In this periodic round-up of complaints from pension scheme members to the Pensions Ombudsman, we look at:

A death benefits case where the Trustees failed to look into the personal circumstances of a deceased member properly
An overpayment case where the complainant changed his position as a result of the overpayment
A scheme administration case where various administrators “lost” a member’s record
Siegfried (PO-1427) – Death benefits

Summary: A deferred member of the Credit Industriel et Commercial Retirement Benefits Scheme died. The Complainant co-habited with the deceased member of the pension scheme and had two children together. However, at the time of the member’s death, the Complainant was not living with the deceased member.

The Complainant informed the Trustees of the member’s death. The Trustees requested the death certificate, the will and the marriage certificate from the Complainant. The Complainant provided the death certificate and confirmed that the deceased member did not have a will and that they were not married. The Trustees paid the refund of contributions to the Complainant while failing to make any further enquiries into the ‘family’ relationship of the deceased member and the Complainant.

The scheme rules allowed a deferred member’s pension to be payable to one or more persons who the Trustees were satisfied were partial or whole dependants. The Complainant enquired about the payment of the spouse’s pension to her or their two children after the Trustees had paid her the refund of contributions. The Trustees determined that the children are eligible for a child’s pension, but the Complainant was not eligible for a spouse’s pension because she was not married to the deceased member or financially dependent immediately prior to death. The Complainant argued that:

The Trustees paid her the refund of contributions but have refused to pay her the widow’s pension
She was the deceased member’s partner during his employment at the principal employer of the scheme
She was his named beneficiary under his will
She lived with the deceased member for 18 years as a ‘married’ family
She was paid ‘alimony’ fortnightly by the deceased member
Determination: The Trustees, in exercising their discretion, are required to:

Ask the correct questions
Direct themselves properly in law
Take into account relevant factors
Not to arrive at a perverse decision
The Trustees undertook no enquires into the potential beneficiaries of the deceased member’s benefits. The Ombudsman believed there needed to be a wider investigation. It seemed that the only reason the Complainant was paid the refund of contributions was because she was nominated to receive the deceased member’s benefits when he died. The Trustees’ failure to investigate the dependant’s and spouse’s benefits amounted to maladministration.

The minimal evidence the Trustees did have did not justify their conclusions on not giving the spouse’s benefits. They were basing their judgement on co-habitation and not what the rules specify – dependency. The Trustees had been provided with bank statements during the internal resolution procedure evidencing that the Complainant was dependent on the deceased member. Essentially, the Trustees failed to ask the correct questions, misinterpreted the scheme rules, took into account irrelevant factors and did not undertake reasonable enquiries before reaching their decision on the member’s death benefits. The Ombudsman determined that the Trustees must start again and make new reasonable enquires before coming to the same or a new conclusion on the benefits payable.

The Ombudsman also awarded the claimant a high sum of GBP 750 for the distress and inconvenience she had suffered as a result of the maladministration.

Comment: Trustees must be aware of their obligations in exercising their discretion. The Ombudsman was particularly unimpressed by the Trustees’ failure to enquire into the deceased member’s children or his direct family especially when it was known that the member was not married but had an unmarried partner and children. While Trustees are not obliged to consider all possible potential beneficiaries, they are required to properly consider any potential beneficiaries as their reasonable enquiries might reveal before making their decision.

Clift (PO-2066) – Overpayment

Summary: The Complainant was in the Industry Wide Coal Superannuation Scheme – which was established post privatisation in 1994. He took voluntary redundancy in April 1998 and in April 1999 was awarded an ill-health pension backdated to October 1998.

In May 1999 the Complainant ordered a conservatory which was paid for in July 1999. In June 1999, the Trustees discovered an error in calculating the pension. The lump sum had been overpaid by around GBP 3,800. The pension had been overpaid as well, but the backdating of the ill health award meant that this had already been recovered. The Complainant argued that the expenditure on the conservatory had been in reliance of being paid the incorrect lump sum. The Trustees accepted this change of position defence and so did not recoup the GBP 3,800.

In 2011 the Trustees discovered another error in the pension. As with the first one this related to the calculation of overtime in the pension, but related to the benefits which should have been given following his transfer in from a previous Coal industry scheme in 1994.

