Teachers Pension Scheme · CAS-41640-P6C2

CAS-41640-P6C2

Ombudsman’s Determination Applicant Mrs R

Scheme Teachers' Pension Scheme (the Scheme)

Respondents Teachers' Pensions (TP)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties. 1 CAS-41640-P6C2 While employed as a teacher Mrs R was a member of the Scheme.

Mrs R’s Scheme membership in was categorised as “mixed service” because it included a period of membership in the final salary section of the Scheme followed by a period of membership in the career average section of the Scheme.

Mrs R’s Scheme service was subject to a “salary link” (the salary link), meaning that the final salary portion of her retirement benefits had continued to benefit from any career progression and salary increases after her transition to the career average section of the Scheme.

The Scheme permits actuarially reduced early retirement from age 55.

The Teachers’ Pensions Regulations 2010, Part 5, Average Salary, 39 Restriction on average salary (the Scheme Regulations) give it the power to impose a salary restriction on average salary. This restriction can only be applied when benefits are taken, and where the salary increase during the period used for the final average salary calculation for the final salary section of the Scheme has exceeded the threshold. This means that, if, during the preceding 3 years, Mrs R received a year- on-year increase in contributable salary exceeding the greater of 10% or £6,136.00, the salary used to calculate her pension must be restricted.

Mrs R wanted to retire on 1 September 2019 and following retirement, she planned to work on an informal basis, as and when she wanted to do so.

On 30 November 2018, Mrs R contacted TP, via the online chat service, to ask for an estimate of the retirement benefits she would receive if she were to retire at age 55, or alternatively, take a lump sum, leaving the balance until retirement at age 67.

TP responded via the chat service to explain that it was unable to forecast the value of her retirement for a date so far in the future. It said that, to do so, it would need the following:

• The salaries received by Mrs R up to the point of her retirement.

• The total amount of pensionable service accrued by Mrs R at the time of retirement.

• The current consumer price inflation (CPI) factors applicable at the time of her retirement.

TP directed Mrs R to TP’s range of online calculators where she could obtain a current illustration of her retirement benefits, and also obtain further illustrations based on retirement at various ages and based on different salaries.

Mrs R subsequently telephoned TP several times prior to retirement for help on how to use the online calculators and how to calculate her pension benefits. Mrs R says she used the online calculators to work out her potential retirement benefits in order to ensure that her benefits would be enough to live on in retirement.

2 CAS-41640-P6C2 During 2019, Mrs R received several “My Benefits Statements” (MBS) from TP which quoted the current value of her pension benefits at the following dates:

• 22 February 2019;

• 5 April 2019;

• 3 July 2019;

• 8 August 2019;

• 14 August 2019.

“The figures in this statement are for illustration purposes only. Please check the service and salary information as errors will lead to an incorrect estimate of benefits. This statement confers no right to the benefits quoted. Please refer to the Notes section…”

• The first note in the Notes section stated:

“Your estimate is based on the service and salary details supplied by your employer(s)…This statement is provided for illustrative purposes only and is not a guarantee of benefits, nor does it assume any rights to such benefits.”

• Also in the Notes section, the following statements were to be found under the “Average Salary” section:

“restricted salaries: Salaries that increase by more than 10% of the fixed amount year-on-year will be restricted to the previous year’s salary plus either 10% of the increase or the fixed amount, whichever is the highest. For further information about this please check the FAQs online.”

“salary link: For transition members who moved from the Final Salary to the Career Average arrangement without a disqualifying break in service, the Average Salary will be calculated using salaries from your most recent service. This means that salary increases, and career progression are taken into account for your Final Salary arrangement pension benefits, even after you have transitioned to the Career Average arrangement.”

• In the summary of benefits – Final Salary 80th Scheme Arrangements section of each of the above MBS’, the average salary and average salary method were set out, which included the statement “Restricted Salary Used”. For the 22 February 2019 and 5 April 2019 MBS’, the box next to this statement said “no”. However, for the MBS’ dated 3 July 2019, 8 August 2019 and 14 August 2019, the box next to the statement said “yes”.

• Each MBS also contained a detailed service history, including dates of employment, annual salary, and reckonable days worked each year. 3 CAS-41640-P6C2 On 20 August 2019, Mrs R received a statement of benefits (the Statement) showing the pension and lump sum due to be paid on 2 September 2019 as follows:

• Type of retirement actuarially reduced • Salary of reference £50,389.00 • Average salary £46,504.00 • Final salary annual pension £4,806.83 • Career average annual pension £321.72 • Total annual pension £5,128.55 • Lump sum £17,945.44 • Converted lump sum final salary section £14,099.74 • Total lump sum payable final salary section £32,045.18 • Converted lump sum career average section £2,144.77

Mrs R believed the Statement contained several errors so, as her last day of service was 31 August 2019, she telephoned TP to ask for clarification and corrected information.

