Pension Protection Fund · CAS-104796-R9Q9

CAS-104796-R9Q9

Ombudsman’s Determination Applicant Mr R

Scheme Pension Protection Fund

Respondent The Board of the Pension Protection Fund (the Board)

Outcome

Complaint summary Mr R’s complaint is that the Board provided incorrect, misleading and confusing information to him for his divorce settlement, which resulted in him incurring additional legal costs, having to retain his PPF compensation and continuing to pay the Lifetime Allowance (LTA) tax charge.

Background information, including submissions from the parties Mr R was a member of the FirstCity Insurance Brokers Limited Pension Scheme from 1 August 1996 to 30 October 1998. He was a deferred member of the scheme when the scheme transferred to the Pension Protection Fund (the PPF) on 5 October 2018.

In February 2019, Mr R retired. Mr R elected to take his PPF compensation as a maximum lump sum and residual monthly payments. As Mr R had no remaining LTA at the time he retired, his lump sum incurred a LTA tax charge of £15,171.68 and his residual compensation incurred a LTA tax charge of £20,688.65. Accordingly, the Board deducted £15,171.68 from Mr R’s lump sum (paying Mr R the balance) and applied a deduction to Mr R’s monthly payments to recover £20,688.65 (£941.25 per annum) over Mr R’s lifetime.

On 1 June 2022, Mr R wrote to the Board. Mr R requested:

1 CAS-104796-R9Q9 • the gross compensation his wife (Mrs R) would receive from the PPF if 100% of his monthly compensation was transferred to her under a pension compensation sharing order (PCSO)1;

• confirmation that Mrs R would be taxed at her marginal rate and not be liable to the LTA tax charge that his monthly compensation received;

• confirmation of whether Mrs R would be able to receive a tax-free lump sum from the PPF if 100% of his monthly compensation was transferred to her, and if so how much; and

• confirmation that there would be no fees for providing these calculations or implementing any PCSO.

The same month Mr R requested information in respect of his Hargreaves Lansdown (HL) pension and NFU Mutual (NFU) pension from the providers of those pensions.

On 22 June 2022, the Board replied to Mr R stating that:-

• It had calculated an estimate of the PPF compensation payable to Mrs R if she was to receive 100% of Mr R’s compensation.

• The actual amount payable to Mrs R would not be known until the PCSO had been implemented and it would use assumptions based on the valuation day of the PCSO. So, the compensation payable to Mrs R might be higher or lower than that quoted.

• As at 10 June 2022, based on a compensation credit / cash equivalent value (CEV) of £110,023.522, the estimated annual compensation payable to Mrs R was £4,239.08.

The Board’s response was submitted to the Single Joint Expert (SJE), an independent actuary appointed by the Family Court, to produce a report to achieve equality of pension income between Mr R and Mrs R.

On 27 June 2022, following a telephone call from Mr R, the Board wrote to Mr R confirming his annual PPF compensation and monthly payments at the time and

1 Part 3 of the Pensions Act 2008 extends the principle of pension sharing to apply to PPF compensation by

the creation of PCSOs. Since 6 April 2011, the courts have been able to make a PCSO. The legislation in the form of the Pension Protection Fund (Pensions on Divorce etc Charges) Regulations 2011 (SI 2011/726), Pension Protection Fund (Pension Compensation Sharing and Attachment on Divorce etc) Regulations 2011 (SI 2011/731) and The Divorce and Dissolution etc (Pension Protection Fund) Regulations 2011 (SI 2011/780), together govern the application of both PCSO and Pension Compensation Attachment Orders (PCAO).

2 In error, the CEV of Mr R’s residual compensation did not include an adjustment to reflect the LTA tax

deduction. Consequently, the estimated annual compensation payable to Mrs R of £4,239.04 was overstated.

2 CAS-104796-R9Q9 provided the pre-6 April and post 5 April 1997 split for the estimate of 22 June 2022 it had issued in respect of Mrs R.

On 6 September 2022, Mr R telephoned the Board to seek confirmation that if 100% of his PPF compensation was transferred to Mrs R, Mrs R would not pay LTA tax. The information was required for a court hearing on 16 September 2022.

On 7 September 2022:-

• The Board wrote to Mr R. The Board confirmed:-

o The LTA tax charge on Mr R’s tax-free lump sum and residual compensation in payment.

o The LTA tax charge of £941.25 per annum was the deduction made over his lifetime from his residual compensation. The amount had been calculated at his retirement date and would not change. The LTA tax charge deduction each month was £78.44. It reported the charge details to HMRC, so it was aware he was paying the tax.

o Mr R’s annual PPF compensation, its split pre-6 April and post 5 April 1997 and escalation in payment.

o If Mr R’s benefits were shared as a result of a PCSO, once the benefits had been split with Mrs R, the pension credit due to Mrs R would not be subject to a LTA tax charge unless Mrs R was above her own LTA. It would only apply the relevant income tax based on the tax code provided by HMRC following the PCSO and Mrs R would receive full details of her entitlement once this had been calculated by its actuarial team.

• The SJE sent an email to Mr R’s solicitor and Mrs R’s solicitor a table equalising pension incomes between Mr R and Mrs R. As relevant, the SJE said:

“The PPF letter dated 22 June 2022 (attached for your convenience) suggests [Mr R’s] lifetime allowance charge was paid by the PPF when he retired and £941 a year is deducted to recoup this. The PPF’s 2017 technical newsletter (link here) also suggests the PPF pay the charge on the members behalf and then make a lifetime deduction from the members compensation. In addition, if the parties shared 100% of the PPF pension, then we would expect the PPF to allow for the capital value of the £941 a year repayments in their CEV calculation used for the pension credit.

As such we maintain that there is no significant advantage in sharing the PPF pension. However as mentioned this is not our area of expertise, and the parties may go on to obtain written confirmation from a senior PPF administrator confirming the approach relayed to Mr [R] below. I have therefore carried out additional calculations based on sharing the PPF pension below.

3 CAS-104796-R9Q9 I calculate that sharing 100% of the HL SIPP, 100% of the PPF pension and 22.20% of the NFUM SIPP would equalise pension incomes now for the parties. Details of the pensions after sharing are set in the table below:

Sharing for equal income Pension now

PSO on PPF 100.00%

PSO HL SIPP 100.00%

PSO NFUM SIPP 22.20%

Husband's pensions

H - PPF £3,563

H - HL SIPP £15,790

H - NFUM SIPP £37,126

H - State £6,526

PPF sharing -£3,563

HL sharing -£15,790

NFUM sharing -£8,242

H - Total income £35,409

Wife's pensions

W - HL SIPP £450

W - State £7,543

PPF sharing £3,531

HL sharing £15,692

NFUM sharing £8,191

W - Total income £35,409

…”

On 14 September 2022, following further communications between Mr R and the Board, the Board sent an email to Mr R stating that the estimated CEV on a ‘valuation day’ of 10 June 2022 (stated in the Board’s letter dated 22 June 2022) had not been adjusted for the LTA tax charge. The Board confirmed that it would provide an

4 CAS-104796-R9Q9 updated CEV within the next five to 10 working days in-line with its standard processes and timescales for issuing a CEV.

Later the same day, Mr R sent an email to the Board. Mr R said:-

• It could not be right that as a result of his query the Board had realised it had made an error and that it proposed to pass this on to either himself or Mrs R. If he had not raised the query the Board would not have known about its error. It was misguided and wrong to expect him or Mrs R to pay for the Board’s mistake.

