44: Recent Pensions Ombudsman determinations

In this blog we consider some recent determinations from the Ombudsman concerning: investment loss arising from transfer delays; recovery of overpayments; and administration and decision making in respect of transfers.

Transfer delay and investment loss

Two Ombudsman decisions in August 2020 and December 2020 respectively demonstrate the importance of schemes administering a transfer request without undue delay. The impact on members of lost investment opportunities can be material. However, one difficulty for members will be to properly demonstrate the quantum of loss.

A Mr T encountered such a difficulty in 2018 where the Pensions Ombudsman awarded Mr T compensation for distress and inconvenience but found his investment loss was ‘neither measurable nor the exact nature of his investment within the reasonable contemplation of the parties’. Mr T had asked for a transfer to take advantage of FTSE 100 movements following the Brexit referendum.

However, Mr T appealed the Ombudsman decision on investment loss to the High Court which allowed the appeal on the grounds that the Ombudsman had erred in law in applying the tests for foreseeability and measurability of loss. The court said:

‘When a customer asks for his pension pot to be moved from one provider to another it is obvious that it is for the purpose or possible purpose of investment …; and it is equally obvious that if there is a delay through maladministration of the transfer that the investor will or may lose the opportunity to invest over that period …’

In the subsequent hearing on the matter in August 2020 (CAS-38354-V5L8), Mr T gave the Ombudsman a description of his attitude towards investment and his awareness of the opportunities for investment in the FTSE 100 following Brexit. On the basis of this, the Ombudsman determined on the balance of probabilities that had Mr T received his funds by a certain date he would have invested his entire fund of £250,000 immediately following the result of Brexit referendum in June 2016 and made a profit of £43,700. Accordingly, Mr T should be compensated in this amount, together with interest at 8%.

In a second investment loss decision in December 2020, the Ombudsman found in favour of Mr G (PO-21110) who requested a transfer and information from his scheme administrator WTW to enable a transfer to pre-determined investments in a SIPP.

The transfer was paid on 10 January 2017 but WTW failed to provide the required information to the SIPP administrators in a timely manner which prevented the SIPP administrator from investing Mr G’s transfer payment until March 2017. The Ombudsman determined this amounted to maladministration and caused Mr G significant actual financial loss. Mr G’s proposed investments were well defined and accordingly the Ombudsman accepted his calculations of investment loss.

Mr G also argued that payment of any compensation now into his SIPP would likely constitute ‘benefit accrual’ and result in him losing his Fixed Protection 2012 status. The Ombudsman agreed and ordered that WTW pay Mr G compensation of £25,522 (which included his estimate of further tax-free growth loss) together with £500 for the significant distress and inconvenience he experienced.

Overpayments

The decision in Mr D, Ref (PO-1918) in October 2020 demonstrates the difficulties faced by trustees and members where historic overpayments of pension are discovered and schemes seek to recover them. Mr D had been receiving pension overpayments since 2004. The overpayments arose because the scheme administrator neglected to reduce the increases in payment payable on his GMP when he reached GMP Age (65). It was only after a GMP reconciliation exercise in 2014 that the error was discovered and the trustees wrote to Mr D to inform him his pension would be reduced to the correct level going forwards (as it was obliged to make payments in accordance with the rules) and that overpayments would be recovered at the rate of £55.49 per month for a period of 10 years.

Mr D complained in September 2017 and the Ombudsman partly upheld his complaint, holding that the trustees could not recover overpayments made more than six years before they had issued their formal response because section 5 of the Limitation Act 1980 applied.

Mr D’s employer sought to challenge the determination but the Ombudsman hearing was stayed a related case (Burgess and ors v Bic UK Ltd [2018]) was heard – the courts in that case held that the recovery of overpayments by equitable recoupment was an equitable self-help remedy and so the Limitation Act 1980 did not apply. The matter was then referred back to the Ombudsman who reversed the decision on limitation periods.

Mr D did not advance any other argument against the recoupment of overpayments (such as change of position or estoppel) and accordingly the Ombudsman determined that Mr D did not have any available defence to the recovery of overpayments for the full period. However, it did order the trustees to reconsider the period for recovery (originally 10 years), noting that repayment is usually made within the same period as the overpayment and awarded Mr D £1,000 for the serious distress and inconvenience the trustee’s maladministration had caused him.