Mrs R retired on 1 September 2019, having accrued 12 years and 129 days’ membership in the final salary section and 335 days’ membership in the career average section. The combined service total used in calculating her retirement benefits was therefore 13 years and 99 days.

On 2 September 2019, Mrs R telephoned TP several times to ensure she would receive a new statement of benefits and that the correct pension would be paid. However, despite assurances, no new statement was received.

On 2 September 2019, Mrs R received three payments into her bank account, but no pay advice was received that showed the breakdown of how her pension had been paid. Mrs R has said that this made it harder to check to see if the amounts paid were correct.

On 4 September 2019, Mrs R raised a complaint using the online chat service as follows:

• The Statement was incorrect, containing several errors including:

o Incorrect total service information, which stated that final salary service was based on 12 years and 129 days with career average service stated at 265 days, making a total of 13 years and 29 days;

o Incorrect average salary for the career average section;

o The basic lump sum was stated rather than the maximum lump sum she had requested;

4 CAS-41640-P6C2 o No average salary calculation.

On 4 September 2019, TP responded to Mrs R’s online complaint as follows:

• She had been classed as a mixed service member, having accrued benefits in both the final salary and the career average sections of the Scheme.

• Her final salary service totalled 12 years and 129 days with a normal retirement age of 60.

• Her career average service totalled 335 days with a normal retirement age linked to the State Pension scheme.

• Her combined total service which was used to calculate her benefits was 13 years and 99 days.

• Her benefits were actuarially reduced due to taking early retirement.

• She had also commuted some of her pension in order to receive the maximum lump sum available.

• Any estimates previously supplied were for illustration purposes only.

• Mrs R’s pension record could only be fully scrutinised once she had applied for her pension. It was only at that stage that any anomalies could be identified and addressed.

On 17 September 2019, Mrs R complained again via the online chat service as follows:

• She had received no response to her earlier request for an updated statement showing the correct calculations.

• She had received a payslip in respect of her first pension payment, but she believed the monthly pension amount of £427.38 was incorrect.

• She questioned how TP could have made so many errors.

• She had been led to understand the average of her salary would be used to calculate her benefits, but contended that this was wrong, based on various calculations carried out using the online calculator.

• It would be more beneficial to her if her final year’s salary were to be used to calculate her benefits.

• TP had not included the actual extra lump sum in its calculations shown on the Statement.

• She wanted information on the formal complaint procedure, as she had received no reply to her earlier complaint.

5 CAS-41640-P6C2 On 17 September 2019, TP wrote to Mrs R as follows:

• It apologised for any errors that the Statement had contained and acknowledged the distress and the inconvenience which had been caused.

• It confirmed the lump sum payments that had been made on 2 September 2019 as follows:-

o Standard lump sum £17,945.44 o Converted lump sum via final salary commutation £14,099.74 o Converted lump sum via career average commutation £2,144.77

• It confirmed her gross annual pension was £5,128.55.

• It confirmed that Mrs R could escalate her complaint to the Department for Education (DfE) if she remained unhappy with TP’s response to her complaints.

On 26 September 2019, Mrs R complained again using the online chat service as follows:

• Before retiring she had spoken to TP by telephone and was informed that her pension would be calculated either on the average of the last three years’ salary, or on the last 365 days of salary, whichever was the most beneficial to her.

• Having been unable to identify the better method of calculation with TP during that telephone call, she had put the relevant information into the online calculator, arriving at the following:-

o Annual pension (combined final salary and career average) £5,491

o Lump sum (combined final salary and career average) £36,655

• Accordingly, TP’s calculation of her benefits remained incorrect.

On 16 October 2019, TP responded to Mrs R’s online chat service complaint of 26 September 2019 as follows:

• It apologised that it had not responded to Mrs R’s complaints in a more timely manner.

• It noted that a further Statement of her benefits (the Further Statement) had been issued by post that day, 16 October 2019.

• The covering letter to the Further Statement had explained that, where a salary has increased in excess of a certain amount, it must be restricted.

6 CAS-41640-P6C2 • It apologised that the covering letter did not explain how the average salary had been calculated. It provided a comprehensive explanation of the methodology used for calculating average salary.