• The Board’s letter of 22 June 2022 confirmed both the value of the CEV and the PPF compensation Mrs R would receive. He understood that market factors could slightly change the value of the CEV but not an error by the Board. Notwithstanding that, the Board confirmed the PPF compensation that Mrs R would receive would not change significantly if there was a slight market fluctuation between 22 June 2022 and implementation of the 100% PCSO. Furthermore, he had been receiving compensation of £4,137.73 per annum with a similar CEV. He expected Mrs R’s PPF compensation to be very similar to his own.

• The barristers and judge required as early as possible before the court hearing the PPF’s confirmation that Mrs R’s annual PPF compensation would be no less than £4,239.08 per annum (with applicable CPI increases) irrespective of what the updated CEV was.

• He looked forward to hearing from the Board as early as possible tomorrow with its confirmation of the above.

On 15 September 2022:-

• The Board sent an email to Mr R at 18:11. The Board reiterated that the CEV issued on 22 June had not been adjusted for the LTA tax charge. So Mrs R would not receive £4,239.08 per annum if a 100% sharing order was implemented. It was arranging for an updated CEV to be sent to him within the next five to 10 working days. As at 10 June 2022, the CEV (after LTA tax deduction) was £91,054.00 and the annual PPF compensation payable to Mrs R was £3,303.93.

• Mr R’s barrister compiled a note on the SJE’s report. As relevant, this states: “14. The key findings of the report (and a number of further responses to questions) appear to be as follows:

a. [Mrs R] is eligible to withdraw a 25% tax free lump sum in respect of her SIPP;

b. [Mr R’s] NFUM SIPP has crystallised and is not subject to the LTA tax charge as there is LTA protection in place;

c. [Mr R’s] HL SIPP is uncrystallised and therefore attracts an LTA tax 5 CAS-104796-R9Q9 charge of 55% if drawn by [Mr R];

d. [Mr R] cannot take any further tax-free lump sums from any of his pensions;

e. If [Mr R’s] HL SIPP is transferred to W, she will be able to withdraw a 25% tax free lump sum;

15. The SJE (email 7.9.22) considered that equalization of pension incomes could alternatively be achieved by sharing 100% of H’s HL SIPP, 100% of H’s PPF pension and 22.20% of H’s NFUM SIPP delivering each party a gross income of £35,409 as a result.

16. However, [Mrs R] will be able to take a 25% tax free element from the portion of the HL SIPP transferred to her, in addition to taking 25% from her own SIPP, whilst [Mr R] will not be able to. That would not be fair in a sharing case after a long marriage because the tax advantage would all be retained by [Mrs R] whereas [Mr R’s] tax advantage has already been shared with [Mrs R] during the marriage. It would also mean that the pension income was not divided equally because [Mrs R] would get pension income from the tax free lump sum that [Mr R] wouldn’t get.

17. The simple and fair solution is that the pensions are shared so that [Mrs R] draws the 25% tax free element from her own modest pension and the share transferred to her by [Mr R] and then pays half of it to [Mr R] (so that the remaining tax advantage is shared equally) and the remaining pension funds each party is left with will deliver equality of income. To her credit, [Mrs R] agreed to this approach in open correspondence dated 13th April 2022.At the time of lodging confirmation is awaited from the actuary on the division required to achieve this.”

The next day, at the Family Court hearing, the presiding Deputy District Judge made a ‘General Form of Order – Ancillary Relief’ (the Order). As relevant, the Order stated:

“Agreement in respect of Pension Provision

16. The parties agree that they wish to divide their pensions so as to equalise pension income now, sharing equally in any tax-free lump sum that either party could draw upon implementation of the pension sharing order; and to share equally the costs of implementing any pension sharing orders. a. The pension sharing order(s) to implement the above agreement shall be adjourned pending receipt of further information and / or calculations from the Single Joint Expert,.. …

6 CAS-104796-R9Q9 Undertakings in relation to pension provision

24. The respondent agrees with the applicant and undertakes to the court that until a pension sharing order has been implemented he shall not draw any sums from his Hargreaves Lansdown SIPP (*5684) nor from his Barnett Waddingham/ NFU SIPP (*1652).”

A 'Heads of Agreement’ document was also drawn up by the barristers for Mr R and Mrs R which was approved by the judge. A mention hearing was listed for 7 October 2022.

On 20 September 2022, Mr R sent an email to the Board. Mr R said:

“We were regrettably unable to resolve the pension sharing arrangements with [Mrs R] as the barristers and judge did not feel it was safe to rely on the information and figures provided by the PPF. They were concerned that as a result of the incorrect information provided by you initially, and the fact that this is the first time you have come across this issue (which is purely as a result of my query), that you could have provided further incorrect information to me.

Everyone is clear about the commencement lump sum I received in February 2019 and the 55% LTA lump sum tax you deducted and paid to HMRC at that time. The figures are clearly laid out in your email below (and email dated 14 September 2022) and a pension sharing order for 100% of my PPF pension to [Mrs R] would not have any consequences on this payment or the LTA lump sum tax you deducted and paid to HMRC at the time. So this aspect of my PPF pension can be disregarded when considering a 100% pension sharing order to [Mrs R] of my residual compensation.

The issue that remains unclear and unresolved therefore is the residual compensation [Mrs R] will receive if she receives 100% of my PPF pension under a pension sharing order. Until I raised my recent queries ahead of the court hearing, I had absolutely no idea you had paid HMRC £20,688.65 LTA tax upfront on my residual compensation and that you were collecting this back from me in monthly deductions from my compensation. You never wrote to me about this, there is nothing on your website that I can see about this and there is nothing on my monthly payslips to make this clear other than it shows ‘Overpayment LTA’ under the deductions which I understood to be what you were deducting from me each month as LTA tax and paying it to HMRC each month along with my marginal rate of tax based on the tax code provided to you by HMRC. I am sure any PPF member’s [sic] over their LTA protection will believe the same as me if they have not had this pointed out to them by the PPF. The fact that the PPF does not make their members aware of that they pay the compensation LTA tax upfront to HMRC is bad enough but the fact that the people working at the PPF are not aware of this when they are asked to provide what pension a spouse would receive if 100% of the PPF is award[ed] to the ex-spouse is negligent. 7 CAS-104796-R9Q9 In this day and age it is sadly not unusual for people to get divorced or separated resulting in a 100% or lower percentage pension sharing order to an ex-spouse or partner so paying the LTA tax upfront on compensation for life is neither fair nor sensible. If you have paid the compensation LTA tax upfront on my pension and there is a pension sharing order for 100% to [Mrs R] then from the date of the pension sharing order you should be able to reclaim the overpayment of tax back from HMRC as a refund if I am not [sic] longer being paid any compensation by the PPF that is subject to the compensation LTA tax and [Mrs R] is within her LTA so would not pay the compensation LTA tax.

On this basis you should be paying [Mrs R] what you originally outlined in your letter dated 22 June 2022 if she is allocated 100% of my PPF pension in a pension sharing order and any overpayment/upfront payment you have made to HMRC should be reclaimed by you from HMRC as you made this payment without my knowledge.

