The case involved a Mr N, who was concerned that the annuity he was receiving from Prudential was too low because Capita had omitted part of his defined contribution benefits from his former pension scheme.
Mr. N took early retirement in 1995, and his scheme, which the Ombudsman noted has a “complex history and benefit structure”, has been in wind-up since October 2003.
Even if Capita did not think Mr N’s complaint against it had any merit, it ought to have responded to his concerns, in particular any concerns raised under its formal procedures
A complex case
The scheme introduced MoneyMatch benefits in 1992, a system under which a member’s account balance is matched at retirement by an equal amount from their employers’ reserves. At that time, the scheme offered members three options: option 1 allowed members to join MoneyMatch and transfer their existing benefits; option 2 allowed members to transfer but leave their benefits in the existing plan, and; option 3 allowed members to remain in the existing plan.
Mr N chose option 2 when given the choice in 1991, but subsequently changed his mind, picking option three in 1992, while pension slips provided to the Ombudsman showed contributions built up under the headings “Core Pension”, “VIP Contrib” and “VIP Comp Match”.
When Mr N inquired about early retirement in 1995 he was presented with two options for getting around a guaranteed minimum pensions shortfall that prevented him taking it: using £6,405 of his MoneyMatch contributions to “buy” the GMP shortfall, or taking a tax-free lump sum of £23,208 at that time and then delaying receiving his pension until he reached state pension age.
He selected the first option, receiving a tax-free cash sum of £16,803.19 and a pension of £3,074.20 per annum.
The scheme’s employer then became insolvent and the scheme went into wind-up, while the trustee switched from Eversheds Pension Trustees Limited to Capita in 2005.
In 2007, Mr N wrote to Capita to query whether his benefits in payment were at the correct level. They confirmed that he had set aside money from his MoneyMatch fund in order to take early retirement.
Then, in 2010, the trustees received the judgment in an appeal case that changed the order of the scheme’s payment priorities, subsequently writing to Mr N to inform him the judgment was “not good news for pensioners in your position”, prompting him to inquire whether any of his pension was derived from the scheme’s VIP funds.
Capita confirmed that he did indeed contribute to the VIP funds, but said some of these funds had been used to cover the GMP shortfall necessary for him to take early retirement, while the rest had been commuted for a tax-free lump sum.
The company wrote again to Mr N in 2013 explaining that a court case in 2011 had prioritized increases to DC elements of the pension plan over increases to the defined benefit elements, meaning Capita was undertaking “an exercise to establish the split of benefits for all pensioners in the scheme”.
Then, in 2015, the trustee wrote to Mr. N explaining that the “special terms” relating to his GMP had made this process more complicated.
It subsequently explained: “Members whose pensions are derived wholly or in part from AVC or Money Purchase (MoneyMatch) contributions will be entitled to increases… back dated to the winding up date (2003), and then a larger increasing pension going forward .
“We hold a Prudential annuity policy that covers the pensions that were being paid at wind up, approximately 1,300, without any increases. Capita [has] notified Prudential of the level of AVC and [DC] benefit members should be receiving.”
Mr N then received a printout from Prudential showing that his pension was £3,894.00 in total, with £2,657.89 described as ‘Final Salary Element’ and £1,236.11 described as ‘AVC/Money Purchase Element’.
Later, in 2016, his pension was split, according to the Ombudsman, into “(a) Core benefits and (b) VIP benefits”.
“He was paid a lump sum of £2,783.30, representing arrears of the fixed 3 percent annual increases he should have received on his VIP benefits from when the scheme entered wind-up to February 2016,” the Ombudsman explained.
This prompted Mr. N to lodge a complaint with the Ombudsman in September 2017, which was acting as the Pension Protection Fund Ombudsman at that time.
He received a response from the Financial Assistance Scheme, administered by the PPF, stating: “Capita has confirmed that [Mr N] accrued core benefits in the scheme. [He] also paid both VIP contributions and VIP supplementary contributions into his VIP account… Capita has confirmed that [Mr N] did not accrue any MoneyMatch benefits in the scheme, although some correspondence with [him] did mistakenly refer to MoneyMatch benefits.”
Mr N disputed the contention that he had not paid into MoneyMatch, citing documents received from Capita, as well as his payslips. He then filed another complaint with the Ombudsman, and complained that Capita had never provided him with a record of contributions, leaving him unsure how it could have calculated his pension correctly if it did not have access to this information.
For its part, the Ombudsman noted that Capita “has provided no formal response to the allegations made against it by Mr N despite being given several opportunities”.
It did, however, file a number of submissions in December 2018, June 2019 and December 2019, backing up its position on the matter.
This led to a preliminary decision by the deputy Ombudsman finding that Mr N should be awarded just £500 for distress and inconvenience. Mr. N said he wished to accept the money, but did not agree with the preliminary decision, remaining convinced that an error had been made in calculating his pension.
He made a number of further submissions, including records obtained by a request under general data protection regulations, which he believed showed mistakes had been made.
The Ombudsman recorded that Mr. N was “extremely upset by this and rather disturbed to now find, at what appears to be a late stage, that his DB and DC pensions appear not to have been calculated correctly because of errors made.
“He says if this had been presented prior to his original complaint he could have obtained assistance from other bodies. Unfortunately, he was unable to do so because of lack of paperwork which he has asked for but these have been far and few between, until he contacted TPO.”
In his judgment, the Pensions Ombudsman, Anthony Arter, noted that terminology in correspondence was “used very loosely”.
“As can be seen from correspondence, which refers variously to VIP/AVC/Money Purchase/MoneyMatch contributions, the terms appear to have been considered arbitrarily interchangeable,” he explained.
Capita’s repeated invocation of MoneyMatch in subsequent correspondence simply meant that “finer distinctions [appeared] to have been lost in subsequent communication,” he continued.
“Taking the contemporary and more recent evidence into account, as well as the benefit structure of the scheme, I find that, on the balance of probabilities, Mr N did not make additional MoneyMatch or MoneyMatch Plus contributions between 1992 and 1995.”
On the question of the correct level of DC benefits, he found that Mr N was wrong in saying he was entitled to an increasing annuity. He acknowledged Mr. N’s “frustration” but again held that confusion over terminology did not mean he was missing out on benefits to which he was entitled.
‘Fundamental duties’ overlooked as claimant misses 12 years of benefits
The Pensions Ombudsman has partially upheld a complaint against the trustee of the Midcounties Co-operative Pension Scheme, criticizing the scheme’s record keeping, but fell short of awarding the applicant the 12 years’ worth of entitlements he sought.
He did accept the situation was “clearly unsatisfactory”, and that Capita’s correspondence “fell below the standards of good administration”, having caused Mr N significant confusion and distress, in part because Capita did not provide him with the relevant documents until after he had took his case to the Ombudsman.
“Even if Capita did not think Mr N’s complaint against it had any merit, it ought to have responded to his concerns, in particular any concerns raised under its formal procedures. Capita should also have informed him of his right to refer his complaint to the TPO. Had it done so, Mr. N’s concerns could potentially have been allayed, and his complaint resolved, much sooner,” he explained.
He therefore ordered Capita to pay Mr N £500 within 28 days of the ruling, to compensate him for the distress and inconvenience.