and accepting a lower income, moving house and taking out a mortgage (for which her pension was taken into consideration) and, connected to the move, buying a car which required loan repayments.

In its responses to the Ombudsman, Capita acknowledged its error in overpayment but stated, amongst other things, that Mrs Barrow had “no defence against recovery” and that “Mrs Barrow should have been aware that her pension was no longer payable”.

In a strongly worded determination, the Ombudsman heavily criticised Capita’s responses and its apparent disregard for the SME’s findings in the second stage of the IDRP, firstly for its assertion that Mrs Barrow knew that the widow’s pension ceased on remarriage (when the SME had already found that her assumption that payments would continue was not unreasonable) and secondly that Mrs Barrow could have no possible defence to recovery of overpayment (when the SME had identified a change of position as a valid possible defence). Capita also continued to assert these two statements even after being reminded of the SME’s binding decision by the Ombudsman. While the Ombudsman queried whether Mrs Barrow had irreversibly changed her position

Mrs Julie Barrow against Capita

by moving house and buying a car, he acknowledged that her reduced salary and hours had been an irreversible change. The Ombudsman therefore upheld the complaint and ordered that Capita stop requesting repayment from Mrs Barrow, that it should pay £500 to her for distress and inconvenience caused and furthermore that it review its overpayment recovery process and staff training, in order to ensure that staff understood the relevant principles and practice in future.

When making decisions trustees must take into account all relevant matters, ignore all irrelevant matters, direct themselves correctly in law, ask themselves the correct questions and not arrive at a perverse decision. The Ombudsman may also imply terms into Scheme Rules depending on the surrounding context.

Mr Mullen, a sufferer of psoriatic arthritis, applied for an early retirement pension on the grounds of ill health in May 2012. In August 2012, he was medically assessed by Dr Platts, a consultant occupational physician at the Scheme’s medical adviser service. In his report, Dr Platts stated, amongst other things, that “it must be anticipated that [Mr Mullen] will continue to have symptoms… and… will not be able to return to any physically demanding work in the future”. However, he also went on to say “I am unable to state at present that Mr Mullen will remain unfit to carry out any paid employment up until his normal retirement age”. In a separate letter to Mr Davies (HR manager of the employer and a trustee of the Scheme), Dr Platts mentioned the possibility of Mr Mullen trying “more powerful medication” and that his “longer-term functional incapacity and fitness for work [could] not be precisely predicted”.

The trustees of the Scheme determined that Mr Mullen was ineligible for an ill health early retirement pension on 5 October 2012, on the basis that the doctor was unable to state that he would be permanently unfit to carry out any paid work. In reaching their decision, the trustees considered Dr Platts’ medical report, the Scheme Rules and the definition of “Incapacity” under the Rules and the Finance Act 2004. They had also sought further clarification from Dr Platts regarding his original report (although his follow-up email did not add anything significant). It did not appear, however, that the trustees were shown Dr Platts’ separate letter to Mr Davies.

Having failed to change the trustees’ decision through the internal dispute resolution process, Mr Mullen complained to the Ombudsman on the grounds that Dr Platts had not provided additional details of his report to the trustees as requested and that his symptoms had worsened since the original report.

In her conclusion, the Deputy Pensions Ombudsman stated that, when involved in a decision-making process, trustees should (i) take into account all relevant matters and ignore all irrelevant matters, (ii) direct themselves correctly in law (including as to the construction of the Scheme Rules), (iii) ask themselves the correct questions and (iv) not arrive at a perverse decision.

Regarding whether the trustees had directed themselves correctly in law, she stated that the eligibility test for incapacity benefits in this case was twofold: under the Finance Act 2004, the member must be permanently unable to continue in his occupation, and under the Scheme Rules, the member must be unable to carry out any paid employment. While the Scheme Rules were silent as to whether the second part of this test also required the incapacity to be permanent, the Deputy Pensions Ombudsman was satisfied that it was not unreasonable to imply this condition into the Rule. She therefore concluded that the Scheme Rule providing for the reduction, suspension or cessation of an early retirement incapacity pension where a member recovered was not intended to provide for temporary incapacity and was only meant for members deemed to be permanently incapacitated but who later recovered. However, she determined that Dr Platts’ original report had been ambiguous and that his clarification email had not

Mr Mullen against Heidelberg Group Trustees Limited

added anything significant to this. By contrast, the separate letter to Mr Davies, when viewed together with the report, did add crucial information (regarding the uncertainty as to Mr Mullen’s unfitness to work in future) which might have led the trustees to ask for further information or a new medical report. As such, the letter contained relevant matters that were not considered by the trustees and meant that the decision-making process had been flawed.

She therefore directed that the trustees determine afresh whether Mr Mullen qualified as incapacitated at the time of his original application, and if he did, to consider granting him an early retirement pension (to start retrospectively from the date of his application with interest for past instalments). She also ordered that the trustees pay Mr Mullen £200 for distress and inconvenience.

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