Background: Mrs Y separated from her husband, Professor Y, a retired member of the Universities Superannuation Scheme (the “USS”) in 1996. In 2004, at age 52, Mrs Y enquired with the USS about obtaining a pension sharing order (“PSO”). The USS informed Mrs Y that the normal pension age (“NPA”) at the time was 63 ½. She and Professor Y decided to remain married with Mrs Y receiving monthly maintenance from her husband.
Mrs Y separated from her husband, Professor Y, a retired member of the Universities Superannuation Scheme (the “USS“) in 1996. In 2004, at age 52, Mrs Y enquired with the USS about obtaining a pension sharing order (“PSO“). The USS informed Mrs Y that the normal pension age (“NPA“) at the time was 63 ½. She and Professor Y decided to remain married with Mrs Y receiving monthly maintenance from her husband.
In 2015, Professor Y became ill, and it was possible that he would need to move to a nursing home. If this happened, the maintenance payments would be stopped. The couple therefore agreed to divorce and obtain a PSO (Mrs Y anticipated a 70% share). Professor Y duly requested a cash equivalent transfer value (CETV) from the USS.
On 30 March 2015, the USS issued a CETV quote of £472,187.36 (a 70% PSO would mean an annual pension for Mrs Y of £12,691 based on a 70% share) and explained that a new CETV would be calculated once a decree absolute was issued and that the figures could change. The quote also stated the following:
“If an internal transfer option is chosen, the pension will be payable from the age of 65, but a request for earlier payment of reduced benefits can be made to the trustee company at any time from age 60.”
The decree absolute issued by the court on 15 July 2015 finalised the divorce thereby allowing the PSO to be implemented. On 30 October 2015, Professor and Mrs Y received the final CETV calculations following implementation of the PSO – this showed a lower transfer value of £410,527.11, reducing Mrs Y’s 70% share to an annual pension of £11,019.
The USS confirmed that, under the current scheme rules which had been amended in 2011, the NPA was 65. Mrs Y queried this and the USS confirmed that she could not access the pension on an unreduced basis until age 65. If she wanted to take her pension at her current age of 63, it would actuarially be reduced to £10,148 p.a. to take into account early payment.
Internal Dispute Resolution Procedure (“IDRP”)
In the autumn of 2015 Mrs Y complained through the USS’s IDRP. She stated that Professor Y and herself would not have proceeded to divorce had they been aware that Mrs Y would have to wait until age 65 to access the pension unreduced. Nor would they have divorced if they had known the pension value would reduce so significantly between March and October 2015. Mrs Y argued that the information received in March 2015 was insufficient to make an informed decision.
The complaint was rejected at both stages of the IDRP. The USS considered that:
- the March 2015 CETV quote explained that the final pension would be recalculated once the decree absolute had been issued and so it was clear the figures could change;
- the scheme was not required to write to individual members informing them of the increase in NPA in 2011 (age 63 ½ to age 65). This information was available on the USS website;
- the scheme rules applicable to Mrs Y were those in effect when the PSO was finally implemented and so it was necessary to consider the 2011 amendment to the NPA; and
- a change in CETV factors in April 2015 did not invalidate the March 2015 quote.
Complaint to the Pensions Ombudsman
On 25th November 2015, Mrs Y escalated her complaint to the Pensions Ombudsman arguing that the age at which she could take the pension had changed without her being informed, as had the basis for calculation of benefits. If she and Professor Y had been in receipt of the correct information, they would not have proceeded to divorce.
The Ombudsman did not uphold the complaint for the following reasons:
- there was no evidence suggesting that Mrs Y was misinformed about the age at which she could claim her benefits neither was there evidence that Mrs Y relied on statements received during a telephone call that age 63 ½ was still applicable to her as the relevant NPA;
- the information within the March 2015 quote was quite clear stating that NPA was age 65. It was unreasonable that she could expect to substitute the scheme’s NPA in 2015, for one that was in place prior to her own membership of the scheme;
- the scheme was not obligated to notify Professor Y of the changes to NPA in 2011, particularly given that he had retired 14 years before the change was implemented. The USS would not be expected to communicate changes in NPA to retired members as this information would be considered irrelevant; and
- it was not unreasonable for the scheme to change the factors during April 2015 and furthermore the scheme was not obliged to inform Professor Y that the basis for calculating transfer values was changing – the March 2015 quote was simply an illustration that would be recalculated on the date the decree absolute was issued by the court. The scheme’s trustees had fiduciary duties to ensure the scheme was administered in accordance with its rules and relevant legislation, which included ensuring that the factors used for calculating transfers were suitable.
Pension sharing is one of the options available on divorce or the dissolution of a civil partnership. It provides a clean break between parties, as the pension assets are split immediately. This means that each party can decide what to do with their share independently.
Schemes normally have four months after the date of the PSO to implement the pension share in accordance with the option chosen by the ex-spouse. The implementation period begins to run from the date the decree absolute is granted and so inevitably the member’s transfer value for the purpose of the PSO is finalised during this four month period.
In this case it is extremely unfortunate that changes to the way the transfer value was calculated had a detrimental effect on the final pension value and Mrs Y’s share. However, the reality is that it is difficult to protect against situations like this. Perhaps this is a salutary lesson for those embarking upon or part-way through divorce proceedings to seek an updated valuation before finalising the divorce.
Whilst the trustees in this case did not fall foul of any obligation to give advance warning of changes to the basis upon which transfer values were to be calculated we consider it prudent for trustees to keep abreast of any divorce cases (via the scheme administrator) in their schemes so as to avoid potential issues or similar complaints being made – especially where the ex-spouse may suffer a detriment.
Furthermore, this case highlights the importance of clear and concise communications and highlights the importance of pension professionals always making a note of telephone calls, especially where complaints are received – whether spurious or not.