Airways Pension Scheme · CAS-78782-N1T6

CAS-78782-N1T6

Ombudsman’s Determination Applicant Mr H

Scheme Airways Pension Scheme (the Scheme)

Respondent British Airways Pensions Services Ltd (the Administrator)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the main points. I acknowledge there were other exchanges of information between all the parties.

On 7 April 1977, Mr H became an active member of the Scheme upon reaching the qualifying age of entry.

On 4 March 2020, Mr H contacted the Administrator and requested a retirement quote.

On 27 March 2020, the Administrator provided Mr H with a retirement quotation, calculated with a retirement date of 1 May 2020. It correctly quoted an annual pension of £45,534.84 or a tax-free lump sum of £368,275 with a reduced annual pension of £42,914.28. It did not include details about any lifetime allowance (LTA) charges.

On 4 June 2020, Mr H’s employer, British Airways Plc (the Employer), informed the Administrator of his intention to leave employment on 3 August 2020.

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British Airways Pensions Services Limited CAS-78782-N1T6 On 3 July 2020, the Administrator wrote to Mr H and provided him with a retirement pack, which included his retirement options (the July 2020 statement). It contained both fixed and indexed retirement options for his retirement date of 3 August 2020, inclusive of LTA charges. There were some commutation options which were achieved by a combination of Mr H’s Additional Voluntary Contributions (AVC), which totalled £217,713.65, and commuting part of his annual pension. However, due to a calculation error, the annual pensions quoted in the commutation section failed to apply the reduction for the commutation and therefore was incorrectly calculated. As a result, the LTA charges illustrated were also overstated.

On 8 July 2020, Mr H signed and returned the relevant sections of the retirement pack with his chosen pension selection. He selected an indexed commutation option which illustrated his benefits to be an annual pension £44,773.66 per annum and a lump sum of £268,275.00, with a lifetime allowance charge of £30,318.15.

On 10 July 2020, the Administrator received Mr H's complete retirement forms setting out which benefit option he had selected.

On 3 August 2020, Mr H left his employment and began his retirement.

On 4 August 2020, the Administrator paid Mr H his tax-free lump sum of £268,275.00, with the annual pension to be paid from the end of September 2020 in monthly arrears.

On 16 September 2020, the Administrator wrote to Mr H and provided him his correctly recalculated annual sum of £42,900.00, which included the commutation reduction. This conflicted with his prior selected annual sum of £44,733.66, hence resulting in a shortfall of £1,872.69 per annum. Additionally, the letter indicated that Mr H had incurred an LTA charge of £17,791.35. The letter did not provide an explanation as to the recalculation, and it made no reference the retirement options provided in July 2020.

On 22 September 2020, Mr H emailed the Administrator to enquire about the difference between his selected retirement options and the revised amounts detailed in its letter of 16 September 2020.

On 23 September 2020, the Administrator wrote to Mr H and provided him with a revised, corrected calculation of his LTA charge and commutation options.

On 25 September 2020, Mr H wrote to the Administrator and submitted a complaint letter. He argued that:-

• He made his decision to retire based on the incorrect information presented in the July 2020 statement. Had he received the correct information his decision to retire may have differed.

• Additionally, the July 2020 statement included a statement declaring, ‘my elections cannot be changed or cancelled after your retirement date’. Thereby upon his signature and return it became a legally binding document. 2 CAS-78782-N1T6 • As a result of the incorrect information, he retired and was left with no opportunity to mitigate the annual shortfall of £1,872.69.

• As compensation he sought the original incorrect pension he selected in the July 2020 statement.

In September 2020, the Administrator commenced payment of Mr H’s correct annual pension sum of £42,900.97 in monthly instalments.

On 14 October 2020, the Administrator's Complaint Handling Committee (CHC), wrote to Mr H. Under the Scheme’s Early Dispute Resolution Procedure, the CHC investigated Mr H's complaint and acknowledged the mistakes made in the July 2020 statement. In summary:-

• It acknowledged the initial retirement quotation of 27 March 2020 set out his correctly calculated retirement benefits. Although details about LTA charges were not included, the initial quotation would have assisted his retirement planning prior to the incorrect information presented in the July 2020 statement.

• It noted that Mr H had selected a commutation option, however the correct reduction was not applied to the annual sum. Hence, he was wrongly presented with the full pre-commutated pension of £44,733.66 with no reductions. This also resulted in his LTA charge being overstated.

• As Mr H had excess benefits over the standard LTA, the Administrator’s systems were unable to automatically calculate his benefits. Therefore, the calculations were done manually. Unfortunately, an error occurred when transferring the calculations onto the Administrator’s systems which was identified as a training issue. The CHC assured Mr H that the training issue was actively addressed internally. Further, it confirmed that his correct LTA charge was £17,791.35 which had been reported to HMRC.

• The Administrator failed to adhere to the correct process to resolve the mistake and did not communicate the mistake to Mr H. It apologised for the mistake and lack of communication.

