PENSIONS OMBUDSMAN ROUND-UPDECEMBER 2017

IN THIS ISSUE

02 Introduction

03 Transfers – Advice requirement

04 Transfers – Checks on receiving scheme

05 Recovery of overpayments

06 Provision of incorrect information

07 Ill-health pensions

08 Statistics

09 Contact Details

INTRODUCTION

Welcome to DLA Piper’s Pensions Ombudsman Round-Up publication in which we report on recent determinations made by the Pensions Ombudsman (“PO”) and Deputy Pensions Ombudsman (“DPO”).

In this edition we look at a selection of determinations from September and October 2017 which cover the following issues.

■ A case concerning a member who was incorrectly told that the value of his benefits was such that the statutory advice requirement applied.

■ A complaint that a transferring scheme did not complete sufficient due diligence before making a transfer.

■ A determination which considers the application of limitation periods to attempts by schemes to recover overpayments.

■ Two determinations concerning the provision of incorrect information which demonstrate some of the reasons why such complaints (or aspects of them) may not be successful.

■ Two cases relating to applications for ill health pensions which show the importance of decision-makers considering reports from their medical advisers and seeking further information or clarification where necessary.

In the statistics section we provide a breakdown of the overall outcome of the September and October determinations and the range of awards made for distress and inconvenience.

In relation to awards for distress and inconvenience, it is also worth noting a High Court judgment issued in October in relation to an appeal against a determination of the DPO concerning the provision of incorrect information. The DPO had concluded that the member had not demonstrated financial loss but that she should be awarded £500 for distress caused. The High Court dismissed the member’s appeal against the DPO’s finding in relation to financial loss but allowed the appeal on the ground that the DPO was wrong in law to award only £500. The High Court judge identified a number of factors that meant he was satisfied that the award of £500 probably resulted from an error in the application of principle and therefore exercised the compensating power afresh and awarded £2,750. This case is notable in providing an example of the factors that can lead the court to conclude that the award for distress and inconvenience should be above the standard range and in following a March 2017 High Court judgment by stating that £1,600 can be regarded as the top end of the standard band. It will be interesting to see whether The Pensions Ombudsman (“TPO”) updates its guidance on redress to reflect the £1,600 figure. You can read more about this judgment in the October 2017 edition of Pensions Round-Up.

If you would like to know more about any of the items featured in this edition of Pensions Ombudsman Round-Up, please get in touch with your usual DLA Piper pensions contact or contact Cathryn Everest. Contact details can be found at the end of this newsletter.

02 | Pensions Ombudsman Round-Up – December 2017

BACKGROUND

Legislation was introduced in April 2015 which requires certain members to take independent advice before transferring their benefits from a defined benefit scheme to a defined contribution scheme. The legislation applies where a member has subsisting rights in respect of any “safeguarded benefits”, that is, benefits other than money purchase benefits or cash balance benefits. It states that, before converting any of the benefits into flexible benefits under the scheme or making a transfer payment in respect of any of the benefits with a view to acquiring a right or entitlement to flexible benefits for the member under another pension scheme, the trustees must check that the member has received “appropriate independent advice”. In summary this means advice specific to the type of transaction proposed, given by a person with the relevant permission under the Financial Services and Markets Act 2000. However, there is an exception to this advice requirement in cases where the total value of the member’s subsisting rights in respect of safeguarded benefits under the scheme is £30,000 or less. A determination made in September (PO-13094) demonstrates the importance of correctly identifying whether a member falls within this exception.

PO-13094

In January 2016 the Applicant was provided with a guaranteed Cash Equivalent Transfer Value (CETV) quote which reflected a transfer value of approximately £30,485 and referred to the requirement to take independent financial advice unless the benefits are worth £30,000 or less. The form provided with the CETV stated that the information “is not binding if any error or omission should subsequently be discovered”. The Applicant states that he was reluctant to appoint an IFA as he is financially astute but, after a great deal of thought, appointed an IFA and agreed to pay a fee of £950 for the initial advice and any work to be undertaken in relation to a transfer of benefits. On 24 March 2016, following the receipt of his IFA’s recommendation, the Applicant selected a SIPP provider and on 4 April 2016 made a transfer

application. However, on 13 April the administrator of the transferring scheme wrote to the SIPP provider explaining that the actual value of the Applicant’s benefits was £25,071. This means that the statutory requirement to take advice did not in fact apply to the Applicant. He argues that the administrator should honour the January 2016 figure and should be liable for the IFA fees he incurred. An Adjudicator at TPO’s office and the PO considered the complaint.