• It set out the average salaries between 2015 and 2019, explaining that:

o Salaries for 2016/17 and 2017/18 were unrestricted because they did not exceed the previous salary plus the fixed amount.

o The average salary for 2018/19 is £50,495.26, which meant it had increased year on year above the salary restriction threshold and had to be restricted to the previous year’s salary, plus a fixed amount of £6,136, restricting it to £46,504.

• It apologised for any distress and inconvenience this information may have caused Mrs R.

• It confirmed this was its final response, and if Mrs R remained dissatisfied, she could raise a formal compliant with the DfE, using the Internal Dispute Resolution Procedure (IDRP).

Also on 16 October 2019, TP’s benefits team wrote to Mrs R, enclosing a copy of the Further Statement showing her pension benefits from both sections of the Scheme. The letter included the following information:

“This is to notify you that the salary used in the calculation of retirement benefits has been restricted. The restriction of salary is in accordance with Regulation 39 of the Teachers’ Pensions Regulations 2010.”

…

“The restricted salary provision applies where your average salary calculated on the basis of the last 365 days’ pensionable employment is the highest. The increase in your salary cannot exceed the greater of 10% of £6,136 in any of the 3 years prior to your retirement. This has occurred in your case and therefore the average salary and the ensuing benefits have been restricted.”

…

“In accordance with Schedule 4, paragraph 2 (3) and (4) of the Teachers’ Pensions Regulations 2010, your employer can, with your consent, decide to purchase Additional Pension up to the maximum allowed (£6,600 per annum for 2019/20), taking account of any Additional Pension elections you have previously purchased. The election must be made within 6 months of your leaving pensionable employment.”

The Further Statement showed the following:

• Salary of reference: £50,389.00

7 CAS-41640-P6C2 • Average salary: £46,504.00 • Annual pension: £4,806.83 final salary and £321.72 career average totalling £5,128.55 per year • Lump sum: £17,945.44 • Converted lump sum: £14,099.74 final salary and £2,144.77 career average • Lump sums paid: £32,045.18 plus £2,144.77 paid on 01/09/2019

On 11 December 2019, Mrs R raised a complaint with the DfE under the IDRP saying:

• Her service dates had been wrongly calculated based on fewer days worked than she had actually worked, meaning her pension was wrong.

• the pension paid differed “significantly” from the estimates she had obtained prior to retirement, both those sent in the post from TP dated 20 August 2019 and 4 September 2019, and those from the online calculator.

On 6 January 2020, DfE issued its IDRP response to Mrs R as follows:

• It had a responsibility to ensure that the Scheme Regulations had been applied correctly and that Mrs R’s pension had been calculated correctly. It also had to ensure that the correct process had been followed by TP.

• It noted that TP accepted its service to Mrs R had been of a lower standard than it would have liked to deliver and that the MBS’ provided to Mrs R had not shown the effects of the restriction on her estimated pension.

• TP had explained that the application of an average salary restriction can only be applied at the time benefits are taken by the member. At that time, it would be clear whether the final average salary for the final salary section of the Scheme had exceeded the restriction threshold. If so, the salary used for calculating benefits was subject to the restriction.

• Mrs R’s situation was further complicated by the fact that she had mixed service and was taking her benefits on an actuarially adjusted basis.

• TP’s mention in its letter of 16 October 2019 of employers who buy additional pension cover on behalf of members had further confused matters. It apologised if this had caused Mrs R any additional confusion.

• It noted Mrs R’s contention, contained in her complaint of 4 September 2019, that her benefits had been calculated based on fewer days service than she had actually worked. It explained that, although fewer days were mentioned in the Statement than were actually worked, her pension had been calculated correctly, based on 12 years and 129 days in the final salary section and 335 days in the career average section. This meant she had been credited with 13 years and 99 days service in total.

8 CAS-41640-P6C2 • It confirmed that Mrs R was in receipt of the correct level of benefits from TP and that these had been calculated in accordance with the relevant regulations.

Mrs R’s position:

• She was misled on several occasions which resulted in her taking early retirement without the benefit of full information. If she had been informed of the likelihood of the restriction being applied prior to making her decision to retire, she would likely not have retired when she did.

• She had to return to work following retirement due to TP’s errors.

• TP misled her regarding the possibility of the employer buying extra benefits where the member’s pension was to be restricted, thus falsely raising her hopes of being able to increase her pension to compensate for the restriction.

• She remains of the view that her benefits have been incorrectly calculated in respect of service days worked, resulting in loss of pension benefits that are due to her.

• The matter has caused her a great deal of distress and inconvenience.

Adjudicator’s Opinion

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Ombudsman’s decision

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I do not uphold Mrs R’s complaint.

Anthony Arter Pensions Ombudsman

23 September 2021

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