N00519
PENSION SCHEMES ACT 1993, PART X
DETERMINATION BY THE PENSIONS OMBUDSMAN
Applicant / : / Mrs S SaundersScheme / : / The Hancocks of Horsham Retirement Benefits Scheme
Independent Trustee / : / Masons Trustees Limited (Masons)
MATTERS FOR DETERMINATION
1. Mrs Saunders has made three allegations relating to the winding up of the Scheme:
1.1. That the reduction of her Cash Equivalent Transfer Value (CETV) to 80% of the level previously quoted was unfair as it was stated as being guaranteed.
1.2. That the reduction in the CETV was due to delay by Masons in transferring the Scheme’s funds into a secure fund.
1.3. That the fees and expenses charged by Masons was excessive considering the level by which the CETV was reduced.
2. Some of the issues before me might be seen as complaints of maladministration while others can be seen as disputes of fact or law and indeed, some may be both. I have jurisdiction over either type of issue and it is not usually necessary to distinguish between them. This determination should therefore be taken to be the resolution of any disputes of facts or law and/or (where appropriate) a finding as to whether there had been maladministration and if so whether injustice has been caused.
MATERIAL FACTS
Background
3. In March 2001, joint administrative receivers (JARs) were appointed to the sponsoring employer, Hancock Southern Limited (HSL). Pursuant to section 23(1) of the PA 1995, the JARs appointed Masons as the Scheme’s Independent Trustee. The appointment became effective by a Deed dated 13 June 2001.
4. On 22 October 2001, the JARs gave formal notice to the trustees that HSL had terminated its liability to pay contributions to the Scheme, with effect from 2 May 2001. In accordance with rule 4.18(a) of the Rules, Masons decided the Scheme would be terminated with effect from 2 May 2001. The decision was ratified by a resolution in writing by Masons’ Directors dated 7 July 2003. Members were advised of the appointment of the JARs and Masons by an announcement dated 27 July 2001.
5. The Definitive Deed and Rules of the Scheme is dated 9 December 1996. Rule 4.18 provides:
ALTERATION OF LIABILITY OF COMPANY OR EMPLOYER
(a) An Employer may at any time on giving written notice to the Trustees and without concurrence of the Members terminate its liability to pay contributions under the Scheme. Upon receipt of such notice the Trustees may in their sole discretion decide that either –
…
(ii) the portion of the Scheme applicable to that Employer in respect of such Members not granted Modified Benefits in accordance with (i) above will be terminated.
Reduction in CETVs
6. Rule 14 of the Scheme’s rules provides:
WINDING-UP OF THE SCHEME
14.1 Priorities on winding-up. If the Scheme winds-up for any reason, priority must be given, over any other liability to provide benefits, to any benefit which falls within any one or more of the following:-
(1) pensions and other benefits in respect of which entitlement to payment has already arisen;
(2) GMPs and accrued rights to GMPs;
(3) state scheme premiums;
(4) equivalent pension benefits within the meaning of the National Insurance Act 1965.
14.2 Order of priorities. The Trustees and the principal employer participating in the Scheme may elsewhere in the provisions of the Scheme specify an order of priorities amongst the items listed in 14.1 above, but the order of priorities shall not give any liability to provide benefits which are not listed in 14.1 above priority equal to or exceeding the priority given to any item which is listed there.
7. The Pension Schemes Act 1993 provides:
Section 93A (Salary related schemes: right to a statement of entitlement)
(1) The trustees or managers of a salary related occupational pension scheme must, on the application of any member, provide the member with a written statement (in this Chapter referred to as a “statement of entitlement”) of the amount of the cash equivalent at the guarantee date of any benefits which have accrued to or in respect of him under the applicable rules…”
Section 94 (Right to a cash equivalent)
(1) Subject to the following provisions of this Chapter –
(a) a member of an occupational pension scheme other than a salary related scheme…
(aa)a member of a salary related occupational pension scheme who has received a statement of entitlement and has made a relevant application within three months beginning with the guarantee date in respect of that statement acquires a right to his guaranteed cash equivalent…
(1A) For the purposes of subsection (1)(aa), a person’s “guaranteed cash equivalent” is the amount stated in the statement of entitlement…
Section 95
(1) A member of an occupational pension scheme or a personal pension scheme who acquires a right to a cash equivalent under paragraph (a), (aa) or (b) of section 94(1) may only take it by making an application in writing to the trustees or the managers of the scheme requiring them to use the cash equivalent to which he has acquired a right in whichever of the ways specified in subsection (2) or, as the case may be, subsection (3) he chooses.
Section 98 (Variation and loss of rights under section 94)
(6) A member of an occupational pension scheme or a personal pension scheme loses the right to any cash equivalent under this Chapter if the scheme is wound up…”
Section 129 (Overriding Requirements)
(1) Subject to subsection (2), the provisions of Chapters II, III and IV of Part IV, Chapters I and II of Part IVA,section 110(1), and any regulations made under section 113 or 114 override any provision of a scheme to which they apply to the extent that it conflicts with them.
(2) Chapter II of Part IV (as it applies to occupational pension schemes), and Chapter III of that Part do not override a protected provision of a scheme and Chapter IV of Part IV and Chapter II of Part IVA do not override a provision falling within paragraph (b) of subsection (3).
(3) In subsection (2) "protected provision" means-
(b) any provision of a scheme to the extent that it deals with priorities on a winding up; …
8. Chapter IV of Part IV of the PSA 1993 deals with transfer values and comprises sections 93 to 101.
9. The Pensions Act 1995 (PA 1995) provides:
Section 73 (Preferential liabilities on winding up)
(1) This section applies, where a salary related occupational pension scheme to which section 56 applies is being wound up, to determine the order in which the assets of the scheme are to be applied towards satisfying the liabilities in respect of pensions and other benefits (including increases in pensions).