The claim that the January 2016 figure should be honoured was not upheld, with the PO noting that the statement was clear that the quote was not binding in the event of an error being discovered. It was also concluded that there had not been a financial loss to the Applicant in this regard, but rather a loss of expectation. The Applicant argued that he had intended to purchase a new car following the transfer but has not been able to do so while the dispute is ongoing and has suffered a financial loss in paying for the maintenance and repairs of an old vehicle. However, the PO did not agree that there was a financial loss, stating that the Applicant could have accepted the lower CETV and completed the transfer whilst bringing his complaint and therefore purchased a car, albeit perhaps a cheaper one. The administrator had offered to pay £250 to the Applicant as compensation for the distress and inconvenience caused and the Adjudicator and PO considered this to be sufficient.

However, the part of the claim relating to the IFA’s fees was upheld. The Adjudicator and the PO were both satisfied that, had the Applicant known the correct CETV value from the outset and that there was no statutory requirement for him to appoint an IFA, he would have conducted his own enquiries and found a suitable SIPP provider which did not require the appointment of an IFA. It was also noted that the timeline is very clear that the Applicant’s course of action was as a direct result of the incorrect information provided by the administrator. It was therefore concluded that the administrator’s error caused the Applicant to incur unnecessary IFA fees and the administrator was directed to pay the IFA the £950 due in fees.

TRANSFERS – ADVICE REQUIREMENT

www.dlapiper.com | 03

TRANSFERS – CHECKS ON RECEIVING SCHEME

On 14 February 2013 the Pensions Regulator issued guidance highlighting the potential risk of pension liberation. TPO has viewed the publication of this guidance as a point of change in what might be regarded as good industry practice in relation to transfers. However, TPO has also stated that it would be reasonable to expect that some time would be required for procedures to be updated and new literature prepared to reflect the Regulator’s guidance. In this section we report on a determination relating to a complaint that a transferring scheme did not complete sufficient due diligence before making a transfer.

PO-8048

In 2013 the Applicant received a cold call and was persuaded that he could receive a better return on his pension if he transferred out of the public service pension scheme of which he was a member into the receiving scheme. In July 2013 the Applicant completed an application form to transfer his benefits and on 14 August the administrator of the receiving scheme wrote to the transferring scheme enclosing a signed letter of authority, a discharge of liability form signed on behalf of its trustees, a signed application form to join and transfer to the scheme, a copy of the scheme’s HMRC registration certificate and copies of two ‘scorpion’ leaflets entitled ‘Predators stalk your pension’ and ‘Action Fraud’ that the Applicant had signed to confirm that he had read them.

The administrators of the transferring scheme checked a ‘Transfer Watch List’ and as the receiving scheme was not on the list, the transfer application was accepted and the transfer payment of £10,950 was made on 27 August 2013. The Applicant subsequently had second thoughts but was told by the receiving scheme that he would have to wait a year before he could transfer out. A year later he tried to contact the administrator of the receiving scheme but it had been dissolved and he also tried to contact the trustee of that scheme but without success. The PO’s determination notes that the facts surrounding the transfer have the hallmarks of a pension scam. The Applicant carried out his own investigation as to where his pension monies had gone, and pursued a claim in the County Court which resulted in his transfer value being repaid to him.

In relation to the complaint that the administrator of the transferring scheme did not carry out sufficient due diligence, an Adjudicator at TPO’s office (with whom the PO agreed) noted that in February 2013 the Regulator said that, in future, ‘scorpion’ leaflets should be issued to members wishing to transfer and additional checks should be carried out by the transferring scheme including whether the receiving scheme was newly registered, sponsored by a newly registered employer and connected to an unregulated investment company. The Adjudicator stated that TPO would expect schemes to put these new procedures in place within a few months of the announcement but in this case the application was received some six months after the Regulator’s announcement and there is no evidence that the transferring scheme carried out any of the new checks or issued the ‘scorpion’ leaflets. This was held to be maladministration. The transferring scheme stated that it did not send the leaflets to the Applicant because it received leaflets signed by the Applicant as part of the transfer paperwork. However, the Adjudicator stated that if the further checks had been carried out, these could have been highlighted to the Applicant and he could have been asked for confirmation that he wished to proceed. Whilst the Applicant has managed to retrieve his pension monies, this was extremely stressful and the Adjudicator concluded that the administrator of the transferring scheme bore some responsibility for this and should pay him £500 compensation for its failure to complete the additional checks. It is also worth noting that the trustee of the receiving scheme had failed to reply to the Applicant’s enquiries, failed to provide details of the administrators or regular communications on the scheme and had not responded to TPO’s office and was directed to pay £2,000 compensation to the Applicant.

