Mr Morgan was employed by HSBC and was a member of the defined contribution section of the HSBC Bank (UK) pension scheme. The trustee of the scheme was HSBC Bank Pension Trust (UK) and the administrator was Towers Watson.
Mr Morgan’s normal retirement date under the scheme was his 60th birthday in 2013. He contacted both HSBC and the administrator in January 2010 and informed them of his intention to retire on 31 March 2010. He was told the retirement process could not begin until he left service. He ended his employment as arranged on 31 March 2010.
In the next few months Mr Morgan exchanged a number of written and telephone conversations with the administrator, beginning on 6 April 2010 when he informed them of his intention to use his depositors’ compensation scheme fund to obtain a tax-free lump-sum and purchase an annuity in the open market with the balance. He emphasised in his email that he wished to finalise things that month and hoped to have all the details required as soon as possible. The administrator responded on 13 April 2010 giving him a retirement date of 30 April 2010. On 20 April 2010 Mr Morgan’s financial adviser provided him with an annuity quotation of £15,105 a year based on a purchase price of £230,000. The actual process of liquidating the DC scheme fund and paying the proceeds over to the annuity provider took longer. Mr Morgan repeatedly enquired about progress and when payment would be made. On 1 June 2010, Mr Morgan was quoted by his IFA that his annual annuity was now £14,600. and payment was finally made on 4 June 2010. Mr Morgan complained to the trustee, who offered him £250 compensation – which he declined. On Mr Morgan’s main complaint relating to the delay in setting up the pension, the ombudsman stated that his role was to determine whether there had been maladministration, not to set standards or test for excellence.
The ombudsman felt that, while the scheme rules provided for the payment of an “immediate pension” beginning with effect from the day the member left service, it could not always be possible for the first payment to be made on time.
The ombudsman found that it was arguably reasonable for HSBC to wait until Mr Morgan had left service before informing the administrator given the large membership of the scheme and the number of occasions where members’ leaving plans altered or were cancelled. As long as the decision to process was within a reasonable range, the ombudsman felt he could not interfere. He did however note that it was difficult to see how Mr Morgan could ever be paid a pension from the 30 April date suggested by the administrator. The ombudsman held that while there was nothing fundamentally wrong with the process, the arrangement was inadequately explained to Mr Morgan by the administrators and by the scheme booklet.
On 29/30 April, Mr Morgan was told that the process would take a further two weeks to complete when, in reality, the system would not allow payment before 4 June 2010. This was not explained to Mr Morgan. However, the ombudsman did not think that Mr Morgan should be entitled to compensation for the drop in annuity rates. Mr Morgan had decided from the beginning to purchase an annuity on the open market, and had not suggested that he would have proceeded differently had he known how long the process would take. He opted to continue, knowing that annuity rates had fallen.
The ombudsman considered the trustee’s offer of £250 to be insufficient. Retirement is a significant lifetime event and he felt a clear explanation of the process in advance would have avoided the disappointment and annoyance that Mr Morgan was caused. He ruled that £500 was a more appropriate figure to be paid within 28 days.
Monica Ma is a partner of law firm Simmons & Simmons
