PO-2118
PENSION SCHEMES ACT 1993, PART X
DETERMINATION BY THE DEPUTY PENSIONS OMBUDSMAN
Applicant / Mr I BryantScheme / Armed Forces Pension Scheme 2005 (AFPS 05)
Respondent(s) / Service Personnel and Veterans Agency (SPVA)
Subject
Mr Bryant has complained that he was told that he could transfer benefits into the Scheme and has now been told that this is incorrect. He says that, as a result, he has been told that that he has been overpaid and a pension sharing order in respect of his former wife was not implemented in a timely manner.
The Deputy Pensions Ombudsman’s determination and short reasons
The complaint should be upheld against the Service Personnel and Veterans Agency because Mr Bryant should not have been given the option to transfer his earlier service into the AFPS 05 in 2005.
DETAILED DETERMINATION
Material Facts
1. Mr Bryant served with the Royal Navy from 1977 to 1993 (16 years and 73 days) and was a member of the Armed Forces Pension Scheme 1975 (AFPS 75). He received immediate payment of a pension (£8,457.60 less £3,363.47 commutation) and lump sum (£25,372.80) when he left (aged 38). Mr Bryant had also opted for additional lump sums (Life Commutation and Resettlement Commutation). Whilst he was in receipt of a pension, deductions were made for these lump sums from his pension. The Life Commutation deduction is ongoing, whilst the Resettlement Commutation deduction ceased at age 55.
2. In 1999, Mr Bryant joined the Royal Air Force and re-joined the AFPS 75. On 14 January 1999, the RAF Personnel Management Agency (PMA) wrote to Mr Bryant saying (amongst other things),
“Your appointment would be in the rank of Squadron Leader … Pay would be aligned to this seniority but would be reduced by £3363.47 a year. This is the total amount you have commuted from your Navy retired pay; £2695.51 a year under the Resettlement Scheme which would be deducted until age 55 and £667.96 a year under the Life Scheme which would also be deducted from subsequent retired pay.
You would be required to cancel your entitlement to any Navy Terminal benefits and serve on the Active List until your 55th birthday and … would be eligible for retired pay assessed on your total Navy and Royal Air Force Service but still reduced by £667.96 a year …
Your terminal grant would be reassessed on your total reckonable service. The Navy terminal grant already paid would not have to be refunded but it would be offset against the grant payable on your final retirement from the Active List.”
3. Extracts from the AFPS 75 and AFPS 05 Rules, together with relevant legislation can be found in an appendix to this document.
4. In Mr Bryant’s case, his pension was fully abated. When Mr Bryant’s pension was abated, the Resettlement and Life Commutation deductions were taken from his salary. The Armed Forces Personnel Administration Agency (AFPAA) (SPVA’s predecessor) wrote to him, in January 1999, explaining that, with effect from 1 February 1999, his salary would be reduced by £2,695.51 per annum under the Resettlement Commutation Scheme until age 55 or his last day of paid service whichever was earlier. They also said that his salary would be reduced by £667.96 per annum under the Life Commutation Scheme from 1 February 1999 until his date of exit from the RAF.
5. In November 2005, Mr Bryant was sent details of the Offer To Transfer (OTT) to the Armed Forces Pension Scheme 2005 (AFPS 05). The AFPAA wrote to Mr Bryant apologising for the delay in providing him with details of the OTT. They said they had been awaiting clarification of “certain rules” which were specific to his personal situation and that these had now been confirmed. SPVA have been unable to determine now which rules were being clarified. Mr Bryant was given the option to transfer the whole of his AFPS 75 service to the AFPS 05, including the earlier service (1977 to 1993). He elected to do so. Transfer to the AFPS 05 was covered by Part K of the Armed Forces Pension Scheme Order 2005 (SI2005/438) (see Appendix).
6. Mr Bryant left the RAF in April 2011. He was given the option to aggregate his two periods of service and elected to do so. Mr Bryant was awarded an annual pension of £32,212.08 and a lump sum of £96,636.33.