The pension benefits were therefore overstated twice.

Determination: The Pensions Ombudsman agreed that if the conservatory was a successful change of position defence in 1999, it was equally a good one in 2011. The Ombudsman noted that the Complainant had agreed to expenditure of GBP 11,000 to purchase the conservatory based on a lump sum (as notified to him in April 1999) of around GBP 8,500, but would not have purchased it if he had been told of his correct entitlement of GBP 4,600 (June 1999); then he would equally have not proceeded if he had been told that his true entitlement was only about GBP 4,000 (August 2011).

The Complainant also argued that the Trustees should be prevented from recovering under the Limitation Act 1980. This provides that the time limit for a claim of mistake does not run until “the plaintiff has discovered the … mistake … or could with reasonable diligence have discovered it.” The Trustees argued that this did not require them to have done everything possible. The first error was in relation to an incorrect date. Once corrected there was no need to have investigated further. The second error related to earnings history prior to joining the Scheme in 1994 and could only have been reasonably discovered in 2011 when “odd results” were thrown up in calculations.

However, the Ombudsman rejected this because this was an error carried over from the previous scheme. There was a case for saying that the Trustees should have discovered this error when setting up the Scheme in 1994 (which was designed to mirror the predecessor scheme). However, he concluded that the error should have been discovered with reasonable diligence either in 1998 (when the original pension was set up) or in 1999 (when the first error was discovered). So the Trustees were time barred for claims for pension overpaid before 2005.

Comment: When Trustees discover a mistake in a member’s pension calculations, Trustees should be aware that reasonable diligence needs to be carried out in establishing whether there have been any further mistakes. The Ombudsman restated the general position that members should only receive the benefits they are entitled to under the Rules of the Scheme and that Trustees can reclaim money which has been overpaid unless the member has a defence that their financial position has changed as a result of the overpayment.

Smith (PO–1746) – Scheme administration

Summary: The Complainant became a member of a scheme in 1990, which later merged into the Global Shipping Services Money Purchase Scheme in 1997. In 1995 certain members’ pots were transferred by ANBC to Mercury Asset Management, a new investment manager for the Scheme. The Complainant’s pot had a transfer value of GBP 6,181.88.

In 1999, Mercer became the new administrators of the Scheme. The handover documentation from ANBC confirmed that the Complainant was still a member of the Scheme, but he had no investment units. Mercer calculated a Scheme surplus and used this to balance deficits in other Scheme funds.

The Scheme changed administrators again in 2001 with the intention of winding up. In 2004 the Scheme bought out all of its known liabilities. The buy-out provider stated that the Scheme had no investment unit holdings for the Complainant. Therefore, the Trustees did not include the Complainant in the buy-out calculations.

The Complainant left the Scheme’s employer in 1996. In 2007 the successor scheme’s administrators wrote to the Complainant and asked him to confirm his membership. The Complainant responded that he was a deferred member of the Scheme. In 2009 when the Complainant wished to retire he wrote to the original administrator to enquire about starting to draw his pension. The Trustees of the Scheme were told by the administrators that the Complainant was not included in the buy-out arrangements when the Scheme was wound up. HMRC confirmed that the Complainant was contracted-out between the period he was employed until January 1996.

Determination: The Ombudsman determined that the Complainant’s benefits should have been secured in the buy-out. It was not clear what happened with the Complainant’s funds and when they were mislaid. The documentation provided by ANBC was not accurate and Mercer did not attempt to reconcile the problem until over a year after they had taken over the administration.

The civil burden of proof, the balance of probabilities, was applied by the Ombudsman. The primary fault was the administrators who should have held accurate records for each of the transfers. There is a heightened risk when transferring out funds. A professional services firm should have adequate procedures in place to protect their clients from the increased risk.

The Ombudsman found that there was maladministration by the two administrators and the Trustees. Liability was equally shared between the three parties. The employer was ordered to pay the Trustee’s share of the liability.

Comment: As the buy-out and de-risking market grows, this case highlights the importance of having accurate member data and records for administrators and trustees to avoid additional liabilities coming out of the woodwork after the event. It also highlights increased risks when transferring a scheme’s administration to new administrators.