This case demonstrates the importance of trustees ensuring, almost five years on from the Regulator’s guidance, that they have processes in place to complete due diligence on proposed receiving schemes and to provide risk warnings to members, even if the receiving scheme has provided the member with the ‘scorpion’ leaflets.

04 | Pensions Ombudsman Round-Up – December 2017

BACKGROUND

In summary, the Limitation Act 1980 provides that: (i) certain actions cannot be brought more than six years from the date that the cause of action accrued; and (ii) where the cause of action is for relief from the consequences of a mistake, the limitation period will not begin to run until the mistake has been discovered or could, with reasonable diligence, have been discovered. Case law provides that TPO has to give effect to limitation defences. In terms of when the action is regarded as having been brought, the relevant cut-off date in court cases is when the claim form is issued. A High Court judgment issued in October 2016 (Webber v Department for Education) considered a member’s appeal against a TPO determination concerning the recovery of overpayments by a pension scheme. The High Court concluded that in these circumstances the relevant cut-off date was the date of receipt by TPO of the administrator’s letter which made clear, with supporting reasoning, that it opposed the allegations in the member’s complaint. Further detail on this judgment is provided in the October 2016 edition of Pensions Round-Up. TPO has subsequently applied this cut-off date in a number of determinations.

PO-1918

The Applicant’s pension started to be paid in 1996. The current scheme administrator took over the administration of the scheme in 2011. As a result of a GMP reconciliation exercise, in November 2014 it was discovered that the Applicant’s pension had been overpaid. The overpayment had arisen because increases were not payable by the scheme on the pre-1988 Guaranteed Minimum Pension (GMP) but an adjustment was not made to the pension increase calculation to reflect this when the Applicant reached age 65 and his GMP started to be paid. The trustees sought to recover the overpayments from the Applicant and he brought a complaint in relation to the recovery. An Adjudicator at TPO’s office concluded that the Applicant had not provided any evidence that he changed his position in reliance on the incorrect payments. The determination also considered the question of whether the Applicant had a limitation defence to recovery of any of the overpayments.

The trustees argued that the Limitation Act 1980 provides a defence to a claim in respect of a debt but that it does not apply in this type of case. The PO disagreed. He stated that the balance of authority is that restitutionary claims for unjust enrichment (such as overpayment cases) are generally statute barred after six years under the Limitation Act 1980, and cited some recent case law including the Webber case. The trustees also argued that if the Limitation Act 1980 does apply, the limitation period should not begin to run until November 2014 when it discovered the mistake that led to the overpayment. The PO also disagreed with this point because he thought that the mistake could, with reasonable diligence, have been discovered sooner. The PO thought that the trustees had all the information to know that they would inevitably be making an overpayment in 2004 when the Applicant reached age 65. He noted that the trustees had cited various failings with previous administrators which led to the overpayment including incomplete records and calculations. However, the PO stated “that is a matter for the Trustees and, on balance, I am satisfied that had the Trustees been more diligent then the overpayments would not have occurred”.

In terms of the relevant cut-off date, the PO applied the conclusion in the Webber case referred to above which meant that the cut-off date was 25 May 2016 which was the date that TPO received the trustees’ response to the Applicant’s complaint. This meant that the trustees could only recover the overpayments made in the preceding six years, that is, the overpayments made from 25 May 2010.