• The CHC were unable to pay Mr H the incorrect annual sum illustrated in the July 2020 statement. The Administrator could only pay Mr H his correct entitlement in accordance with the Scheme Rules. The Administrator had no discretion to alter his entitlement hence it was not legally bound to the statement provided. However, it noted that he was offered the opportunity to reverse his July 2020 retirement selection, which he rejected. Regardless, it enclosed revised retirement options allowing him to select a higher pension amount if desired.

• It addressed the legal statement presented in the July 2020 statement. The Trustee was only able to pay benefits in accordance with each member's entitlement under the Scheme Rules.

3 CAS-78782-N1T6 • Mr H was offered £250 as compensation, the maximum compensatory award available.

On 25 October 2020, Mr H emailed the Administrator to escalate his complaint to Stage 1 of the Administrator’s Internal Dispute Resolution Procedure (IDRP). In summary:

• He identified that there were multiple discrepancies and errors in the correctly calculated options as opposed to those provided in the July 2020 statement.

• Expressed his dissatisfaction and disappointment with the serious error and gross negligence displayed by the Administrator that allowed the error to occur in the first instance.

• The Administrator failed to enact the necessary checks and balances that ought to have been carried out.

• The Administrator’s staff had not received the necessary training for the task of calculating pension options.

On 13 November 2020, the Administrator notified HMRC of the mistake and notified it of Mr H’s revised LTA charge of £17,791.35.

On 25 February 2021, the Administrator wrote to Mr H and provided it's IDRP Stage 1 decision. It considered the points raised by Mr H in his letter on 25 September 2020 and his e-mail on 25 October 2020. It found that:

• It had made an error in calculating the commutation options presented in the July 2020 statement. In particular, the annual pension sum and LTA charges.

• It reaffirmed the CHC’s position that the Trustee could only pay Mr H his correctly calculated benefit entitlement in accordance with the Scheme Rules. The higher figure illustrated was not correctly calculated and hence not legally binding, it was also illegal not to inform HMRC of the correct LTA charge amount. The retirement figures provided in the July 2020 statement did not supersede the Scheme Rules. Therefore, when an error is identified it must be corrected. Further, the error was identified prior to payment. Thus, he was paid his correct benefits accordingly with the correct LTA charge reported to HMRC.

• In order to put matters right, the Administrator had previously presented Mr H with the opportunity to reverse his July 2020 retirement selection and select an alternative option or higher pension. It noted that Mr H declined this offer.

• Taking into consideration the facts of Mr H’s case, it was unable to conclude that he had been significantly impacted overall or would have acted differently had he been presented with the correct information in the July 2020 statement.

• It acknowledged that in its letter of 16 September 2020, it did not inform Mr H of the mistake. Rather he had to pursue it to inquire about the changes to his 4 CAS-78782-N1T6 pension presented in the letter. As such, the correct process was not followed as an explanation should have been provided along with the revised calculations.

• It confirmed that additional training was provided to improve the handling of complex manual calculations within the administration team and it had revised its processes to ensure this error did not occur again.

• It noted that Mr H was offered direct contact with a senior individual for future calculation enquiries relating to his pension benefits.

• The Administrator made a compensatory offer of £500 in recognition of the distress and inconvenience caused by the errors.

On 23 March 2021, Mr H wrote to the Administrator regarding the escalation of his complaint to IDRP Stage 2.

On 25 June 2021, the Administrator wrote to Mr H and provided its IDRP Stage 2 decision. The complaint was reviewed by the Administrator’s Operations Committee Discretions Subgroup (the Committee). It upheld the IDRP Stage 1 decision and the offer of £500 compensation. It concluded:-

• That the figures provided in the July 2020 statement did not override the Scheme Rules. It merely set out the process for retirement and there was no suggestion in the accompanying wording that stated that the July 2020 statement was intended to override the Scheme Rules.

• The July 2020 statement was not a legally binding contract and was not drafted with the intention to create legal relations. Again, it was merely to enable members to select their retirement options under the Scheme. As stated in IDRP Stage 1 the Trustee could only pay benefits in accordance with the Scheme Rules, therefore he was not entitled to the incorrect higher annual pension. His correctly calculated entitlement under the Scheme Rules was an annual sum of £42,900.97 which he received upon his retirement.

• It concluded that Mr H had not displayed any evidence that he suffered financial loss that could not be mitigated. He was offered the option to reverse his pension selection and choose a higher annual sum, but he declined. Therefore, the incorrect information provided had not caused financial loss. Further, his correct LTA charge was reported to HMRC on 13 November 2020.

• The Administrator accepted that it failed to correctly calculate his retirement options with due care and accuracy, amounting to maladministration. It also acknowledged that upon identifying the mistake it failed to provide Mr H with an explanation. Appropriate training and procedures had been put into place to ensure pension calculations were correctly checked in future. The Committee noted that the mistake had been identified prior to payment, which demonstrated that there was a checking process in place. Therefore, while the Committee acknowledged maladministration had taken place, it did not amount to negligence. 5 CAS-78782-N1T6 Following the complaint being referred to The Pensions Ombudsman, Mr H and the Administrator made the following submissions.

