Wales And West Utilities Pension Scheme · CAS-44499-C7H1

CAS-44499-C7H1

Ombudsman’s Determination Applicant Mr S

Scheme Wales and West Utilities Pension Scheme (the Scheme)

Respondent The Trustee of the Wales and West Utilities Pension Scheme (The Trustee)

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 salient points. I acknowledge there were other exchanges of information between all the parties.

Mr S was an active member of the Scheme until he opted out at the end of March 2018.

In July 2017, Mr S received his Annual Benefit Statement (ABS), which showed an estimated CETV of £710,000 based on his accrued pension up to April 2017. The ABS said:

“As an illustration, the estimated transfer value based on your accrued pension as at 5 April 2017 is about:

£710,000

This figure is only an indicative estimate of the size of your transfer value as at 5 April 2017 and is not guaranteed. You should not make any financial decisions solely on the basis of this illustration.

1 CAS-44499-C7H1 In particular the actual amount will vary over time and in future the value could be substantially higher or lower than the figure above. It depends on a range of factors, including

• financial market conditions when calculated;

• the level of benefits you build up in the Scheme;

• the statutory requirements that apply for the calculation at the time of transfer, and how those requirements are applied by the Trustee of the Scheme.”

In November 2017, Wales & West Utilities Ltd (the Employer) wrote to the Trade Union confirming its agreement to postpone any discussion about changes to the Scheme until 2019 (the November 2017 Letter). This was in relation to the defined benefit section of the Scheme.

On 23 March 2018, Mr S requested an opt out form from the Administrators of the Scheme.

On 26 March 2018, the Administrators of the Scheme issued the opt out form to Mr S.

On 31 March 2018, following receipt of the completed opt out form, the Administrators of the Scheme updated their records and Mr S ceased to accrue further benefits.

On 10 April 2018, Mr S requested a CETV.

On 12 April 2018, the Administrators of the Scheme issued Mr S with the leaver information pack (the Leaver Pack) setting out the options available to him.

On 30 April 2018, the Administrators of the Scheme issued a CETV information pack to Mr S (the Transfer Pack). They quoted a CETV of £611,388, guaranteed from 26 April 2018 for three months (the April 2018 CETV).

On 9 May 2018, Mr S contacted the Administrators of the Scheme and asked why the CETV was lower than the value that had previously been quoted to him. Mr S was advised that this was because of the change in assumptions used to calculate CETVs.

On 14 June 2018, the Administrators of the Scheme received completed transfer forms from Mr S’ independent financial adviser (the IFA) requesting to transfer Mr S’ pension benefits out of the Scheme.

On 5 July 2018, the Administrators of the Scheme issued a payment amounting to £611,338 to Intelligent Money (the Receiving Scheme).

On 26 September 2018, the Administrators of the Scheme paid an amount of £14,187 to the Receiving Scheme. This was following an adjustment to the salary used in the calculation of Mr S’ pension on leaving the Scheme.

2 CAS-44499-C7H1 On 16 October 2018, Mr S complained that the CETVs provided to his colleagues had increased over the period from 2017 to 2018, while his had decreased. He also complained that his pension contributions from July 2017 to 2018 were not reflected in the CETV. He did not consider that his CETV was correct or that he was being treated fairly. He explained he had many “sleepless nights” since transferring.

On 8 February 2018, the Trustee replied under Stage One of the Internal Dispute Resolution Procedure (IDRP). It did not uphold the complaint and said:-

The CETV provided in the ABS in April 2017 was estimated.

The ABS warned that the CETV could not be relied on to make financial decisions, as it was not guaranteed.

The CETV was calculated based on assumptions of what his pension would be worth if it was provided as a single lump sum amount.

The Trustee was legally obliged to review the assumptions used in CETV calculations; the new assumptions were implemented on 20 February 2018.

It was only after Mr S had opted out of the Scheme on 31 March 2018, that he was provided with a guaranteed CETV quotation.

Mr S received advice from the IFA, based on the guaranteed CETV, before transferring. Consequently, the Trustee was not responsible for Mr S’ decision to transfer.

The pension contributions received by the Scheme did not affect the CETV. Mr S’ CETV was calculated using his pension, which was based on the number of years he had worked for the Employer and his salary at the point he left the Scheme. The guaranteed CETV would have taken into account any additional pensionable service he had accrued.

It was part of the normal course of business that the Trustee reviewed the assumptions for CETVs and made changes to update these.

There would be differences in CETVs for different members. The assumptions used in the calculation of CETVs take into account various factors, such as life expectancy, which would be different for different members.

When Mr S opted out of the Scheme, he stopped accruing benefits while other members had remained in the Scheme. So, their pensionable salary would have increased, which would also account for the difference in the value of their CETVs.

On 1 March 2019, Mr S appealed the Trustee’s decision and disputed the reasons given for the reduction in the CETV. He said that he was unhappy that his CETV was lower than other members of the Scheme. He also said that his “end goal was to be

3 CAS-44499-C7H1 treated fairly.” Mr S explained that he did not consider he could have taken his pension from the Scheme, because he had opted out.

On 4 July 2019, the Trustee replied under Stage Two of the IDRP. It said:-

The Trustee was ultimately responsible for calculating the CETV and had to follow a strict legal process.

The Trustee took advice from the Scheme’s actuarial advisers to make sure the assumptions used to calculate the CETV were appropriate.

To calculate the CETV, the Trustee had to decide how much money the Scheme was required to hold on a given day to pay a pension to a member. As the Trustee could not predict future events, it had to make a number of assumptions in order to calculate a CETV.

The CETV calculation was highly sensitive to the circumstances of each member. For example, age, length of service, pensionable salary, and date the CETV was requested. As each member’s personal circumstances were different, this meant that the assumptions used in the calculations of CETVs would result in a different outcome for each member.

The assumptions were updated each month. So, a small difference in the timing of the CETV calculation, for members with similar service, could impact the CETV significantly. Also, the assumptions used did not affect all members in the same way.

While the changes in the assumptions reduced CETVs for members close to age 60, the CETV for some of the younger members may have increased.

In February 2018, the Trustee updated the investment strategy adopted for the Scheme and the assumptions used to calculated CETVs.

The changes to the CETV assumptions were needed to ensure the Trustee’s ongoing compliance with pension legislation.

The April 2018 CETV was provided to Mr S after the change to the assumptions was implemented in February 2018. This demonstrated that the decrease in his CETV came largely as a result of the change in the assumptions.

Mr S took advice from his IFA before transferring. He was not under any obligation to transfer and could have retained his rights within the Scheme.

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Adjudicator’s Opinion

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6 CAS-44499-C7H1 Mr S did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Mr S provided his further comments:-

He considered that the Trustee should have notified members, who were close to attaining age 60, before changes were made to the CETV assumptions.

He also considered that the Trustee had made a serious administrative error by decreasing his CETV while increasing CETV for members who were younger than him, contrary to the Equality Act 2010.

He wanted to be treated fairly like the other members of the Scheme.

I note the additional comments by Mr S which do not change the outcome, I agree with the Adjudicator’s Opinion.

Ombudsman’s decision

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I do not uphold Mr S’ complaint.

Anthony Arter

Pensions Ombudsman 20 January 2022

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