(2) The assets of the scheme must be applied first towards satisfying the amounts of the liabilities mentioned in subsection (3) and, if the assets are insufficient to satisfy those amounts in full, then –
(a) the assets must be applied first towards satisfying the amounts of the liabilities mentioned in earlier paragraphs of subsection (3) before the amounts of the liabilities mentioned in later paragraphs, and
(b) where the amounts of the liabilities mentioned in one of those paragraphs cannot be satisfied in full, those amounts must be satisfied in the same proportions…”
10. The Occupational Pension Schemes (Transfer Values) Regulations 1996 (the Transfer Regulations) provide:
Regulation 8 [Further provisions as to calculation of cash equivalents and increases and reductions of cash equivalents (other than guaranteed cash equivalents)]
…
(12) Where a scheme has (in the case of a cash equivalent mentioned in section 93A of the 1993 Act, before the guarantee date) begun to be wound up, a cash equivalent may be reduced to the extent necessary to comply with section 73 of the 1995 Act and regulations made under that section
Regulation 9 [Increases and reductions of guaranteed cash equivalents]
(1) This regulation applies to a guaranteed cash equivalent when a statement of entitlement has been sent to a member of a salary related scheme by the trustees of the scheme.
(2) …
(3) Where a scheme has on or after the guarantee date begun to be wound up, a guaranteed cash equivalent may be reduced to the extent necessary for the scheme to comply with section 73 of the 1995 Act and the regulations made under that section.
(4) …
(5) If a member’s guaranteed cash equivalent falls short of or exceeds the amount which it would have been had it been calculated in accordance with Chapter IV or Part IV of the 1993 Act and these Regulations it shall be increased or reduced to that amount.
(6) In a case where two or more of the paragraphs of this regulation fall to be applied to a calculation, they shall be applied in the order in which they occur in this regulation except that where paragraph (5) falls to be applied it shall be applied as at the date on which it is established that the guaranteed cash equivalent falls short of or exceeds the proper amount.”
11. On 2 May 2002, a further announcement was sent to members. Members were told that, during the winding up of the Scheme, there were two methods of securing their benefits. One of the methods was by purchasing a deferred annuity. The alternative method was to take a CETV. This option was explained, as follows:
“The first option is to take what is known as a [CETV]. If you have another pension arrangement such as a personal pension plan or you are a member of a new employer’s occupational pension we can provide a transfer value calculated in accordance with certain statutory criteria. As long as your new pension scheme is willing to accept a transfer we will make the payment. If you wish to obtain a quotation please write to Peter Connors at the address given in paragraph 9 below marking your letter clearly “Hancocks of Horsham Retirement Benefits Scheme”. We will arrange for a quotation to be provided. This quotation will be guaranteed for a period of three months. It will be up to you to take independent financial advice if you wish and to ensure that your new pension provider will accept a transfer in during the period of the guarantee.”
12. 18 members of the Scheme requested CETV quotations, which were issued and dated either 13 or 14 June 2002. Mrs Saunders’ CETV quotation was dated 13 June 2002 and provided a transfer value of £34,425. The quotation was guaranteed for 3 months.
13. An announcement dated 15 August 2002 was sent to the Scheme members who had received CETV quotations. The announcement stated:
“We have received further advice from the Scheme actuary to the effect that paying the transfer values quoted on 13th and 14th June 2002 would prejudice remaining members. We have also sought legal advice in this connection.
REDUCTION OF TRANSFER VALUES
The result is that we have instructed the actuary to reduce those transfer values in order to prevent prejudicing the position of the remaining members. This is in reliance upon Regulations 9(3) and 9(5) of the Occupational Pension Schemes (Transfer Values) Regulations 1996. You will be informed as to the new figure in the near future. You will have three months from being so informed to make a written application to take the transfer value as reduced.”
14. On 4 September 2002, in common with the remainder of the 18 members who had received CETV quotations, Mrs Saunders received a letter from Masons. Mrs Saunders was told that her CETV had been restricted to 80% of its previous level – ie. £27,540. The restriction had been applied following advice from the Scheme actuary (the Actuary) and legal advisers.
15. Mrs Saunders complained under the Internal Disputes Resolution Procedure (IDRP).
16. The response to Mrs Saunders explained that Masons had taken advice on the financial position of the Scheme from the Actuary. Masons refer to a letter dated 16 April 2002, in which the Actuary had advised that, although the investment position had to be monitored, his opinion was that the financial position of the Scheme, at that date, was such that it would be possible to provide transfer quotations in full, ie. in accordance with the minimum funding requirement (MFR) test. However, during a telephone conversation between the Actuary and Masons on 28 June 2002, the Actuary expressed concern about a recent fall in the stock market and the effect this would have on the position concerning CETVs. In particular, the Actuary indicated that it could be necessary to restrict the CETVs to ensure that the remaining members of the Scheme were not prejudiced.
17. Consequently, Masons wrote to the Actuary on 3 July 2002 asking for his “advice on the question of whether we can now give cash equivalent transfer value quotations and provide the transfers without prejudicing the benefits of members who do not transfer.” On 18 July 2002, the Actuary advised that: “As a result of recent market movements, I would expect a CETV valuation (carried out in current financial conditions) to now show a deficit.”
18. Masons sought legal advice from the Scheme’s Legal Adviser as to whether the CETVs, although guaranteed, could be reduced. The legal advice received was that regulation 9(3) of the Transfer Regulations could be interpreted to allow for the reduction of guaranteed CETVs even although the Scheme had already commenced winding up when they were issued. The Legal Adviser said on 14 August 2002: