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In this blog we consider some recent determinations from the Ombudsman concerning: the importance of Trustee’s communications to members, and the exercise of discretionary powers.

The importance of clear communication and process

Ombudsman decisions in January 2021 and March 2021 demonstrate the importance of clear communication from trustees to members and the importance of ensuring administration processes are adequate and prompt.

In PO-39371 Mr R received a letter from the trustees offering the choice between transferring to a new British Steel Pension Scheme (BSPS) or remaining with the BSPS which was likely to enter into the PPF and result in a reduction in his benefits.

The trustees sent 4 updates to members on the requirement to return a signed options form by the deadline. Mr R selected to transfer but did not sign the form. The trustees identified this and gave him a further opportunity to send a signed, additional form. He did not respond to this and as a signed form was never received, he was not transferred. Ultimately this resulted in a 10% reduction in this benefits and he subsequently complained through the internal disputes resolution procedure and to the Ombudsman.

The Ombudsman did not uphold the complaint and held that there was no maladministration on the part of the trustees. The communications had been clear and had set out the requirements, the trustee had acted quickly when Mr R had returned an unsigned form and the trustees could not reasonably be expected to rely on the unsigned form as sufficient authority to make the transfer.

In the case of Mr R PO-28256 the Ombudsman rejected a member’s complaint that his transferring scheme provider did not provide sufficient warning of pension liberation risk.

Mr R had transferred his pension fund from a personal pension scheme to a newly established SSAS under which most of his pension savings were invested in hotel accommodation in Cape Verde. Mr R was subsequently contacted by a claims management firm which helped bring a complaint against the transferring scheme provider on the grounds that the transferring scheme had not carried out sufficient due diligence and should have verbally warned Mr R of the risks.

As part of the original transfer pack the transferring scheme had included relevant Regulator scam warning leaflets and had set out several warnings in relation to the proposed receiving scheme: Mr R may not have received advice from an authorised advisor; the receiving scheme’s rules stated that a proportion of the investment might be made outside the UK, and that any overseas investment would not be protected by the Financial Services Compensation Scheme.

It also provided a discharge and declaration form which the member signed under which he confirmed he had taken advice, read the warnings, acknowledged the transferring scheme was not endorsing the suitability of the receiving scheme and discharging the scheme from future liability.

The member’s complaint was not upheld on the basis that sufficient warnings had been given to Mr R who had chosen to disregard them. The Ombudsman was not persuaded that Mr R would not have proceeded even if the transferring scheme had called him. It said that the member did have to take some responsibility for his actions and if he was unclear on the implications of the transfer; he ought to have asked sufficient questions to satisfy himself before proceeding.

The exercise of discretionary powers under scheme rules

Two decisions in October 2020 and January 2021 highlight the long-established principles to be followed when exercising a discretion and the extent of the ability of an Ombudsman or court to interfere with a decision.

In PO-40022 Ms N complained about the manner that the death benefit payable on the death of her partner was distributed.

On Mr N’s death his pension fund became payable as a lump sum to be paid for the benefit of potential beneficiaries as decided by the provider, Aegon. Mr N sent an updated expression of wish by email to his Independent Financial Advisory in July 2018 however Aegon did not receive this until after Mr N’s death and it was disregarded as it was sent after death and unsigned.

Aegon identified two beneficiaries and distributed funds accordingly.

In its decision the Ombudsman observed that its role was to determine whether the scheme Rules were correctly interpreted and Aegon’s decision was reached properly and not perverse, taking into account the relevant factors. The Ombudsman may only require an exercise of discretion to be recognised if the decision maker failed to: direct itself correctly in law; take into account all relevant matters and no irrelevant ones; ask itself correct questions; and arrive at a decision that is not perverse.

The Ombudsman found that the decision was taken in accordance with Scheme Rules and Ms N’s complaint was not upheld.

In PO-39893 Mr S argued that he had a reasonable expectation of receiving a discretionary increase on his pension in payment under his GCP UK Pension Plan (the Plan) and that a failure to grant increases was discriminatory when compared to members who were entitled to statutory increases on pensions in payment.

The Plan rules at the time Mr S left the Plan provided only for increases on pensions in payment in excess of GMP to be made at the discretion of GCP Applied Technologies UK Limited (GCP) with reference to the state of Plan funding. The Plan rules were subsequently amended in 2018 to provide for statutory increases on post 6 April 1997 excess pension but these rules did not apply to Mr S.

In making his argument Mr S noted that the Plan newsletter showed the Plan was in surplus for 3 years prior to his complaint. However, the Ombudsman found the documents relied upon by Mr S’s to demonstrate reasonable expectations were based on documents issued by the trustees and not GCP, which had consistently told members increases were discretionary and there was no evidence that GCP had guaranteed or committed to increases. In addition, the fact that Mr S had not received increases for 17 years also meant that Mr S could not show that he would have reasonable expectations of an increase. The Ombudsman also noted that the difference in treatment for pre and post 1997 pensioners was driven by statutory change and was not discriminatory.

Again, the Ombudsman reiterated the principles which a decision maker is expected to follow in exercising a discretion: it must consider all relevant matters and not irrelevant ones, it must not make a perverse decision which no reasonable decision maker could arrive at and in this instance, noted that GCP may act in its own interests provided it has regard to the duty of good faith and the reasonable expectations of the member. GCP had given specific reasons for its decisions including the risk to financial security of the Plan (which was a condition for the exercise of that power under the Plan rules) and provided evidence of historic decision making and the use of surplus funds to protect member benefits.

The complaint was not upheld.

The decisions above are useful pointers for likely outcomes in similar cases but remember that the Ombudsman is not bound by previous determinations. The Ombudsman is a useful resource for scheme members and can be a cost effective way to have complaints heard but it is often clear that complainants and defendant schemes may benefit from legal advice before taking their complaint forward to understand the risks and identify the most appropriate arguments.

If you require any assistance with pension ombudsman or any pensions matter contact our legal experts here BDB Pensions Team

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