The Pensions Ombudsman (PO) has given a determination in a complaint by a Mr N that the respondents were not under a duty to inform his wife, Mrs N, that opting to stop contributions to the Scottish Teachers’ Superannuation Scheme (the “Scheme”) after 40 years’ pensionable service would lead to reduced lump sum death benefits.
Facts
Under the regulations governing the Scheme, the lump sum death benefit payable to a deferred member such as Mrs N was only 3/80ths of pensionable salary multiplied by the reckonable service completed. In contrast, on the death of an active member of the Scheme, his or her beneficiaries would be entitled to receive three times the deceased’s pensionable salary.
In November 2012, Mrs N opted to end her contributions to the Scheme as she had completed 40 years’ pensionable service, which she believed was the maximum permitted under the Scheme. Mrs N remained an employee of Dundee City Council (the Council) until her death on 17 October 2013. The Scheme administrator calculated the death benefit on the deferred basis (with the period from when she opted out until 17 October 2013 not being counted as service). The lump sum death benefit payable from the Scheme amounted to £67,453. Had she kept up her contributions as an active member of the Scheme, the lump sum would have been £132,063, some £64,610 higher.
Complaint from Mr N
Mr N complained unsuccessfully under the Scheme’s IDRP. He therefore decided to bring his complaint to the PO stating that his late wife, who was already ill when she stopped her contributions in 2012, would not have become a deferred member if her employer (the Council) or the Scheme administrator had told her this would greatly reduce her death benefits.
He claimed that:
- the opt-out form had led her to believe the death benefit would remain unchanged;
- another employee had told him that after her death under its normal practice, the Council should have contacted Mr N to explain the implications of opting out; and
- the employer had breached its duty to take reasonable steps to inform an employee of a contractual term in order for them to take advantage of it. This duty flowed from the House of Lords decision in Scally v Southern Health Board[1] and later applied in the PO case of Bennett[2].
PO’s Determination
The PO dismissed Mr N’s complaint. He found that the administrator had a duty to administer the Scheme in accordance with the underlying regulations and had done so in paying Mr N the correct death benefits under those regulations (i.e. calculated on the deferred basis). It had also complied with the statutory requirements for supplying information set out in the relevant regulations, as had the employer.
The opt-out form listed the benefit of being an active Scheme member, and also required a declaration that the member had read and understood the guidance and elected to opt-out “in full knowledge” of the potential benefits under the Scheme. The administrator also said it had written to Mrs N in January 2013 to say the maximum pensionable employment was 45 years (not 40 years) and she could re-join the Scheme if she wanted, although Mr N denied his wife ever received this letter.
The PO noted that in Scally, the House of Lords held that if certain conditions were met ((i) the terms of the contract have not been negotiated with the individual; (ii) the term concerns a valuable right that requires the individual to take action to avail himself of it; and (iii) the employee cannot reasonably be expected to be aware of the terms unless it is drawn to his attention), the employer had a contractual duty to take reasonable steps to inform employees of a contractual term in order for them to take advantage of it.
In applying Scally to Mrs N’s case – the death benefit term was brought to her attention by her employer. As the information was published in the Scheme booklet, on the website, and as noted above, drawn to her attention in the opt-out form, the PO deemed the information readily accessible and concluded that Mrs N ought reasonably to have known. The PO also noted that, unlike in the recent determination in Bennett where a Scally obligation was found, there was no inconsistency in the information given to Mrs N.
Furthermore, even if Mrs N did not fully understand the implications of opting out of pensionable service, this was not the fault of the Council or the Scheme administrator and therefore there was no question of maladministration.
WB Comment
Whilst the determination applied the Scally principles strictly it would be unwise for employers to take a relaxed approach to informing members of their pension rights. Good practice is to be promoted – clear communications, regular review and updating of member booklets, opt-out forms, websites and online portals should become habit. The employer is obviously not there to provide anything that might constitute “financial advice” but care should be taken to ensure that a scheme’s benefit structure is carefully communicated. Furthermore, members should be encouraged to seek independent advice on anything that might constitute a lifestyle or financial decision.