Summary of Mr H’s position

Summary of the Administrator’s position

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Adjudicator’s Opinion

• The basic principle for negligent misstatement (in the absence of any additional legal claim) is that a scheme is not bound to follow the incorrect information. A member is only entitled to receive the benefits provided under the scheme rules, that is, those based on the correct information accurately reflecting the scheme rules.

• Redress will only be made available if it can be shown that financial loss or non- financial injustice has flowed from the incorrect information given. For example, the member may have taken a decision in the expectation of receiving the higher benefits which they would not otherwise have done, such as retiring early. The Ombudsman will consider whether it is more likely than not that a member relied on the incorrect information to their detriment and that it was reasonable for them to do so.

• The Adjudicator found that Mr H had reasonably relied on the retirement options provided in the July 2020 statement. At the point which his July 2020 statement was provided it would have been expected to be carefully checked and actuarily calculated as a finalised option.

• It was acknowledged that Mr H could have noticed and queried the inconsistency between the 27 March 2020 quote and the retirement options presented to him in the July 2020 statement. Especially as this was presented prior to his retirement on 3 August 2020 and the incorrect quotes on 3 July 2020. However, this did not absolve the Administrator of its responsibility to provide correct information. On

7 CAS-78782-N1T6 balance, Mr H was not expected to analyse and question the Administrator’s calculations.

• However, the Adjudicator did not find that Mr H had suffered financial loss. Even though it was reasonable for him to rely on the incorrect July statement, he did not suffer financial detriment as a direct result of it. Mr H’s pension option was achieved by commuting a combination of his AVC, and his annual pension. The annual pension he selected as presented in the July 2020 statement did not apply the relevant reduction for early payment and therefore was incorrectly calculated. The failure resulted in the £1,872.69 difference between the original and recalculated annual sum which was overstated as it had been incorporated into the lump sum he received on 4 August 2020. Further, he had received a reduction to the LTA charge from £30,318.15 to £17,791.35, which was the correct charge. Therefore, he had not actually suffered a financial loss rather a loss of expectation. The revised annual sum was correctly calculated in accordance with the Scheme Rules.

• It could not be said with certainty what Mr H would or would not have done had he been presented the correct information in July 2020. However, the Adjudicator agreed with the Administrator that it was likely that Mr H would have used the correct March 2020 estimate in his retirement planning rather than the later July 2020 statement. The Administrator also offered Mr H the option to amend his retirement option which he declined. As such, it would appear Mr H was committed to retiring when he did. So, on the balance of probabilities, had the July 2020 statement been correct, the Adjudicator felt Mr H would have taken benefits regardless as he had an opportunity to mitigate any perceived shortfall by selecting an option he deemed more appropriate, whether that be a higher annual sum or alternative pension selection. Moreover, the Administrator’s mistake was discovered prior to payment, with the correct payment being made avoiding further issues.

• Mr H was liable for a far lower LTA charge than he was expecting.

Mr H did not accept the Adjudicator’s Opinion, and the complaint was passed to me to consider. Mr H provided further comments.

In summary Mr H said:-

• The Administrator has acknowledged that the mistake resulted from a lack of training and calculation errors, it also acknowledged that it failed to adhere the correct resolution process. This demonstrated a lack of due diligence and negligence which in turn has a lifelong financial impact on him.

• The Administrator failed to inform him of the mistake prior to his retirement, and he received no communication of it. It was At the point of which Mr H was informed and offered to revise his retirement options, it was too late, and he was 8 CAS-78782-N1T6 already expecting his annual pension in arrears. Further, it was too late for him to mitigate the significant shortfall of £1,872.69 per annum or the additional tax charge of £17,791.35, which he believes will have continued to increase until it is addressed with HMRC.

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Ombudsman’s decision

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As I have seen no evidence that the Administrator was aware that he was proposing to buy a property or pay for renovations and as the statement was not issued to him for that purpose, I find that the Administrator could not reasonably have expected his reliance for that purpose and that his reliance was not reasonable. I also find that the overstatement of the amount of his pension in the July 2020 statement was not sufficient for me to be satisfied that he would not have bought the property and paid for the renovations if he had known the correct figures. As such, I do not find that Mr H suffered a financial loss in reasonable reliance on the July 2020 statement.

12 CAS-78782-N1T6 Non-financial Injustice

The Administrator’s maladministration is not disputed. As identified above it provided Mr H incorrect information regarding his retirement options in the July 2020 statement and did not communicate the mistake to him. However, the mistake was singular as all his prior quotations were correct. Additionally, the mistake was short-lived persisting from the July 2020 statement to the revision letter on 16 September 2020 and corrected prior to the payment of his first annual pension due in arrears at the end of September 2020.

Awards for non-financial injustice are not intended to be corrective, but a modest recognition of the financial distress and inconvenience suffered. I acknowledge that Mr H will be frustrated and receiving the incorrect information will have caused him significant distress and inconvenience, but I find the offer of £500 appropriate.

Therefore, I partly uphold Mr H’s complaint.

Directions

Camilla Barry

Deputy Pensions Ombudsman 22 October 2025

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