RECOVERY OF OVERPAYMENTS

This case demonstrates TPO’s view that limitation defences can be available in overpayment cases and how the cut-off date will be established. It is also notable for the PO’s rejection of the argument that the limitation period in this case should not have started to run until the mistake was discovered which demonstrates the importance of having processes in place to ensure that the correct pensions are put into payment and that any necessary adjustments are made when the member reaches GMP age. This case may also have implications in cases where overpayments only come to light as a result of a GMP reconciliation exercise.

www.dlapiper.com | 05

In this section we report on two determinations in relation to the provision of incorrect information which are of note in demonstrating some of the reasons why such complaints (or aspects of them) may not be successful.

PO-17201

The Applicant received a transfer quotation in July 2007 from the administrator of the scheme of which she was a member informing her that a proposed transfer in of her benefits from another scheme would purchase 5 years and 274 days of membership. She decided to proceed with the transfer and on 10 October 2007 the administrator wrote to her confirming that the transfer had been completed and she had been credited with 5 years and 274 days of membership. However, the transfer credit was then added to the system twice in error such that she was credited with 11 years and 183 days. Due to this error, the administrator subsequently issued a number of statements to the Applicant that overstated her projected lump sum and pension. The error was identified in October 2016 when the Applicant submitted an application for her benefits. The lump sum she received was approximately £7,500 lower than she expected and the annual pension was approximately £1,100 lower.

An Adjudicator at TPO’s office and the PO considered the complaint. It was concluded that, given the correct information that was provided in July and October 2007, the Applicant should reasonably have been aware of the correct amount of transferred-in service. The Adjudicator stated that this information was correct and sufficient for the Applicant to have, at the very least, enquired about the incorrect amount of transferred-in membership quoted in the later statements which was significantly higher than that stated in 2007. The Applicant’s claim was therefore not upheld.

PO-17167

This case also concerned a pension forecast based on an incorrect amount of transferred in service. The forecast was provided in August 2013 and included a transferred in credit

of 3 years and 150 days but the correct amount was 1 year and 150 days. The Applicant claims that she made a decision to retire at age 60 on the basis of this estimate and states that she sold her house in anticipation of her retirement. The Applicant also states that, on the basis of the figures, in May 2014 she purchased some additional pension.

In January 2015 she received a further estimate of her benefits. On 17 March 2015 the Applicant queried the figures with the administrator because she said the August 2013 pension estimate of £32,918 (which did not include the additional pension purchased) did not tally with the January 2015 pension estimate of £35,115 (which did include the additional pension). The administrator wrote to her on 31 March 2015 acknowledging that the August 2013 estimate was incorrect.

The DPO concluded that maladministration had occurred in this case, with the incorrect figures raising the Applicant’s expectations, on the basis of which she made plans for her retirement. However, the DPO also concluded that the Applicant cannot prove, on the balance of probabilities, that she reasonably relied on the incorrect information when making a final decision to retire or buy her new home. This is because the administrator wrote to the Applicant on 31 March 2015 to inform her of the error but the Applicant exchanged contracts and finalised her house move on 22 April 2015 and gave notice to her employer on 26 April 2015. The DPO stated that at the point when these decisions were made, the Applicant was on notice of the error and still had an opportunity to revise her initial plans. The DPO was also not persuaded that the Applicant would have bought less additional pension had she known that the August 2013 estimate was incorrect.

However, the DPO did think that the Applicant should receive compensation for the non-financial loss. The scheme had already paid £172 to the Applicant and the PO directed that a further £328 be paid to make a total of £500.

PROVISION OF INCORRECT INFORMATION

06 | Pensions Ombudsman Round-Up – December 2017

ILL HEALTH PENSIONS

BACKGROUND

There are three different tiers of ill health benefit in the public service pension scheme of which the Applicant in this case (PO-14056) is a member. The tier which is payable is dependent on whether the member is likely to be able to carry out gainful employment in the future. The decision as to which tier of benefits to award rests with the employer but the regulations governing the scheme require it to obtain the opinion of an Independent Registered Medical Practitioner (IRMP). The IRMP instructed in relation to the application for ill health benefits (“First IRMP”) concluded that the Applicant was permanently incapable of discharging efficiently the duties of her current role but that it is likely that she would be capable of undertaking gainful employment within the next three years. The Applicant was awarded tier 3 ill health benefits which is the lowest level of ill health benefits.

CONCLUSIONS

An Adjudicator at TPO’s office (with whom the DPO agreed) concluded that there were issues with the process that was followed both by the employer in deciding to award tier 3 benefits and by the administering authority when it considered the decision on appeal.

