Pensions Ombudsman - Pensions Ombudsman holds that erroneous information in scheme booklet was binding

Friday, November 23, 2012

This is an unusual example of a case where the Pensions Ombudsman has been willing to rule that a statement contained in ancillary literature, such as a scheme booklet, was binding, even though it contradicted the scheme rules. 

Mr Paffey began working for the PPF and joined the Principal Civil Service Pension Scheme ("PCSPS").  Upon joining the PCSPS, he transferred two personal pensions into it. The scheme booklet stated that two years’ service were required in order to receive a pension, but that periods of service transferred from another pension arrangement would count towards that two-year period.  The booklet stated further that "if you transfer a personal pension into the Scheme the two-year requirement is satisfied immediately". Mr Paffey was also a deferred member of four occupational pension schemes, with over two years of active membership in each, but chose not to transfer these so as to avoid losing future discretionary increases in those schemes. 

In September 2009, Mr Paffey suffered three strokes and was told he would never return to work. He was refused an incapacity pension from the PCSPS on the grounds that he had less than two years' service.  The Cabinet Office explained that the scheme booklet was wrong in that only transfers from occupational pension schemes could count towards the two-year service requirement.  It also told the member that the scheme rules, which stated that only transfers from occupational schemes counted towards the service requirement, took precedence over the booklet.

The Ombudsman ruled that the incorrectly worded scheme booklet constituted maladministration. The likely rational act, if Mr Paffey had known the true situation, is that he would have transferred benefits from one of the occupational pensions to the PCSPS.  The Ombudsman instructed the PCSPS to pay Mr Paffey compensation to put him in the position he would have been in had the scheme booklet been correct.

A pension scheme booklet will generally contain a disclaimer to the effect that the scheme rules will take precedence in the event that there is any inconsistency between the scheme rules and the booklet.  However, this case suggests that such statements cannot necessarily be relied upon in all circumstances. The Trustee must, therefore, ensure that information given to members regarding the Scheme is sufficiently clear and accurately reflects the Scheme’s governing provisions.  

Thank you for all your assistance in helping to meet the deadline for the capital reduction exercise – your professionalism and friendly approach was appreciated.

Finance Director - Leading UK Company

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