Local Government Pension Scheme · CAS-29460-D2J4

CAS-29460-D2J4

Ombudsman’s Determination Applicant Mr N

Scheme Local Government Pension Scheme (the Scheme)

Respondent Merseyside Pension Fund (MPF)

Outcome

Complaint summary

The criteria for assessing whether this constituted a material alteration to the Scheme is as follows:

Occupational and Personal Pension Scheme Disclosure Regulations 2013:

“Material alterations to basic scheme information

1  8. — (1) The information mentioned in paragraph (2) must be given in accordance with this regulation where—

(a) there is a change in relation to the scheme, and

(b) that change results in a material alteration in the information listed in Part 1 of Schedule 2.

(2) The information is the information referred to in paragraph (1)(b) that has materially changed.”

Paragraph 15 of Part 1 of Schedule 2 further states that:

“The following information about benefits payable under the scheme (referred to in this paragraph as “benefits”)—

(b) how benefits are calculated,

(e) the rate at which rights to benefits accrue, if appropriate,”

If a material alteration was found to have been made, then 8(4) and 8(5) would have become relevant:

“8 (4) The information must be given before or as soon as possible after (and in any event within three months after) the change referred to in paragraph (1)(a) takes effect.

(5) No information is required to be given under this regulation to—

(a) relevant persons, except a recognised trade union, unless it is relevant to the person’s rights or prospective rights under the scheme, and

(b) a recognised trade union unless—

(i) it is relevant to the rights or prospective rights of persons who are in that recognised trade union, and

(ii) basic scheme information has already been given to the recognised trade union under regulation 6.”

These changes were due to come into force on 4 January 2017.

2 Alternatively, it also concluded that it could be interpreted that there is no such requirement as to how the Scheme benefits are calculated, because the basic principles of the calculation would not change with the introduction of the new factors and the pension annual accrual rate for the Scheme (that is, 49ths of pensionable pay) had also not changed.

Mr N states that there are two interpretations of the disclosure requirement, as it can be argued that it changed the way in which the benefits were calculated which would have fallen under para 15 (b) Part 1 of Schedule 2. He also questions which interpretation of the disclosure regulations is correct, and how this can be proven.

He says that the disclosure regulations are unclear, and the guidance provided by various government bodies is not a statutory requirement, but is provided to afford clarity to pension fund managers.

He also says that it is known that the guidance was issued in response to pension fund managers seeking clarity.

Mr N has said he finds it alarming that MPF did not have to consider that he had reached normal retirement date some years prior to the late retirement factor changes, and chose not to consider his individual circumstances.

Mr N also questions the logic of considering the matter only once it is decided that there is a material alteration, saying it makes the entire process “a pointless exercise.”

He says that other pension funds within the Scheme notified the changes in late retirement factors to their members retiring, with some or all their benefits due to attract late retirement increases, classing this as a material alteration as to how their pension would be calculated.

This was also because it was considered that the changes would have a negative impact, and by informing members this gave them a choice, and was in line with advice and guidance issued to pension fund managers. This also demonstrates that other pension fund managers applied due diligence to their considerations.

3 Mr N says that he would have taken his pension based on the higher late retirement factors, continued his employment and, as part of his terms and conditions of employment, re-joined the Scheme, and continued to accrue benefits.

He challenges MPF saying that it did not know what, if any, salary increases he would receive at the time. It failed to notify him of the changes as per regulations 8(4) and 8(5) because he was over age 65.

Overall, he is frustrated that he has not been provided with a detailed explanation as to why MPF did not inform him of the changes.

In response, MPF reiterates that it did not consider the amendment of the late retirement factors to be a material change, so there was no requirement to inform members.

MPF further states that as participation in the Scheme is encouraged across the whole scope of employees, it would be contrary to “entice” members to opt out or retire.

MPF has also estimated and compared the benefits prior to the amended late retirement factors in 2017, with the current benefits at Mr N’s proposed redundancy date at the end of December 2019, also applying the recently amended late retirement factors:-

• The estimated lump sum is £447.70 smaller than the estimated lump sum would have been in January 2017.

• The annual pension is £4,577 more than the estimated pension in January 2017.

MPF highlighted that opting out is a member’s right; if Mr N had opted out of the Scheme his pension benefits would have been calculated, including the applicable actuarial increase, at that point and then deferred until payment.

It follows that Mr N would not have been in receipt of his Scheme benefits, nor would he have continued to accrue further benefits, unless he elected to re-join the Scheme and accrue benefits from the point of re-entry.

The deferred benefit would not have been combined with the active benefit, so only career average benefits would have been accruing. The wage increases Mr N experienced would only have impacted on his career average pension and not on the final salary lump sum and pension.

Finally, MPF reiterated that the amendment of the actuarial factors does not change how the pension benefits accrue and therefore does not constitute a material change.

4 Adjudicator’s Opinion

It would have been preferable had MPF contacted those potentially impacted by the change to the late retirement factors, however, there was no statutory duty to do so.

It is clear that regulations 8(4) and 8(5) only become relevant, and action is required, if a material alteration is found to have taken place. In this case no such determination was made by MPF.

