The Pensions Ombudsman (TPO) has given his determination in a complaint by Mrs L against the Royal Bank of Scotland Group PLC and RBS Pension Trustee Limited (RBS).
Mrs L brought two complaints:
- the first, on behalf of her late husband’s estate, that:
- delays in providing information to Mr L about his options as a deferred member and about cash equivalent details between the diagnosis of pancreatic cancer in April 2014 and his death in October 2015 amounted to maladministration; and
- Mr L had not been informed about how his death benefits might be affected by his decision to defer his pension.
Mrs L claimed that the Trustee and employer, being aware that Mr L was suffering from a terminal condition, were under an enhanced duty of care to provide relevant information; and
- the second, in her own name, that the wording in a benefit statement was misleading in relation to the 5-year guarantee.
Complaint by Mrs L on behalf of Mr L's estate
TPO upheld Mrs L's complaint against the Trustee on behalf of the estate. The Trustee’s delays amounted to maladministration: it issued the 2015 Statement nearly six months after Mr L left service, it did not meet its service standard for sending the transfer value and it issued its dispute resolution second stage letter later than it should have done.
TPO did not however agree that the respondents had failed to provide Mr L with sufficient information enabling him to make sound decisions on his benefit options.
The Scally principle
TPO applied the principles in Scally v Southern Health and Social Services Board . The Scally duty was limited to circumstances where “the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to their attention”. TPO considered that Mr L was aware of the possibility of obtaining pension value information and it was not the case that he could not have reasonably acted without it being brought to his attention.
Neither RBS nor the Trustee had a duty to provide information on which option was most financially advantageous for Mr L or to provide him with details about death in deferment benefits. There was no evidence that he had asked specifically about death benefits or provided any details outside of his redundancy that ought to have placed either RBS or the Trustee under an enhanced duty.
TPO considered that the maladministration in this instance was serious, for which his award would usually be £1,000. Given that the Trustee had offered Mrs L £1,600, which was higher than TPO would award, he did not make an additional award.
Complaint by Mrs L in her own name
Mrs L’s second complaint was not upheld as she was receiving the correct benefits under the scheme’s rules. TPO did not consider the wording in the 2015 Statement on the 5-year guarantee was misleading as it was implicit from the words “the balance of” that the pension must be in payment for the guarantee to apply. In any event, were there ambiguity, the scheme’s rules would prevail.
How does this decision compare to that of Estate of Mr R (PO-17639)?
In the case of the Estate of Mr R, on which we reported in our September 2018 update, TPO recently upheld a complaint where the scheme's administrator failed to inform a terminally ill deferred member that the retirement options presented to him were only available if taken prior to his death. Here, TPO determined that the trustees had a fiduciary duty to provide Mr R with all the relevant information for him to make a fully informed decision about his options. This duty had been breached, since despite being aware that the member had a terminal illness, the trustees had failed to mention that the benefits were dependent on the member making a choice in his lifetime. TPO also stated that in situations where options were conditional, the trustees should inform the member about the relevant conditions.
TPO determined that the member’s lack of action was because he was unaware that this compromed his wife's future retirement benefits. If there had been greater clarity and urgency, it was more likely than not that the member would have acted to his (and his eventual widow’s) financial advantage.
In Mr R’s case, TPO directed the trustees to calculate the amount of lump sum the member's estate would have received had he applied for the more advantageous option in his lifetime and pay this to the estate directly. The trustees were also directed to calculate the difference in spouse's pension his widow was receiving and what she would have received had the member applied for the same option in his lifetime and pay this to his widow. In addition, the trustees were directed to pay Mrs R £500 for the distress and inconvenience suffered.
In the case of Estate of Mr R, the trustees were found to have breached their fiduciary duty in not having provided the member with all relevant information to ensure he made an informed decision, and significant compensation was awarded to his estate as a result. However, that does not to appear to have been the case in Mrs L’s complaint, where TPO found that the trustee and the employer had provided sufficient information to enable the member to make sound decisions about his benefit options. The only breach was found to be the severe delays in response to the member’s queries, which amounted to serious maladministration.
TPO is usually reluctant to rule that the Scally duty has been breached, generally because the conditions that need to be met are very specific and often hard to satisfy in practice.
In broad terms, it seems from these cases that employers are not obliged to advise members about options relating to their pension rights, or highlight potentially detrimental decisions, or to inform members of how best to exercise their choices under a scheme’s rules. The only requirement is for employers and trustees to make sufficient information available to the member. There is no enhanced duty when a member is terminally ill. However, employers and trustees must avoid giving anything that might constitute “financial advice” as they will not normally be authorised to do so under the relevant FCA rules.
Nevertheless, employers should be aware that TPO has found maladministration on more than one occasion where employers have failed to follow good practice. With this in mind, employers should always seek to provide members with full details of a scheme's benefit structure, ensure that these details are clear, and ultimately suggest that members seek independent advice before making financial decisions.