Jpmc Uk Retirement Plan · CAS-53517-H3N1

CAS-53517-H3N1

Ombudsman’s Determination Applicant Dr R

Scheme JPMC UK Retirement Plan (the Plan)

Respondents JP Morgan Pension Trustees Limited (the Trustee) Mercer Limited (Mercer)

Outcome

Complaint summary

Background information, including submissions from the parties The Plan is a defined contribution (DC) Plan and Dr R is a deferred member. A proportion of Dr R’s DC benefits is subject to the Underpin Benefit, as he was contracted out of the State Earnings Related Pension Scheme (SERPS), at the time that he accrued his benefits in the Plan.

The value of the Underpin Benefit will be used to provide Dr R with a Reference Scheme Test (RST) pension on retirement. Dr R's benefits are split into: (i) a core DC fund, which is intended to be used to provide his RST pension, and (ii) a non-core DC fund which cannot be used to provide this pension.

On 26 February 2020, Mercer, the Plan’s administrator, on behalf of the Trustee, sent Dr R an estimate of the retirement benefits available to him on his retirement. The letter explained that:-

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Dr R said that he was informed by Mercer, in February 2020, that the amount required from his core DC fund, to provide him with the RST pension at retirement, was £50,174.32. But HM Revenue & Customs (HMRC) rules, regarding tax-free lump sums, indicated that the value of the Underpin Benefit was less than £30,000. He subsequently emailed Mercer on 10 March 2020, and asked for confirmation that there would be no requirement for him to obtain advice from an IFA before he was able to transfer his benefits from the Plan.

On 30 March 2020, Mercer replied to Dr R and said that the value of the Underpin Benefit was in excess of £30,000. So, he needed to obtain advice from an IFA. However, Mercer did not disclose the value of the Underpin Benefit. Dr R replied on the same date and asked Mercer to confirm the value.

Dr R said that, on 14 April 2020, he was informed, during a telephone conversation with Mercer, that the cash equivalent transfer value (CETV) of the Underpin Benefit was £41,767.12. During the telephone call, he made the note that, if he were to claim the RST pension from the Plan, £50,174.32 would be deducted from his fund to pay for this pension. So, the requirement for him to spend this amount buying a pension, that the Plan had valued at £41,767.12, could not be called a “benefit”.

On 13 July 2020, Dr R complained to the Trustee under stage one of the Scheme’s Internal Dispute Resolution Procedure (IDRP). In summary he said:-

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3 CAS-53517-H3N1 On 7 September 2020, the Trustee replied to Dr R’s complaint under stage one of the IDRP. The Trustee explained that Dr R could take his benefits from the Plan in two different ways: (i) retire from the plan; or (ii) transfer his benefits in full to an external provider. The Trustee also said in summary:-

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On 5 February 2021, Dr R appealed the Trustee’s decision under stage two of the Plan’s IDRP. His main complaint is summarised below:-

1 https://www.legislation.gov.uk/uksi/2015/742/regulation/5/made

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On 7 April 2021, the Trustee replied to Dr R under stage two of the IDRP. It upheld the IDRP stage one decision but made some additional comments. These have been summarised below:-

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Dr R’s position

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“A cash balance benefit is a benefit calculated by reference to an amount available for the provision of benefits to or in respect of the member (“the available amount”) where there is a promise about that amount.

But a benefit is not a “cash balance benefit” if, under the scheme—

(a) a pension may be provided from the available amount to or in respect of the member, and

(b) there is a promise about the rate of that pension…”

2https://www.legislation.gov.uk/ukpga/2015/8/section/48

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10 CAS-53517-H3N1 “Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before… making a transfer payment in respect of any of the benefits with a view to acquiring a right or entitlement to flexible benefits for the member or survivor under another pension scheme.”

“…benefits the rate or amount of which is calculated by reference to a payment or payments made by the member or by any other person in respect of the member.”

“…a benefit calculated by reference to an amount available for the provision of benefits to or in respect of the member (“the available amount”) where there is a promise about that amount.”

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3 This sub-rule is detailed in the Appendix.

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Adjudicator’s Opinion

“safeguarded benefits” means benefits other than-

money purchase benefits, and

cash balance benefits.”

4 https://www.legislation.gov.uk/ukpga/1993/48/section/181/enacted

5 https://www.legislation.gov.uk/ukpga/2015/8/section/75/enacted

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“The Rules state that, on retirement, the Trustee must pay Dr R a pension that is at least equal to the pension he would have received under SERPS had he not been contracted out”.

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Ombudsman’s decision

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I do not uphold Dr R’s complaint.

Anthony Arter

Pensions Ombudsman 22 December 2022

17 CAS-53517-H3N1 Appendix Relevant sections of the Consolidated Rules concerning the calculation of the RST Underpin.

“…

9. CONTRACTED-OUT MEMBERSHIP UNDER SCHEDULE 3

9.1 General

The Trustee shall operate the LORP Section in accordance with the contracting-out laws under the PSA which apply to salary related contracted-out schemes. Members of the Salary Related Section and the Money Purchase Section shall be in Contracted-out Membership and Schedule 3 (Contracting-out) shall apply to them.

9.2 Money Purchase Section - service after 5 April 1997

9.2.1 The benefits for and in respect of a Money Purchase Member in relation to his Contracted-out Membership after 5 April 1997 will, regardless of when they are applied or put into payment, be at least equal in value to those applicable under the reference scheme specified in Section 12B of the PSA. In respect of any such period of Contracted-out Membership after 5 April 1997 of a Member who is, in relation to that period (or any part of it), a Money Purchase Member (for the purposes of this Sub-Rule the “Relevant Period of Money Purchase Membership”):

9.2.1.1 on a benefit becoming payable to or in respect of that Member, the Trustee shall identify that part of the Member's Retirement Account Balance which relates to the Employer's Matched Contributions or Core Contributions in relation to the Relevant Period of Money Purchase Membership (the "Relevant Part");

9.2.1.2 notwithstanding any other provision of the Definitive Deed, the General Rules or the Sub-Rules of the LORP Section (other than General Rule 21 (Amendment), Schedule 3 and provisions necessary to retain the Plan's status as a Registered Pension Scheme), the Trustee shall apply the Relevant Part to provide such benefits as may be required to satisfy the requirements of Sub-Rule 9.2.1, provided that:

(a) if the Relevant Part is insufficient to provide those benefits the shortfall is to be made good from the Fund; and

(b) if the Relevant Part is greater than is required to provide those benefits, then only such part of the Relevant Part as is necessary to provide those benefits is to be applied and 18 CAS-53517-H3N1 the rest of the Relevant Part will form part of the remainder of the Member's Retirement Account Balance.

…”

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