Whilst I appreciate the markets have been volatile recently which will have resulted in some small fluctuations up and down of the value of the CEV and compensation credit to [Mrs R], I find it hard to believe these have reduced as radically as they appear to have done in the figures you have recently provided. A summary of the CEV’s and compensation credits I have received from you over the past year is as follows:

May 20213 - CEV £125,392. Compensation £4206.12 pa.

December 20214 - CEV £129,039.22. Compensation £4273.56 pa.

June 2022 - Compensation credit £110,023.52 to [Mrs R]. Compensation to [Mrs R] £4239.08 pa.

Although the CEV/Compensation credit fluctuate by approx. £19,000 between December 2021 and June 2022 the annual compensation only fluctuates by a few pounds. Your [sic] now saying that a further drop of approx £19,000 from £110,023.52 to £91,054.00 results in a significant drop in the annual compensation from £4239.08 to £3303.93 - this cannot be right based on the above figures.

These figures do not make sense and although you claim you did not include allowance for the compensation LTA tax charge when you provided you[r] June 2022 figures, I seriously question whether what you claim is correct based on the above figures. Furthermore you state now that we have considered your query, we confirm that we would include the LTA charge in an updated CEV calculation

3 In error, the CEV of Mr R’s residual compensation did not include an adjustment to reflect the LTA tax deduction. Consequently, the estimated annual compensation payable to Mrs R was overstated.

4 Again, in error, the CEV of Mr R’s residual compensation did not include an adjustment to reflect the LTA

tax deduction. Consequently, the estimated annual compensation payable to Mrs R was overstated.

8 CAS-104796-R9Q9 (whether on request, or at implementation) which if correct is grossly unfair as a mistake you made is just being turned around and put back on [Mrs R].

However you look at this [Mrs R] and I are being penalised for several mistakes the PPF have made and negligence by the PPF.

I trust you will reconsider the situation a confirm that [Mrs R] will receive the £4239.08 pa you said she would receive with a 100% pension sharing order for the rest of her life with the CPI increases each year on that part of the pension that this is relevant to.

I look forward to hearing from you urgently so that this outstanding matter can be resolved with the court this week.”

On 26 September 2022, the Board notified Mr R that it aimed to respond to his queries by the end of the week. Mr R replied that he had spoken that morning with a senior adviser at HMRC. Mr R said:

“In HMRC’s view the issue on my pension is because the PPF is not a registered pension scheme and because the PPF use the PPF’s funds to pay the LTA compensation tax when a member goes into payment and then reclaim that from the member for the rest of the member’s life by making a monthly deduction from what is paid to the member. That is all well and good when the member who was over the LTA when they went into payment continues to receive compensation from the PPF for the rest of their life. However it is not acceptable and is fundamentally flawed when a pension sharing order comes into effect due to a divorce and the ex- spouse receiving the 100% pension sharing order is within their LTA but is forced by the PPF to continue to repay the LTA compensation tax that has nothing to do with them and was originally intended to be repaid by their ex-spouse, not them.

As HMRC said this is an issue and fault in how the PPF are set up and should have nothing to do with the ex-spouse receiving the 100% pension sharing order as they are not responsible to repay the LTA tax as they are not over their LTA. It is a fundamental flaw in how the PPF are set up and should be paid for by the PPF. As has been admitted by various people I have spoken to at the PPF this is the first time you have come across this issue and you are trying to work out what to do. The right and fair answer is not to force the ex-spouse, who is not liable to the LTA compensation tax, to pay the tax due to an error by the PPF and how they are set up. The correct and fair way is for the PPF to pay the full compensation you confirmed previously of £4,239 pa to [Mrs R] and to accept it is the PPF’s fault/mistake and to put in place new systems/ways of dealing with this issue in the future to avoid it happening again.”

On 30 September 2022, Mr R chased the Board. Mr R said:

“Further to your email dated 26 September in which you advised you were aiming to respond by the end of this week, I look forward to hearing from you as the Court is

9 CAS-104796-R9Q9 awaiting your response before the pension sharing can be dealt with and the divorce cannot be finalised until this has been carried out.

I look forward to hearing from you.”

That same day, the Board replied to Mr R stating that it had decided to obtain external specialist advice and hoped to provide a response by the end of the week.

Mr R chased the matter on 3 and 5 October 2022. In his latter email, Mr R informed the Board:

“This is to make you aware that the Court has scheduled another Court hearing this Friday 7 October at 9.30am to resolve the pension sharing for my divorce as not having the pension sharing order is holding up finalisation of the divorce.”

The next day, the Board informed Mr R that the external specialist would not be able to respond until the following week. As such it recommended that Mr R postpone the court hearing until the advice was received and it could confirm the correct calculation of the CE and PPF compensation.

On 10 October 2022, Mr R sent an email to the Board. Mr R said:

“Unfortunately it is not just a case of postponing a court hearing as you suggest in your email. A court hearing is a very serious matter and if the court advises you that there will be a hearing you have to attend unless you have an exceptionally good reason for not being able to do so. In addition to this the court system is in a complete state of disarray at the moment for a variety of reasons including the knock on effect of Covid, so nobody would try to alter a court hearing they have been given by the court as you might have to wait weeks or more likely months for another hearing.

As a result the court hearing went ahead on Friday. The judge was obviously not impressed that the PPF have not satisfactorily resolved this matter having had several weeks to do so.

The third party you have referred this matter to is obviously back this week so it is very important they provide you with the necessary confirmation as early as possible this week so that my pensions can be finalised with [Mrs R].”

On 9 November 2022, the Board issued its Stage 1 complaint response to Mr R. The Board:-

• Apologised that the initial CEVs it provided did not take into account the LTA tax deduction. It had since obtained external legal advice that the CEV should be calculated by reference to his periodic compensation less the LTA tax deduction.

• Explained that the LTA tax charge crystallised when Mr R drew his PPF compensation. So the treatment of his LTA tax charge deduction when calculating the CEV was unaffected by whether Mrs R had an available LTA.

10 CAS-104796-R9Q9 • Confirmed the current CEV was £62,826,265. This would provide Mrs R with a compensation credit of £5.77 per annum from the day after the transfer date plus an estimated £3,392.55 per annum payable from age 65.

Mr R appealed and said:

“I have to say to class my complaint as a ‘maladministration complaint’ is completely incorrect. There have been administration errors and delays by the PPF but the crux of my complaint is (1) the incorrect calculations and errors of my pension made by the PPF and (2) the fact that although the PPF have mentioned several times verbally, nowhere have you stated in writing that this is (according to the PPF) the first time you have come across a situation like this. I am therefore extremely surprised and disappointed by not only your response to my complaint, but also in the fact that it appears the PPF are happy to make such fundamental errors in their calculations and then just brush them under the carpet and pass on the PPF’s mistakes to me/[Mrs R]. This cannot be right and most definitely is not a reasonable or fair remedy to such a disastrous situation caused exclusively by the PPF.

As I mentioned I do not take any comfort or reassurance in the fact that you have taken legal advice about my complaint and just because you have obtained legal advice does not mean it is factually correct. It is your legal adviser’s opinion on whatever question(s) you asked them (which have not been shared with me) and nothing more than that. It may be comforting or reassuring to the PPF to get the advice you have but we all know that if you asked another legal adviser the same questions you would no doubt get a different answer/advice. Please provide a copy of the questions you asked your legal adviser.