A similar November 2020 decision concerning recovery of overpayments is that of Mr E Ref (PO-29198)  in respect of the Teachers’ Pensions (TP). In this hearing the Ombudsman held that the TP was entitled to recover the overpayment from Mr E through equitable set-off which operates in a similar way to equitable recoupment (but was not available because that equitable remedy only applies to trustees and the TP is a statutory unfunded scheme with no trustees).

Mr E sought to rely on the Limitation Act 1980 but again this was rejected on the grounds it does not apply to equitable remedies of this sort. In contrast to Mr D, Mr E also advanced a number of defences. He argued  change of position (he listed a number of significant expenses on life events) which was rejected on the grounds of good faith – Mr E knew his salary played an important role in pension entitlement and did not query it. Mr E argued estoppel which was rejected on similar grounds. He also argued that the benefit statement sent to him by the TP equated to a contractual agreement between the TP and Mr E which the Ombudsman rejected on the grounds that the TP did not have an intention to enter into legal relations (and so all the necessary conditions for a contract were not present).

Transfers

With proposed amendments to the Pension Schemes Act 1993 later this year to prevent members from exercising their statutory right to a transfer unless certain conditions are met, a recent February 2021 Ombudsman decision highlights the need for schemes to have robust administrative and decision making processes in place to deal with transfer requests and the difficulties faced by trustees where there are uncertainties about the receiving scheme.

Mr Y Ref PO-24361 held 3 UK based pensions that he wished to consolidate and transfer to Jersey. One of those was held in an occupational defined benefit scheme. He requested a transfer value from that scheme which BW LLP, the scheme administrators, provided. BW LLP subsequently requested that enhanced ‘overseas’ due diligence forms be completed and returned.

Once in receipt of those forms, BW LLP raised further connected questions with Mr Y over a period of 3 months before referring the request to the trustees for a decision. On the basis of the evidence provided, the trustees decided that they could not determine whether the receiving scheme was a QROPS (to which statutory transfers are permitted) and so refused the transfer request. However, in doing so the trustees misunderstood their powers and wrongly relied on a power to decline non-statutory transfer requests under the scheme rules, whereas Mr Y was exercising his statutory right to a transfer.

The trustees informed Mr Y that further due diligence would be needed in order for them to consider again whether to permit a transfer and that the costs of this should be met by Mr Y and not the scheme. The trustees also cited as reasons for refusal, their uncertainty over whether HMRC may withdraw QROPS within 28 days status in the future (and no amount of further diligence could have satisfied them about that risk) and the possibility of Mr Y transferring to a UK based pension scheme. These were found to be irrelevant factors and the communication of the reasons by the trustees was found to be confused and misleading.

Accordingly, the Ombudsman determined Mr E should receive £1,000 for the serious distress and inconvenience caused and required the trustees to determine whether the receiving scheme was a QROPS and in the event that they do find that it is, to make payment of a transfer including interest, and to make payment of any additional costs incurred by Mr Y along with investment losses (provided Mr Y provides satisfactory evidence of that loss within a reasonable timeframe).

In line with its stated aims, the Pensions Ombudsman’s latest annual report shows that 95% of the over 20,000 enquiries it received were resolved by informal routes and did not require adjudication. Of the 5% of enquiries that did go to adjudication, only 29% were either upheld or partly upheld on behalf of the complainant. As such, the Ombudsman remains a valuable resource for pension scheme members who are not satisfied with the way their pension benefits are administered and offers a potentially cost effective way to have complaints heard.

However, what is often apparent is that complainants and defendant schemes may benefit from legal advice before they advance their complaint to make sure they understand the risks and put forward the most appropriate arguments. While the decisions above provide useful pointers for the likely outcome in these types of cases, it is always useful to remember that the Ombudsman is not bound by his own determinations, so another complaint with similar facts could be decided differently.

The Ombudsman anticipates a rise in complaints in the wake of COVID-19 with likely problem areas to include the furlough scheme, scams and transfers, payment of contributions, ill health and redundancy claims, and delays.

If you require assistance in this regard or any pensions matter you can contact our pensions legal experts here BDB Pitmans pensions team.