7. In 2012, SPVA were asked to provide information in relation to divorce proceedings. In March 2012 a decree absolute was issued, together with a pension sharing order (PSO) under which Mr Bryant’s former spouse was to receive 50% of his pension rights. SPVA acknowledged receipt of the PSO, on 12 July 2012, and said that they were required to give effect to it by the later of a date four months after the effective date of the order (20 April 2012) or the date on which they received all the information they required.
8. On 23 August 2012, SPVA wrote to Mr Bryant saying that it was likely that the Cash Equivalent Valuation (CEV) they had previously provided was incorrect. They acknowledged that the information would have been used in Mr Bryant’s divorce settlement and offered to provide a further CEV.
9. SPVA then wrote to Mr Bryant, on 21 September 2012, saying that he should not have been offered the option to transfer the AFPS 75 service in respect of which he had already received payment of benefits. He was offered two options:
· To hold all his benefits in the AFPS 75 and aggregate the two periods of service (a total of 28 years and 149 days), giving him an annual pension of £26,058.24 and a balance of lump sum of £37,720.68 ; or
· To transfer his later service to the AFPS 05 (12 years and 76 days) and restore his previous AFPS 75 benefits separately, giving him a total annual pension of £26,305.00 (£12,463.42 plus £13,841.58) and a lump sum of £41,542.74 (3 times his AFPS 05 pension).
10. Mr Bryant was asked to reconsider his OTT decision. SPVA had also identified that Mr Bryant should only have been paid a balance of lump sum after the earlier payment (£25,372.80) had been taken into account. Mr Bryant only received the letter on 15 November 2012 because the SPVA had decided that it should be hand delivered by a welfare officer rather than posted to him in Egypt where he was then based.
11. Mr Bryant declined to sign a further OTT option form and submitted a complaint under the Scheme’s internal dispute resolution (IDR) procedure on 20 November 2012. SPVA wrote to him, on 27 November 2012, acknowledging his application and responding to specific questions he had raised. They explained that the payments he had been making in respect of his Resettlement Commutation and Life Commutation were not connected to the overpayment they had identified. SPVA said that the overpayment had arisen because no account had been taken of the fact that Mr Bryant had already received a lump sum of £25,372.80 in 1993.
12. At Stage One of the IDR procedure, SPVA said that Mr Bryant was unable to transfer his earlier service into the AFPS 05 because his pension had been in payment. They referred him to Paragraph 0707 of Chapter 7 of Part 1 of JSP (Joint Service Publication) 764 which states,
“If an individual is in receipt of his AFPS 75 pension (albeit abated) there can be no aggregation under AFPS 05 as the AFPS 75 benefit is already in payment.”
JSP are internal policy/guidance publications.
13. SPVA also referred to AFPS 05 booklet provided at the time of the OTT exercise, which also said that a pension which had been put into payment could not be aggregated. Page 21 of the AFPS 05 Booklet was headed “Transferring your benefits” and (amongst other things) said,
“Aggregation of earlier Armed Forces Pension Benefits
If you rejoin the Armed Forces and have preserved awards in AFPS75 or AFPS05 you are entitled to aggregate them, that is, add them together.
If you have a pension in payment, it may be suspended or reduced to ensure that your pension and your new rate of pay do not exceed your old rate of pay (adjusted for inflation). This is known as abatement. If a pension is in payment it cannot be aggregated or transferred.
…
See booklet “Re-employment”- MMP/116 for further details”.
14. The OTT pack also referred to another booklet, entitled “Transferring Benefits” – MMP/129, which said,
“Pension benefits cannot be transferred once they have come into payment”
15. SPVA asked Mr Bryant to choose one of the above options and offered him £300 redress for distress and inconvenience. Mr Bryant disagreed with the Stage One decision and opted to appeal.