I have read the HMRC documents you have referred to in your letter and the corresponding linked documents and although they are difficult to follow, they do not confirm what you claim your legal adviser has advised you.

For example PTM164300 clearly states:

"The scheme administrator must tell the member if they have paid or intend to pay part or all of their shared liability to the lifetime allowance charge. The member needs this information to enable them to complete their tax return correctly.” and goes on to outline further details about this. The PPF have never provided this to me and have failed to do so since I started to receive my compensation from the PPF in 2019. The PPF have therefore breached the HMRC rules. I had absolutely no idea you had deducted the LTA upfront when I started to take my compensation in 2019 and were deducting it on an annual basis to recoup what had been paid to HMRC until recently as you did not disclose this to me. I could see in my payslips that you were deducting an LTA amount each month which in the absence of being advised anything to the contrary from the PPF explaining what this deduction was, I quite naturally took this to mean that you were deducting the additional LTA tax

5 The CEV was understated – see paragraph 26 below, fourth bullet point.

11 CAS-104796-R9Q9 charge from my compensation each month. There is therefore a major non disclosure issue here where the PPF have breached the HMRC rules.

Your letter dated 9 November 2022 goes on to state The CEV of your periodic compensation minus the LTA deduction is currently £62,826.26 which cannot be correct and is no doubt another error. On 15 September 2022 you advised my CEV was £110,023.52 at 10 June 2022 and you calculated that by reducing the compensation to reflect the annual deduction made if 100% of my PPF compensation was shared with [Mrs R], the CEV was £91,054.00. I have pointed out previously that I could not understand the significant reductions in the CEV from £129,039.22 on 20 December 2021, but now even if you take into account the reduction in compensation to reflect the annual deduction, over a 50% reduction in the CEV in less than a year is not plausible from a common sense point of view cannot be right and if it is right you have some very serious problems with your investment managers/advisers as it must mean the value of the PPF funds have reduced by over 50% too as my funds are part of the overall PPF funds rather than isolated. As a result of the errors made by the PPF I have no confidence that any of the figures you provide are correct.

In summary therefore to treat my complaint as a ‘maladministration complaint’ is misguided and plain wrong. It is considerably more than that based on the above alone. Your letter of 9 November does not remotely provide a satisfactory outcome or remedy for this disastrous situation and trying to brush the errors or lack of knowledge about the situation under the carpet without PPF acknowledging their errors and putting them right is not a satisfactory remedy to this situation. I hope on reflection you will reconsider your position.

This matter continues to be of the utmost urgency as my divorce from my wife has already been delayed by several months and the divorce needs to be concluded by 2 December 2022 (by court order).”

On 1 December 2022, the Board issued its Stage 1 follow-up response. The Board said:-

• It was treating the aspect of his complaint about the calculation of the CEV as a request for a statutory review. This was a reviewable matter under paragraph 16C of Schedule 8 of the Pensions Act 2004. It was treating the remaining aspect of his complaint as a statutory maladministration complaint relating to the information it provided on his retirement date.

• It had sought Counsel’s advice on the correct calculation of the CEV for pension sharing purposes in circumstances where the member was a PPF pensioner whose compensation was subject to a LTA deduction as this was not expressly stated in the legislation. Counsel had advised that the CEV should value the PPF compensation that the member had a legal entitlement to. That was the periodic compensation less the LTA deduction.

• The LTA tax charge would still need to be taken into account even if Mrs 12 CAS-104796-R9Q9 R had an available LTA.

• “The formula for calculating a [CEV] for compensation in payment is:

Pre-1997 compensation x Pre-1997 actuarial factor + Post-1997 compensation x Post-1997 actuarial factor.

The calculations for each of the [CEV] amounts you mention are:

December 2021: £999.60 x 23.0591 + £3,273.96 x 32.3735 = £129,039.22 June 2022: £999.60 x 20.1535 + £3,273.96 x 27.4524 = £110,023.52 October 2022: £352.54 x 15.6175 + £2,966.94 x 20.8685 = £ 67,421.23

A larger value Is placed on Post-1997 compensation than Pre-1997 compensation to reflect the fact that Post-1997 compensation will increase over time.

The change in the compensation amounts in the final calculation reflect two things. The first is the allowance for the LTA deduction that we have discussed - the total compensation has initially been reduced by £941.28, which is the annual amount of the LTA deduction.

The second is the correction of an error that caused too much of your compensation to be treated as Post-1997. This has changed the split of your compensation between Pre-1997 and Post-1997 and has also reduced the total compensation by a further £12.80 to reflect overstated annual increases you have received since retirement. Retirements involving LTA deductions are quite rare, so they are not fully automated on our administration system and there are, therefore, several manual steps in the process to implement such a retirement. During one of these steps, incorrect figures were entered, and the mistake was not spotted until now.”

• The early retirement quotation of 21 February 2019 referred to the application of the LTA deduction, and to the amount of the LTA deduction. Mr R signed and returned the quotation on 4 March 2019, so he was made aware that the Board would pay the LTA charge on his behalf and would apply a LTA deduction to his benefits. However, Mr R was not provided with the prescribed tax charge information, which it was required to do, within three months of his retirement date as set out in PTM164300.

• It apologised for not providing the prescribed information about the LTA charge at the time Mr R retired, and for the error in the calculation of the CEV in June and November 2022. It offered £500 as a consolatory payment for the distress and inconvenience caused by these errors.

On 15 December 2022, Mr R further appealed escalating his complaint to Stage 2.

13 CAS-104796-R9Q9 On 29 December 2022, the Board sent Mr R a breakdown of the LTA tax charge, confirmed that it had reported the charge to HMRC in November 2022 and advised that he had been overpaid by £24.06, which it would write off.

On 3 January 2023, Mr R sent an email to the Board. Mr R queried why a retirement age of 65 had been used in the calculation of Mrs R’s PPF compensation, he complained that no apology had been proffered for the overpayment of his compensation and stated that he was astonished that the Board had not paid HMRC the LTA tax charge on his compensation until November 2022. He said the catalogue of errors by the Board had significantly delayed the finalisation of his divorce and caused him considerable and unnecessary stress at an already very stressful time. He stated that he required a satisfactory remedy by 12 January 2023 otherwise he would take legal action to claim damages for the Board’s consistent negligence.

On 10 February 2023, the Board issued its Stage 2 decision. The Board:-

• Upheld Mr R’s complaint that it had not offered him a reasonable or fair remedy for its errors which had delayed the finalisation of his divorce. It increased the consolatory payment to £1,000.

• Did not uphold Mr R’s complaint that it had not followed the correct legal approach when calculating the CEV.

• Noted that it did not report the LTA charge to HMRC until November 2022, despite previous correspondence implying it had. This failing meant it would have to pay a penalty to HMRC but this did not impact Mr R’s position. The LTA charge needed to be paid and had been paid.

Commenting on the decision, Mr R further contended that:-

• The Board should reimburse him the additional legal costs he had incurred as a result of its errors, incompetence and negligence.

• Mrs R should not pay the LTA tax charge if she was within her LTA.

• The Board should write off the LTA tax charge and/or claim against its insurers.

• The Board should refer its CEV calculation approach to HMRC.

On 16 February 2023, Mr R sent an email to the Board. Mr R said:

“You previously advised me that the next meeting for a Stage 3 complaint had been arranged for 1 March 2023. I would appreciate your confirmation by return as to whether my complaint and claim for damages/legal costs will be resolved by the PPF without the need for it to go to the Stage 3 level, but if it is going to a Stage 3 level your confirmation that it will be dealt with at the 1 March 2023 meeting.

As I advised you previously the Court has arranged a final Court hearing on the 3 March 2023 for a Judge to make a decision on the pension sharing between me and [Mrs R] as it is now 6 months since the last hearing and the Court will not allow

14 CAS-104796-R9Q9 my pensions to remain frozen indefinitely without a pension sharing order. As I have also advised you previously whatever the Judge decides at this hearing will be legally binding on the parties involved including the PPF, so it is in the PPF’s interests to get this resolved before 3 March 2023.

I look forward to hearing from you by return.”

On 21 February 2023, Mr R sent two further emails to the Board:-

• As relevant, in the first email Mr R said:

“1. The solicitors are concerned that we are not comparing ‘apples with apples’ at the moment as you have only provided details of what compensation [Mrs R] will receive from the age of 65. I am currently 63 and have been receiving compensation from the PPF since 2019. Please confirm what compensation [Mrs R] will receive from the PPF if a pension sharing order was effective today, so that the solicitors can make a direct comparison between what I am receiving today and what [Mrs R] will receive today on an annual basis. We understand the figures you provide today will change slightly when the actual pension sharing order is provided to you.

2. You have stated in recent correspondence that the PPF actuarial factors will change with effect from 1 March 2023 and the solicitors need to know how they will change and what effect it will have on [Mrs R’s] annual compensation otherwise they can’t make a true comparison of what compensation I receive versus what [Mrs R] will receive. Can you please confirm exactly how the actuarial figures will change from 1 March 2023 and what effect this will have on the annual compensation [Mrs R] will receive?

…

As you are aware there is a court hearing on 3 March for the judge to decide how the pensions will be shared. The solicitors and barristers therefore need the above information as early as possible this week i.e. by this Friday 24 February 2023 at the absolute latest to enable them to prepare for the court hearing.”

• In the second email Mr R said he had reviewed the information on the PPF’s website about the actuarial factor changes from 1 March 2023 and had two additional questions:

“1. As [Mrs R] will be sharing 100% of my existing PPF pension as a result of a pension sharing order she will effectively be taking over my PPF entitlements that started in 2019 when I retired rather than retiring now herself. If this is correct then this will mean that the change in actuarial factors from 1 March 2023 will not be relevant to her. Please can you confirm this or explain clearly why it is not the case?

2. The screenshot of the early retirement example on your website below shows someone who will be 60 in March 2023 and retires 5 year[s] early shows their annual compensation will decrease by £29 pa on the basis they do not take a lump sum from 1 March 2023. You have previously advised that [Mrs R] cannot take a lump sum so this would be the same as the example below, however [Mrs 15 CAS-104796-R9Q9 R] is currently 63 (64 on…) and therefore she would be retiring only 18 months early which is considerably less than the 5 years in the example below. As a result it would imply that [Mrs R’s] annual compensation will decrease by only approx. £10 pa (probably less) from 1 March 2023 if the PPF were to deem her to be retiring rather than taking over my existing entitlements through a pension sharing order. Can you please confirm that this is correct?”

On 28 February 2023, the Board sent an email to Mr R:-

• In reply to Mr R’s first email of 21 February 2023, the Board provided the following table detailing Mrs R’s PPF compensation at 22 February 2023 using “current factors” and those effective from 1 March 2023:

Tranche details Credit amounts, after deduction for charges, after application of 90% multiplier and assuming immediate retirement

Current factors Factors in force from 1 March 2023

Compensation credit Pre 97 NPA 60 £ 34.90 p.a. £ 34.90 p.a. applicable to £ 332.43 p.a. £ 332.10 p.a. Pre 97 NPA 65 Mrs R £3,213.47 p.a. £3,210.25 p.a. 97-09 NPA 65

£3,580.80 p.a. £3,577.25 p.a. Total

• In reply to Mr R’s second email of 21 February 2023, the Board said:

“I’d like to clarify that the scenario you describe only applies to an ‘earmarking order’, which for you, is not the case, but instead is a [PCSO] will be put in place. The [PCSO] as it is called under the legislation that governs the PPF sets out how much compensation will be given to an ex-spouse. Therefore, as stated in previous correspondences, an ex-spouse becomes a member in their own right with effect from the ‘transfer date’ once the [PCSO] has been implemented. I understand that you have a solicitor working on your case. Please refer them to the legislation regarding a [PCSO].

For clarification, as the [PCSO] ‘transfer date’ will commence after 1 March 2023, the new factor changes will therefore be applicable for the calculation of [Mrs R’s] retirement benefits.

16 CAS-104796-R9Q9 As explained previously, once the [PCSO] is implemented, [Mrs R] can request a retirement quote from us where she will be able to decide when she actually wants to take her compensation. This could be earlier or later than age 65.”

On 3 March 2023, the presiding Deputy District Judge at the Family Court made a ‘General Form of Order – Ancillary Relief’ (the Order). As relevant, the Order stated:

“Agreement regarding Decree Absolute and Pension Documents

5. The applicant[6] agrees to serve on the pension providers of the schemes identified in the pension sharing order below (Hargreaves Lansdown and NFU Mutual) a copy of this Order, the pension sharing annexes, Decree Nisi, and Decree Absolute within 48 hours of the later receipt of the approved version of this Order and Decree Absolute.

Orders

IT IS ORDERED (with effect from Decree Absolute):

Pension Sharing Order

6. There shall be provision by way of pension sharing orders in favour of the applicant, to achieve equality of income from the Pension Arrangements now, in respect of the respondent’s7 rights under his pension arrangement from Hargreaves Lansdown (100%) and NFU Mutual (36.42%) in accordance with the annexes to this order,”

The Decree Nisi of 21 September 2021 was made Absolute on 7 April 2023.

On 20 April 2023, at Stage 3, the Reconsideration Committee upheld the Stage 2 decision. Mr R was again offered the consolatory payment of £1,000 and invited to submit evidence of his additional legal costs.

After providing the requested evidence, the Board reimbursed Mr R his claimed legal costs of £3,200.

To date, Mr R has not accepted the consolatory payment of £1,000.

Mr R’s position

Mr R submits:-

• The solicitors for him and Mrs R understood and agreed that the two pensions on which he paid the higher rate tax charge (the HL pension and the PPF compensation) should be shared 100% with Mrs R respectively as she did not

6 Mrs R.

7 Mr R.

17 CAS-104796-R9Q9 have any other pensions and was within her LTA and therefore would not pay the LTA tax charge.

• Prior to the September 2022 court hearing the solicitors for both sides wanted to know the amounts Mrs R would receive if the HL pension and PPF compensation were shared 100% with Mrs R. HL provided clear and correct information in a timely manner. The Board did not.

• Consequently, while the divorce was finalised at the court hearing, the PCSO was put on hold, and his pensions were frozen until the Board clarified the figures it had provided. A further court hearing was scheduled for 7 October 2022 to agree the PCSO. Despite the Board being aware of this, the Board was still unable to provide correct figures for the court hearing.

• His barrister informed him that the judge at the court hearing on 16 September 2022 specifically stated that it was not safe to rely on the information provided by the Board at that time. This was repeated by the judge at the court hearing on 7 October 2022.

