Pensions Ombudsman  

Ombudsman backs saver over misleading transfer value

Ombudsman backs saver over misleading transfer value

The Pensions Ombudsman has demanded the W & J Leigh Staff Pension Scheme rectifies the value of a pension transfer given to one of its members, due to an incorrect calculation of the benefits.

The complaint, from a client referred to as Dr S, relates to a request for a cash equivalent transfer value (CETV) quotation made in 2011, as the member wanted to transfer his pension after his 64th birthday the following year, the last date he could transfer out if he wished to.

The scheme provided estimates, but told Dr S he would have to wait for the transfer value as the trustee had asked the actuaries to look at the current assumptions and parameters used in the calculation of transfer values.

As a result, the trustee had put the calculation of transfer values on hold until the completion of the actuaries’ study.

Dr S also raised a query with The Pensions Advisory Service (TPAS) about the approach which the scheme had taken to revaluation, and in December 2011 was informed that he appeared to be entitled to statutory revaluation.

However, on 9 January 2012, the scheme administrator told Dr S that increases were discretionary for deferred members, therefore “it is impossible to provide any certainty of the level of future increases (if any) that may be awarded”.

In 2012, Dr S was provided with a CETV quotation of £768,051, corresponding to benefits amounted to £37,288.51 per year.

Disappointed that his benefits in the scheme had not increased since 2008, in May 2012 Dr S transferred his benefits from the scheme to St James’ Place (SJP).

Dr S said his reason for making that decision was because he calculated that the market rates for annuities were only a little worse than the conversion rates in use by the scheme and he would be better off investing the transfer value than accepting nil increases.

In 2013, the scheme trustee sent a letter to all members, making them aware that there had been a mistake in the historic approach to valuation of benefits. This happened because of two issues: a failure to equalise the scheme until June 1997 and an inconsistency between the provisions of the scheme rules and overriding requirements of statute.

After the recalculation of benefits, Dr S was informed in August 2014 that the transfer value of his benefits had been calculated incorrectly, and this resulted in the value he transferred being £72,452 less than it should have been.

The trustee informed Dr S that it was willing to make an additional transfer payment of the shortfall into his SJP pension along with interest at 2.5 per cent per annum.

Dr S questioned why the adjusted figure was not higher and requested a detailed explanation of the actuarial calculation. He also asked for lost interest at the rate on the investment he had in fact made with the transfer, rather than the rate offered.

Dr S didn’t consider a one off payment of £72,452 would provide sufficient compensation for the loss of £7,832.49 per annum pension, which was lost through incorrect accruals up to 2012. The best annuity quote he has received for this sum is less than £3,000 per annum.