16. SPVA issued a Stage Two decision on 12 April 2013. They did not uphold Mr Bryant’s appeal. Mr Bryant was given until 24 May 2013 to make his decision. SPVA said that, if he did not decide otherwise, they would recalculate his benefits on the basis of the second option. This would also enable them to implement the pension sharing order in respect of Mr Bryant’s former wife. Mr Bryant did not make a choice by 24 May 2013 and SPVA have recalculated his benefits on this basis and implemented the pension sharing order.
17. Under Option 2 above, SPVA estimated that an overpayment amounting to around £11,661.12 (gross) in pension and £55,093.59 in lump sum had occurred. Following implementation of the PSO, the overpayment of pension increased to £26,778.89. Mr Bryant’s former spouse becomes a pension credit member and is entitled to payment of pension from age 65. She may request early payment of the pension from age 55. SPVA have confirmed that Mr Bryant’s former spouse was under 65 at the effective and implementation date and, therefore, no arrears of pension were due to her. The AFPS 05 Booklet “Your Pension Scheme Explained” states,
“Under a PSO, a court may order that a percentage of the value of your benefits are transferred permanently to your former spouse and they become a pension credit member. These benefits are payable when the former spouse … reaches the age of 65 …”
18. SPVA have re-assessed the overpayment following implementation of the PSO and say that this amounts to £26,778.89 pension and £55,093.59 lump sum. SPVA are awaiting the outcome of Mr Bryant’s application to the Pensions Ombudsman before notifying him of this and say that they would be willing to negotiate a repayment plan.
Mr Bryant’s Position
19. Mr Bryant submits:
· At the time he was offered a transfer to the AFPS 05, he was not in receipt of a pension. He had been told, when he joined the RAF, that he would be “required to cancel [his] entitlement to any Navy Terminal benefits” (Letter dated 14 January 1999.) At no time was the word “abatement” used in correspondence with him. His pension was not abated; it was cancelled.
· JSP764 Part 1 Chapter 7 para. 0707 does not apply to him.
· He aggregated his two periods of service in 1999 under the Queen’s Regulations, Chapter 48, paragraph 3246(1). This clearly states that “Where two periods of service have been aggregated a new award is made in respect of this total service and the previous award is cancelled”.
· He was told, shortly after joining the RAF, that repayment of the Resettlement and Life Commutation ‘wiped the slate clean’ and that he would benefit in the long run because he would be offered a pension based on aggregated service. He has repaid more than the commutation lump sums he received when he left the Navy.
· SPVA say that deductions in respect of the Resettlement and Life Commutation lump sums were taken from his RAF salary because there was not pension in payment. This was because the pension had been cancelled.
· His RAF pay has been reduced by considerably more than the combined commutation (Resettlement and Life) which he received (£41,028 against £31,922).
· Paragraph 2964 refers to ‘Retired Officers’, which is a specific term in the Armed Forces and applies to someone who has reached retirement date and is re-employed for a particular role. He was not re-employed as a Retired Officer.
· He saw no reason to question the offer to transfer. AFPAA were aware of his personal circumstances and said that they had checked the rules.
· AFPAA knew his Navy pension had been cancelled and were, therefore, content to allow him to transfer.
· Implementation of the pension sharing order issued in March 2012 was unnecessarily delayed. SPVA could have implemented the PSO on the basis of figures previously provided and, if an error was subsequently proved, adjusted the pension payments accordingly.
· He had been provided with two inappropriate options; one of which was numerically incorrect and one which was administratively incorrect. He elected not to make an impossible choice and it was unreasonable to ask him to.
· This has caused considerable distress and financial disadvantage for both himself and his former wife. He was voluntarily supporting his former wife until the PSO was implemented. He has also suffered a financial loss because he has paid incorrect personal tax during the period between his retirement from the RAF and the date his former wife started to receive her pension.
· He accepts that the lump sum he received in respect of his earlier service was to be offset against the benefits he received at the end of his second period of service. However, there was no mention of interest being charged when he was informed of this in 1999.
· Correspondence with SPVA in the final few years of his RAF service concerning his final terminal grant confirmed the amount he eventually received. He was not, therefore, aware that he had been overpaid.
Response from SPVA