British Steel Final Determinations

The Pensions Ombudsman has published the final determinations in the four lead British Steel cases concerning maladministration in relation to member communications and information. In this briefing, we provide a summary and highlight some lessons for trustees.

Background

During a period of uncertainty regarding the future of the Old British Steel Pension Scheme (OBSPS), the scheme trustee undertook a member-option exercise. This entailed changes to the calculation methodology behind cash equivalent transfer values (CETVs) and Early Retirement Factors (ERFs). In consequence, members who requested a transfer value or retired early from the OBSPS, on or after 1 April 2017, received significantly higher benefits than those who had already transferred out or taken early retirement.

Some members who transferred out or took early retirement before the trustee decision to change CETVs and ERFs complained that communications, which included the possibility of the OBSPS entering the Pension Protection Fund, were misleading and scaremongering, leading them to act prematurely. They contended, therefore, that their transfers / benefits should be calculated on the post-April 2017 basis. Other members complained that they transferred after the trustee decision was made but before it took effect, and that transfers in that period should be recalculated.

Members’ complaints

Specifically, members complained that:

1. the trustee’s communications ), take advice, concerning the OBSPS’ future scared them into transferring out or taking early retirement sooner than they might otherwise have done; and
2. that the trustee should have changed the calculation basis earlier and been more open with members about this.

The circumstances of each of the four lead cases differ slightly, in terms of:

• whether the member took a CETV;
• when, in relation to the change of calculation basis the member took their CETV; or
• whether the member retired early.

Ombudsman’s decision

After an extensive investigation, the Ombudsman did not uphold any of the complaints for the following reasons:

• the trustee’s communications concerning the OBSPS’ future was not misleading (and was not intended by the trustee to be so) and did not amount to scaremongering;
• setting ERFs and / or CETV factors is a matter for the trustee, in respect of which the trustee obtained and considered actuarial advice;
• the trustee obtained and considered appropriate advice from suitable parties in order to reach its decisions in respect of:
  • the OBSPS and its future;
  • the OBSPS’ statement of investment principles (SIP); and
  • changes to the CETV methodology and ERFs;
• the trustee acted reasonably in using the ERFs and / or CETV calculation methodology that applied at the relevant time; and
• subsequent changes to the methodology should not be applied retrospectively.

Salutary reminder for trustees

This is a reassuring decision, at least for trustees.

It is a salutary reminder of the distinction between provision of information, which trustees can and often must do, and giving advice, which trustees are not authorised or regulated to do.

It is also helpful in terms of determining the form that any information from the trustees should take:

• make sure that information, whilst allowing members to make informed decisions, does not unduly influence them; and
• keep information factual and, where applicable, compliant with relevant disclosure regulations.

And last but not least, the determination reinforces the duty for trustees to obtain appropriate advice from suitable parties in order to reach its decisions.

Where all of the above is taken on board, it seems that trustees reaching a decision that is reasonable at the time will not then be judged with the benefit of hindsight.

Similar principles apply in respect of ERFs too.

Statutory rights are sacrosanct

More generally, in line with some of the cases concerning ‘pension scams’, trustees should, following this decision, consider themselves reminded about the importance of actioning members statutory rights. Trustees must comply with cash equivalent transfer value (CETV) legislation and deadlines, and their scheme rules. In a nutshell, members statutory CETV rights are sacrosanct and, consistent with this, it is not reasonable to expect trustees to recalculate CETVs already correctly paid pursuant to members statutory rights and to then increase such payments.

The Ombudsman also observed that, whilst members have a right to receive certain information, either automatically or on request, there is no requirement for trustees to notify members of prospective intentions to update the SIP or CETV calculation basis.

Member perspective

So, as mentioned above, all very reassuring for trustees. But for the sake of balance, the Ombudsman also made an observation about thinking about how members may react to information.

He referenced the separate and independent review of communications and support given to OBSPS members, which was undertaken by Caroline Rookes (previously CEO of the Money Advice Service). That review did not look at the complaints in hand but, nevertheless, the Ombudsman noted that:

“I concur with the recommendations that Ms Rookes has made in her independent review. Included in those recommendations is a comment that pension scheme trustees who seek to communicate with members regarding a scheme restructure need to try to anticipate the behavioural responses of those members to the trustees’ attempts to engage with them. While I do not consider, on the facts of this case, that there was any maladministration on the part of the Trustee when it communicated with OBSPS members as it did, I would encourage pension scheme trustees in future to consider Ms Rookes’ recommendations before embarking on a large-scale communications exercise with members. The risk of member complaints following a restructure could be reduced considerably by taking steps to ensure that members feel that they are being kept informed before, during and after the process.”

Something for trustees to think about.