• He had been receiving PPF compensation since 2019 which was before his normal retirement age and therefore subject to an early retirement factor. It was intended that 100% of his PPF compensation would be transferred to Mrs R who is the same age as him (there is a two-month age difference) and therefore any early retirement factor used by the Board would be the same for her as for him.

• However, the Board’s email of 28 February 2023 did not take this into account, stating that once the PCSO was implemented Mrs R could request a retirement quote from the Board and decide when she wanted to take her PPF compensation. This could be earlier or later than age 65. This once again confused the matter as the intention was for 100% of his PPF pension to be transferred to Mrs R at that time and not at a later date. The figures the Board provided were therefore meaningless and confusing to the solicitors, barristers and judge as they did not provide an ‘apple for apples’ comparison that they could rely on. It was too late by then to get any further clarification from the Board before 3 March 2023.

• As a result of the above, 100% of his HL pension was shared with Mrs R and he was forced to retain 100% of his PPF compensation and a higher percentage of his NFU pension (which he did not pay an LTA tax charge on) was awarded to Mrs R.

• For its negligence and lack of duty of care, the Board should reimburse him the LTA tax charge on his PPF compensation in full.

• It was intended that only 22.20% of his NFU pension would be transferred to Mrs R (together with 100% of his PPF compensation and 100% of his HL pension).

18 CAS-104796-R9Q9 The relevance of this is that whilst the PPF compensation is paid monthly, the NFU pension is in drawdown and so does not pay monthly amounts. It has a daily value that fluctuates with the market and lump sums can be drawn down as and when required which, in practice, is once or possibly twice a year by him.

• Prior to the PCSO being implemented he had 377,430.701 units in his NFU pension. 22.20% of these units would have equated to 83,789.616 units with 100% of his PPF compensation and 100% of his HL pension being transferred to his Mrs R. However, he was forced to transfer 36.42% of his NFU pension to Mrs R which equates to 137,460.261 units, a difference of 14.22% or 53,670.645 units. If he had been able to retain those units their worth (at the most recent valuation of 3.35724 per unit) was £180,185.24. So, he has lost a further £180,185.24 as a direct result of the Board’s incompetence and consistently providing incorrect and misleading information.

Commenting on the Board’s position (see paragraph 42 below), Mr R submits:-

• It was not correct that the Board paid the LTA tax charge to HMRC in February 2019. It was not until he filed his complaint that the Board finally paid the tax to HMRC.

• Despite the Board being required to provide him with the details of the LTA tax charge in February 2019, it failed to do so.

• It was not for him and Mrs R to decide whether to seek a PCSO in respect of his PPF compensation. It was for the solicitors and SJE to decide/advise on how the pensions could be shared equally, but they were unable to do so as the Board had provided incorrect and misleading information over several months. As a direct result of this he was forced to retain his PPF compensation.

• Whilst the Board apologised for its errors and delays, the Board has failed to recognise or understand their significance and how they directly caused the significant financial loss he has suffered, which exceeds the consolatory payment it has offered.

• His only source of income was and is from his pensions. When they were frozen by the Court, he could not take any income from them which caused him hardship and stress. Whether he mentioned that in a specific telephone call is irrelevant.

The Board’s position

The Board submits:-

• The LTA tax charge due in respect of Mr R’s periodic compensation was £20,688.65, which it paid to HMRC in full and applied a deduction to Mr R’s periodic compensation in order to recover the LTA tax charge over his lifetime.

• The Reconsideration Committee acknowledged at Stage 3 that it:- 19 CAS-104796-R9Q9 o failed to furnish Mr R with prescribed information relating to his LTA tax charge when he retired;

o did not include the LTA tax charge in the CEV estimate issued in June 2022; and

o took more time than it aspired to in explaining how the CEV was calculated due to the need to seek advice from various internal teams.

• The Board apologised for the delay and inconvenience caused and offered Mr R a consolatory payment of £1,000 in line with the Pensions Ombudsman’s guidelines for redress for significant non-financial injustice.

• It took a pragmatic view and reimbursed Mr R his claimed legal costs, albeit some of the costs appeared not to relate to the delay as they were incurred prior to the first court hearing.

• It refutes Mr R’s claim that he had to retain his PPF compensation due to the Board’s provision of incorrect and misleading information. Mr R was provided with correct CEV information, albeit too late to be properly considered by the parties for the first court hearing. Nonetheless, it was for Mr R and Mrs R to seek, or not, a PCSO in respect of Mr R’s PPF compensation. The Board was not involved in the decisions splitting the matrimonial assets between Mr R and Mrs R.

• It does not accept that Mr R has sustained a financial loss by retaining his PPF compensation. The matrimonial assets included Mr R’s CEV, which was reduced to reflect the LTA tax charge deduction that would apply to his PPF compensation in the future. The LTA tax charge deduction would not have been disregarded when calculating the CEV if a 100% PCSO had been made in Mrs R’s favour. If the CEV was not adjusted in this way, Mr R would have had to repay the balance of the LTA tax charge to the Board.

• Mr R alleges he notified the Board on numerous occasions that his two other pensions had been frozen by the first court causing him extreme hardship and stress. While, during a telephone call with the Board on 15 December 2022, Mr R mentioned he had two other pensions he did not refer to any hardship or stress. By 29 December 2022, the Board had provided Mr R with the relevant information he required about his PPF compensation, and the calculation of his CEV for the divorce proceedings. It is not responsible for what happened in respect of his two other pensions.

Adjudicator’s Opinion

20 CAS-104796-R9Q9

The Board accepted that it:

• failed to furnish Mr R with information relating to his LTA tax charge when he retired;

• did not include the LTA tax charge in the CEV estimate issued in June 2022; and

• took more time than it aspired to in explaining how the CEV was calculated.

This amounted to maladministration. However, for the PPF Ombudsman to uphold a complaint of maladministration, it was not simply the case that he must identify maladministration; he must also be satisfied that the individual had, as a result, sustained injustice (financial and/or non-financial loss).

The LTA tax charge

While the Board conceded that it failed to provide Mr R with information relating to the LTA tax charge when he retired, it was not disputed that the LTA tax charge applied to Mr R’s PPF compensation in February 2019 when he claimed his PPF compensation. So, in respect of this matter, Mr R suffered no resultant financial loss.

Mr R said the LTA tax deduction should not have been taken from the CEV of his PPF compensation as Mrs R had her own LTA. That was wrong as Mr R was subject to the LTA tax deduction, which was crystallised when he took his PPF compensation in February 2019.

As the Board explained, if the CEV had not been adjusted in this way, Mr R would instead have had to repay the balance of the LTA tax charge to the Board if the court had ordered that his PPF compensation be 100% shared with Mrs R.

The provision of incorrect information

Mr R said it was intended that only 22.20% of his NFU pension would be transferred to Mrs R together with 100% of his PPF compensation and 100% of his HL pension. That was the split to equalise pension income between Mr R and Mrs R as provided by the SJE in September 2022 (see paragraph 11 above).

The SJE’s email and Mr R’s barrister’s note (see paragraph 14 above) showed the aim was to equalise the pension incomes of Mr R and Mrs R. As such, though the CEVs quoted in December 2021 and October 2022 by the Board decreased from

8 Section 214(2) of PA 04, Regulation 14 of the Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of Maladministration) Regulations 2005 SI 2005/2025. 21 CAS-104796-R9Q9 £129,039.22 to £67,421.23, they were on their own not relevant, as the parties were not trying to equalise wholly based on CEVs/capital values.