The issue with the employer’s decision was essentially that the First IRMP’s report had referred to a report from a specialist but it was unclear whether he had actually had sight of it. The First IRMP concluded that the Applicant was suffering from mechanical back pain and that non-specific mechanical back pain should not normally justify retirement due to ill health. However, the specialist’s report had indicated that the Applicant had additional spinal conditions. The DPO stated that, the employer “should have interrogated this discrepancy in the diagnosis made by its IRMP and [the Applicant’s] own physician” but there was no evidence that it had done so.

When considering the Applicant’s appeal, the administering authority obtained a further report from another IRMP (“Second IRMP”) who noted that

the First IRMP referred to the specialist’s report but it was not clear that he had actually seen it, and that this is relevant because that report gives additional medical detail not in previous reports. In his report, the Second IRMP accepted that the Applicant had additional spinal conditions which fall outside of the definition of mechanical back pain but stated that, on balance, he was not of the opinion that the balance of probability is shifted sufficiently to support a higher tier of benefits being awarded. The Adjudicator identified some issues with the Second IRMP’s report including that it did not provide any justification as to why the balance had not shifted. The Adjudicator stated that there is no evidence that the administering authority sought clarification on this point from the Second IRMP.

The Adjudicator therefore concluded that neither the employer nor the administering authority had demonstrated independent decision making but rather “both have blindly accepted the opinion of their respective IRMPs”. The DPO directed the employer to reconsider the case and to pay the Applicant £500 for the significant distress and inconvenience.

This case demonstrates that where scheme rules provide that the decision on ill health pensions rests with the employer or trustees, it is important that the decision-maker considers the report from their medical adviser and seeks further information or clarification where necessary.

Another recent example of this is case PO-14747 in which a medical adviser had concluded that the member would be capable of gainful employment before normal retirement age but had given no rationale for this. Again, in this case, the decision on ill health pensions rested with the employer but it did not query the lack of rationale with the medical adviser. This meant that the decision making process was flawed and the complaint was upheld and the case was referred back to the employer for re-consideration.

www.dlapiper.com | 07

STATISTICS

* For these purposes, awards are considered by looking at what is payable by a single respondent to a single applicant. There may be some awards that are, in aggregate, higher than the awards listed here because more than one respondent is directed to make a payment in the same case.

** The Respondent had already paid £172 to the Applicant.

SEPTEMBER

NUMBER OF DETERMINATIONS 56

Number of these determinations which are Ombudsman decisions following an appeal from an Adjudicator’s opinion

53

SCHEME TYPE Public service scheme 29

Private sector scheme 27

OUTCOME Upheld 11

Partly upheld 6

Not upheld 39

AWARDS FOR DISTRESS AND INCONVENIENCE*

Lowest award £500

Highest award £2,000

OCTOBER

NUMBER OF DETERMINATIONS 44

Number of these determinations which are Ombudsman decisions following an appeal from an Adjudicator’s opinion

42

SCHEME TYPE Public service scheme 21

Private sector scheme 23

OUTCOME Upheld 11

Partly upheld 5

Not upheld 28

AWARDS FOR DISTRESS AND INCONVENIENCE*

Lowest award £328**

Highest award £1,000

08 | Pensions Ombudsman Round-Up – December 2017

CONTACT DETAILS

Ben MillerPartner, Liverpool T +44 (0)151 237 4749 ben.miller@dlapiper.com

Claire BellPartner, Manchester T +44 (0)161 235 4551 claire.bell@dlapiper.com

Tamara CalvertPartner, London T +44 (0)20 7796 6702 tamara.calvert@dlapiper.com

Jeremy HarrisPartner, Manchester T +44 (0)161 235 4222 jeremy.harris@dlapiper.com

Andrew McIlhinneyPartner, Leeds T +44 (0)113 369 2141 andrew.mcilhinney@dlapiper.com

Matthew SwynnertonPartner, London T +44 (0)20 7796 6143 matthew.swynnerton@dlapiper.com

Cathryn EverestProfessional Support Lawyer, London T +44 (0)20 7153 7116 cathryn.everest@dlapiper.com

www.dlapiper.com | 09

DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com.

This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

Copyright © 2018 DLA Piper. All rights reserved. | JAN18 | 3279072

www.dlapiper.com