Pensions case law round-up – October 2014

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Dawson (PO-596) – trustee of a SIPP does not have to remind the member about withdrawal limits

The Pensions Ombudsman has determined that the self-invested personal pension (SIPP) administrator and trustee did not have a requirement under statute, contract or trust law to keep a member (who was making income withdrawals under an unsecured pension option) informed that he could increase his withdrawal amounts during the pension year.

The member in question complained to the Pensions Ombudsman that he was not informed he had not reached his maximum withdrawal limit in the 2008 pension year before it was too late to take advantage of this. The Pensions Ombudsman explained to the member that the SIPP administrator and trustee had given him all the required information to work out for himself the maximum income he could withdraw during a pension year, and therefore, they were not breaching the trustee’s duty to act in a member’s best interest by not informing further.

In addition, neither the Personal Pension (Disclosure of Information) Regulations 1987, nor any contractual obligation, imposed a duty on the respondent to inform a member about income withdrawal limits during a pension year.

Although there have been few complaints of this nature in respect of drawdown pensions in particular, with incoming reforms which will increase the available choices as to how members withdraw their pension at retirement, it will be important for trustees and administrators to ensure that members are kept up to date and fully informed of all their options in order to minimise similar complaints like this one arising in the future.

Chapman (PO-597) – member suffered no loss after being denied a lump sum payment after age 75

The Pensions Ombudsman has held that a member, who complained that she had not been informed that the Teachers’ Pension Scheme did not allow her to take a lump sum after reaching 75, ultimately suffered no loss and no detriment.

The reason for this decision was because the lump sum which the member had not opted to take, prior to age 75, was converted into an increased pension and that increased pension was still within the member’s personal allowance and, therefore, not subject to income tax. Consequently, she had suffered no financial loss in not taking the statutory lump sum: albeit she will receive the whole amount due to her later than if she had taken the tax-free lump sum previously.

Due to the changing employment landscape, and with more employees having or choosing to continue to work well into their seventies, issues concerning age 75 rules within pension schemes are bound to increase in the future. Trustees should therefore be mindful of their scheme’s rules and ageing workforce and ensure members are kept informed of issues such as this to minimise future complaints arising.