The Adjudicator noted that the estimated PPF compensation amounts of £3,580.80 and £3,577.25 (see paragraph 34 above) were slightly more than the £3,563 noted in the SJE’s table equalising pension incomes between Mr R and Mrs R.

While the Board provided incorrect information in June and November 2022 and there was a delay in its provision of corrected information to Mr R, the Board did provide correct CEV and PPF compensation figures prior to the final dispute resolution court hearing in March 2023.

Mr R said the information that the Board provided on 28 February 2023 was confusing and there was not enough time to obtain clarification prior to the final court hearing.

The Adjudicator’s view was that the Board provided Mr R the information that he had requested. Specifically, on the assumption of the Court ordering that 100% of Mr R’s PPF compensation be shared with Mrs R, the Board detailed on 22 February 2023, the PPF compensation payable to Mrs R using actuarial factors current at that time and factors effective from 1 March 2023. The Board then explained that as the PCSO ‘transfer date’ would commence after 1 March 2023, the new factor changes would apply to the calculation of Mrs R’s retirement benefits and that she could retire before or after age 65, which was factually correct.

Ultimately, it was up to the Family Court to decide whether to grant a PCSO or not to achieve fairness between the parties. The Family Court decided not to transfer Mr R’s PPF compensation to Mrs R. That was a matter between Mr R, Mrs R, their legal representatives, and the presiding judge.

Mr R claimed for additional legal costs, which he was subsequently reimbursed by the Board. So, no financial loss flowed from there.

9 https://www.pensions-ombudsman.org.uk/sites/default/files/publication/files/Updated-Non-financial- injustice-September-2018-2_0.pdf 22 CAS-104796-R9Q9 Mr R did not accept the Adjudicator’s Opinion, and the complaint was referred to me to consider. Mr R provided his further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Mr R.

Mr R’s additional points

Mr R submits:-

• While the Board’s acceptance of certain aspects of its failings is something, the consequences of its errors cannot be changed after the event. He has sustained injustice (both financial and non-financial).

• His complaint is not exclusively about maladministration. His complaint also concerns the significant financial loss he has suffered as a direct result of the Board’s negligence, incompetence, errors and omissions. The Board has constantly ignored the financial loss element of his complaint and have incorrectly sought to class his complaint as just a complaint of maladministration.

• Over an extended period, the Board either provided incorrect and misleading information, or it was unable to provide the required information in a timely manner.

• While the pension sharing order was a matter to be decided by the solicitors, barristers and judge, the decision could only be made based on the information provided by the pension providers. The information and figures provided by the Board for the first court hearing were not clear and remained unclear at the March 2023 court hearing. It was a very stressful time. The Board’s inability to provide clear and accurate information dragged out the divorce and he was forced to retain his PPF compensation and pay the LTA tax charge.

• He had to borrow funds from friends due to his HL and NFU pensions being frozen. This was ordered by the court solely because the Board provided incorrect and misleading information from the first court hearing which resulted in the pension sharing orders being adjourned until clear figures could be provided by the Board.

• The Board has not made any comments about how it will improve its service to ensure the information it provides to members is accurate and correct. This he finds very concerning and was glossed over by the Adjudicator.

Ombudsman’s decision Mr R has complained that over an extended period of time, the Board either provided incorrect and misleading information, or it was unable to provide the required information in a timely manner. As a result of which he says his PPF compensation was not transferred to Mrs R, he continues to have to pay the LTA tax charge, and he incurred additional legal costs. His claim is for the Board to reimburse to him the tax he has had to pay to HMRC since the date of the PCSO. 23 CAS-104796-R9Q9 Firstly, I note that Mr R has submitted that his complaint is not exclusively about maladministration, but it concerns financial loss. I should clarify that “financial loss” is not a separate standalone head of complaint under the governing legislation for the PPF and the PPF Ombudsman. The PPF’s governing legislation provides for two types of complaints, namely complaints of maladministration and reviewable matters. For the Board and Reconsideration Committee to treat Mr R’s complaint as a statutory complaint within the scope of the PPF governing legislation, his complaint would need to be a reviewable matter10 and/or a complaint of maladministration11 as defined by the legislation. The governing legislation for the PPF Ombudsman also provides for complaints of maladministration12 and reviewable matters13.

My jurisdiction in respect of a complaint of maladministration is to investigate and determine what (if any) is the appropriate action for the Board to take in relation to the matter. In particular, I have to determine whether the Board’s Reconsideration Committee reached its decision correctly. If I find that the Reconsideration Committee reached its decision correctly, I must determine that it is not appropriate for the Board to take any action in relation to the matter. If, on the other hand, I find that the Reconsideration Committee did not reach its decision correctly, I must determine what action (if any) the Board should take in relation to the matter and remit the matter to the Board with directions for the purposes of giving effect to the determination14.

The calculation of Mr R’s PPF compensation and CEV is a reviewable matter. Mr R’s complaint about the delay in the provision of correct information is a complaint of maladministration, and I do not find any failing in the Board’s reference to his complaint as a complaint of maladministration under which it has addressed the issues he raised.

Looking then at those issues, it is not disputed that the Board did not provide Mr R with LTA charge information within three months from the “relevant benefit crystallisation event” in Mr R’s case as required under Regulation 14 of The

10 Sections 206 and 207 PA 04, SI 2005/669 The Pension Protection Fund (Review and Reconsideration of Reviewable Matters) Regulations 2005.

11 Section 208 PA 04, SI 2005/650 The Pension Protection Fund (Maladministration) Regulations 2005.

12 Section 214 PA 04, SI 2005/2025 The Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of Maladministration) Regulations 2005.

13 Section 213 PA 04, SI 2005/2024 The Pension Protection Fund (Reference of Reviewable Matters to the PPF Ombudsman) Regulations 2005.

14 Regulation 14, SI 2005/2025.

24 CAS-104796-R9Q9 Registered Pension Schemes (Provision of Information) Regulations 20061516. The relevant benefit crystallisation event occurred in Mr R’s case when he drew his PPF compensation in February 2019. It is also not disputed that the Board provided Mr R with incorrect CEV and compensation figures in June and November 2022. Additionally, the CEV and compensation figures that the Board issued to Mr R prior to June 2022 (that is before the request for divorce purposes), for May 2021 and December 2021, were overstated. The Board also did not provide Mr R information in a timely manner, specifically there was a delay in the Board’s response to the queries Mr R raised prior to the hearing of 16 September 2022.

I find that each of these events (namely those detailed in paragraph 66 above) amount to maladministration by the Board which has caused Mr R injustice. I then need to consider the extent of the injustice Mr R incurred in consequence of the Board’s maladministration, and what redress, if any, the Board should provide Mr F.

Mr R has said that he would not have been liable to continue to pay the tax charge if his PPF compensation had been transferred to Mrs R. In its decision, the Reconsideration Committee stated that the LTA charge of £20,688.65 that arose on Mr R’s retirement was his personal liability because his pension benefits exceeded his LTA. The Committee also stated that it was incorrect to suggest that an ex-spouse somehow inherits a member's LTA charge deduction. This was not the case, as the ex-spouse's tax position and LTA are entirely separate matters.