Therefore, MPF could not take account that Mr N had reached normal retirement date some years prior to the factor changes, as part of its interpretation of the regulations.

Of course, it could have decided to contact impacted members individually, but it did not. The Adjudicator appreciated that Mr N is disappointed by this, but it is an interpretive approach that has already been upheld by The Pensions Ombudsman in the Determination: PO-20770, which can be seen on our website.

The Pensions Ombudsman could only interfere in the decision-making process on which interpretation should be applied had MPF:

• taken irrelevant considerations into account;

• failed to take any relevant considerations into account;

• committed some other procedural impropriety, or

• acted in such a way that no reasonable body, properly directing themselves, could act.

In this case none of these factors apply, as MPF considered the relevant guidance and interpreted the legislation in a way that is consistent with this.

This conclusion means that the Adjudicator did not have to consider, in detail, Mr N’s arguments that he would otherwise have taken flexible retirement.

However, MPF has said that it was not known what the employer would have allowed as flexible retirement is not an automatic right.

The Adjudicator understood from Mr N that another local authority may have interpreted the Regulations and associated guidance differently, but that does not mean there has been maladministration in this instance. He could not speculate on what may or not have been considered by the other local authorities. 5  The Pensions Ombudsman can only look at individual complaints, and if Mr N is concerned by the overall approach taken by local authorities, the Adjudicator suggested that he should complain to the Ministry of Housing, Communities & Local Government, which the Adjudicator understood is the successor to the DCLG.

If Mr N remains dissatisfied with any answer he receives from that Department, the Adjudicator understood that the Parliamentary and Health Service Ombudsman would be the appropriate body to investigate any concerns he may still have.

Ombudsman’s decision Mr N did not accept the Adjudicator’s Opinion, and the complaint was passed to me to consider. Mr N provided his further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and I will therefore only respond to the main points made by Mr N for completeness.

Mr N has said the following in response to the Opinion –

• The adjudicator appeared to form his opinion before considering all the information submitted and relied on case PO-20770 for guidance.

• MPF is saying that it did not consider the reduction in GAD factors to be a material change, and therefore did not need to refer to the guidelines, which clearly state that it should disclose.

• Mr N has asked, at what point does the guidance issued to all pension fund managers come into play? If the relevant fund has already decided that the change is not a material change, then it appears that this guidance was either not read or read but subsequently disregarded. This is acting recklessly and unreasonably. What would be the purpose of issuing guidance to all pension fund managers if they do not have a duty to take the guidance into account; this makes a mockery of the system.

• That is not acting reasonably; it is acting in such a way that no reasonable body properly directing themselves could act, and failing to take relevant considerations into account. MPF’s reasoning is gibberish, and it is not logical to fail to read the guidelines, or to ignore them after reading them.

• MPF made a disconnected calculation regarding his lump sum payment. To say his lump sum payment is smaller now than three years ago after three years of wage increases is proof of loss. MPF previously calculated an annual loss of £1,100, and a loss of £3,611.02, for the financial year ending 2018. He would obviously have taken the higher values. Anything occurring after 4 January 2017,

6  could not be known in advance by MPF, yet MPF relies heavily on further and final benefits to disguise its mistake.

• Mr N would have deferred his pension at the higher rate, so he would have a bigger pension from June 2012 to January 2017. His pension after this point would be based on whatever salary he earned, and would not change. These points are not relevant. His lump sum in January 2017 would have been greater than the amount he received three years later after three years of wage increases.

• MPF is quite blatantly interpreting regulation 8(4) and 8(5) in favour of itself. He can only conclude that MPF failed to notify members because notifying them of their choices would have had a significant cost impact on MPF. MPF has consistently hidden behind the "material change" wording, which is open to subjective abuse. It is irresponsible if you read the regulation and do not disclose. It is nonsense and irresponsible if you do not read the guidelines.

• In Determination PO-20770 the relevant pension fund did disclose; in his case the fund did not disclose, and the conclusion was the applicant in that case should have been notified. The Adjudicator’s response is heavily centred around this PO- 20770 case but he has already negated its findings as the fund quite clearly acted correctly with due diligence by informing its members. This must logically mean he should have been notified. MPF may have considered the relevant guidance but totally ignored it. This cannot be acting reasonably.

I appreciate that Mr N is unhappy with the interpretation made by MPF, but I agree that it has considered the relevant guidance and has interpreted the legislation in a way that is consistent with this.

There is no evidence that cost was a factor, and in the case PO-20770, which I previously determined, the same interpretation of the Disclosure Regulations was reached.

The distinguishing factor was that the pension fund in that case went beyond the requirements of the Regulations by asking the employer to notify those who may have been affected by the change, but there was no statutory obligation to do so.

Mr N has also made hypothetical arguments claiming a financial loss as a result of the interpretative approach taken by MPF, but as I do not disagree with this approach, I make no finding of maladministration and so, there is no direct loss for which Mr N should be compensated.

I do not uphold Mr N’s complaint.

Anthony Arter

Pensions Ombudsman 21 April 2020 7