Incorrect pension benefit statements: let the buyer beware – or not?

Helen Powell

Here’s the situation: a pension scheme member, considering retirement or redundancy options, asks for a benefit quote. Unfortunately, there’s a substantial error in the quote, but no-one spots it and the member takes their life-changing decision. When the mistake comes to light, does the member bear any responsibility for having failed to spot it?

In the last couple of months, three cases like this have been determined by the Pensions Ombudsman. Each decision only binds the parties to that particular complaint, but similar cases ought to be decided on a consistent basis. It’s puzzling, then, to see apparently similar cases resulting in different outcomes:

  1. Mr Bore’s pension quote, provided when he was considering redundancy, failed to reflect a 45% reduction following a pension sharing order (PSO) on his divorce. There had been inconsistencies about the PSO in some of his previous statements. The mistake was clearly maladministration, but the Deputy Pensions Ombudsman held that the member had not relied on the statement: in fact, she said, he had contributed to his circumstances. He knew about the PSO and that at least one previous statement was wrong, so he should have been alert to the possibility of errors and done more to check the information he had received. Compensation was therefore limited to £1,500.
  2. Mr Hallard, on the other hand, was more fortunate. The Pensions Ombudsman commented that if Mr Hallard had referred back to his previous quote he probably would have identified the error – but said that it was not unreasonable for him not to do so: the administrators should have been confident that the quote was correct before issuing it. The fact that he had obtained the quote suggested that his pension income mattered to him. The administrators were directed to pay the member over £23,500 for lost earnings and interest.

If you’re a trustee looking at a member complaint like this, what should you conclude? Is the member a Hallard or a Bore? How do you tell the difference? If the complaint reaches the Ombudsman’s office, you might not want to accept the first answer you’re given: around two-thirds of cases are now resolved on the basis of an investigator’s view of ‘what the investigator thinks the Ombudsman would do if he considered the matter’. That process isn’t particularly transparent, and we’re often asked for a wider view on what the Ombudsman’s attitude is likely to be. Determinations can be expensive, as Mr Hallard’s case proves: so in terms of resolving complaints, it may be a case of ‘let the trustee beware’ – in such a fact-dependent world, taking advice on whether (and how) to push back against an investigator’s finding could pay off.

Is it reasonable to suggest that members should check the information they are given and alert you to any errors? Mr Bore was told he should have checked for himself, as mistakes had been made before – but on the other hand, Mr Hallard was told that he had no such responsibility, even though his statement was out of line with previous projections. Obviously, administrators don’t want to appear to suggest that errors are a common occurrence, but trustees are exposed here: it’s worth considering recommending that members check and query anything they think might be wrong in a benefit statement – it can’t hurt you and it might help bring some errors to light.

For more details of these and other recent determinations, take a look at our quarterly client publication, Pensions in Dispute.

Helen Powell is a senior professional support lawyer at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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