In order for me to decide whether the Reconsideration Committee reached its decision correctly, I need to consider the legislative background. The LTA was introduced by the Finance Act 2004, which together with supporting legislation, set out the framework for how the LTA operated, including the LTA charge. The LTA charge was abolished with effect from 6 April 2023, but it continued to apply in respect of benefit crystallisation events that occurred before 6 April 2023.

Section 214(1) of the Finance Act 2004 states that a LTA charge arises where a benefit crystallisation event occurs in relation to an individual who is a member of one or more registered pension schemes.” Section 217(1) states that “the individual” and the scheme administrator of the pension scheme are jointly and severally liable to the LTA charge. Section 214(5)(a) states that references to “the individual” in sections 215 to 219 in relation to the lifetime allowance charge, are to the individual in relation to whom the benefit crystallisation event giving rise to the charge occurs. The benefit crystallisation event in this case occurred in respect of Mr F, because he had exceeded his LTA at the time he drew his PPF compensation. Mr F was therefore the individual liable, jointly and severally with the Board, to pay the full amount of the charge. The legislation provides that the charge accrues when the

15 SI 2006/567.

16 Recognising that, although the PPF is not a registered pension scheme, regulation 4 of The Pension Protection Fund (Tax) Regulations 2006 (SI 2006/575) provides that payments from the PPF are taxed in the same way as payments from a registered pension scheme. 25 CAS-104796-R9Q9 benefit crystallisation event occurs, consequently Mr F would not have been able to avoid paying the charge even if he transferred 100% of his PPF compensation to his ex-spouse.

The Reconsideration Committee explained to Mr R, as the Board did prior to the Committee’s decision, that rather than ask members in his position to pay the LTA charge as a lump sum, the Board pays the charge and the members repay the Board via the deductions from their PPF compensation. If the member's compensation ends prematurely due to divorce, the remainder of the LTA charge must be funded, and the Board deducts this from the member's CEV. An ex-spouse's PPF compensation is then calculated by reference to the reduced CEV and is assessed against their own LTA. The member's remaining liability to repay the LTA charge is deducted when the CEV is calculated and that is the value available for the PCSO.

As I have said at paragraph 66 above, since the liability to pay the LTA charge arose in 2019 when Mr F drew his PPF compensation and that liability is not transferrable, even if the payment of PPF compensation to him ceased due to divorce, that would not absolve him of the liability to pay the charge in full. The Board’s approach to recovering the charge via periodic deductions from Mr F’s PPF compensation or recovering the remaining outstanding balance via a lump sum deducted from the CEV, appears reasonable given that the Board had paid the charge in full to HMRC.

Mr R says the Board did not pay HMRC the LTA charge of £20,688.65 on his residual compensation when he retired, but paid the charge subsequently after he raised his complaint with the Board. The date the Board reported and paid the charge to HMRC is a matter between the Board and HMRC. Any late reporting and payment of the charge by the Board in Mr F’s case would not absolve Mr F of his liability for the charge.

I find that the legislation does not support Mr F’s claim for a reimbursement of the charge, and the Reconsideration Committee reached its decision correctly in respect of the application of the LTA charge in Mr F’s case.

In relation to the wider issue of the provision of information to Mr R for the purposes of his divorce, while the Board provided incorrect CEV and compensation figures and there was a delay in the Board providing the correct information, the Board did provide correct CEV and compensation figures prior to the final hearing in March 2023. The Board corrected the June 2022 figures in September 2022 and the November 2022 figures in December 2022. The Board also provided Mr R with the updated CEV on 28 February 2023, and I acknowledge that this allowed only one full working day for the parties to consider the CEV before the hearing on 3 March 2023. However, the Board provided the correct information before the March 2023 hearing. It was therefore still open to the Judge to transfer the PPF compensation to Mrs R (despite Mr R’s submissions that the parties to the divorce and their advisers had lost confidence in the Board by this point).

26 CAS-104796-R9Q9 There is no evidence in the March 2023 Order, or other available information that I have been provided with, that the legal representatives or the Judge raised concerns about the Board’s figures supplied in February 2023, and I note that the Order does not give reasons why it was decided not to proceed with a PCSO, as part of the financial settlement between Mr R and Mrs R. The Judge had discretion as to how to exercise the powers of the court order under section 25 of the Matrimonial Causes Act 1973 (as amended). The Judge exercising the powers of the court decided not to grant a PCSO against Mr R’s PPF compensation and still achieve a fair outcome between Mr R and Mrs R.

In any event, I do not have powers to interfere with a court process or a legally binding document presided on by a court. The matters regarding Mr R’s pensions with HL and NFU being frozen pending the financial dispute resolution, why the Court did not grant a PCSO, and that the Court if it had granted a PCSO would have awarded 100% of Mr R’s PPF compensation to Mrs R and 22.2% of Mr R’s NFU policy on the terms suggested, are not assumptions on which I can making a finding and are all family law matters which fall outside of my jurisdiction.

Having received the correct CEV from the Board and despite the Board’s maladministration, it was open to Mr R to ask the Court to vary the PSO issued further to the March 2023 hearing, but there is no evidence that he did so.

In the circumstances, I do not agree that the Board is at fault for Mr R’s retention of his PPF compensation, as the Board provided correct figures prior to the March 2023 hearing and the decision on the division of Mr and Mrs R’s matrimonial assets, including pension assets, was ultimately up to the Judge exercising the powers conferred on the Court.

Nonetheless, even if the Judge did not transfer Mr R’s PPF compensation to Mrs R due to the previous errors by the Board, in my view, Mr R’s retention of his PPF compensation caused him distress and inconvenience (non-financial injustice), rather than a financial loss in him having to pay tax that he would not have otherwise been liable for had his PPF compensation transferred to Mrs R. This is due to the legislative position as I have outlined.

Mr R says he had to borrow funds from friends due to his HL and NFU pensions being frozen by the Judge at the first court hearing. In my view, it was for Mr R and his legal representatives to provide the Court with details of his income needs for the Judge to consider when making such an order.

I note that Mr R did claim for legal fees associated with the incorrect CEVs. He provided evidence of those amounts to the Board and those costs were subsequently met.

For these reasons, I do not uphold Mr R’s claim for financial loss.

Non-financial injustice

27 CAS-104796-R9Q9

In recognition of the distress and inconvenience the maladministration caused Mr F, the Board offered him a consolatory payment of £1,000. In my view, the Board’s offer of £1,000 adequately addresses the maladministration that occurred in this case.

I find that the Board’s offer of £1,000 is equitable. If Mr R now wishes to accept the Board’s offer, he should contact the Board.

Finally, Mr R has stated that the Board has not made any comments about how it will improve its service to ensure the information it provides to members is accurate and correct.

I do not make any finding on this point as I cannot see that Mr R has raised this issue directly with the Board or the Reconsideration Committee, and the Reconsideration Committee has not issued a decision on this point. This is taking into account that a complaint of maladministration can be referred to the PPF Ombudsman where the Committee has issued a decision on the matter or in specified circumstances, where the Board has given a decision on the matter17. In any event, I have detailed the issues amounting to maladministration in this case and it is open to the Board to act on the learning points for it that arise from this case.

I do not uphold Mr R’s complaint, and no further action is required by the Board.

Dominic Harris

Pension Protection Fund Ombudsman 11 March 2026

17 Regulation 2, SI 2005/2025.

28