This article considers the rejection of a member's complaint regarding the Trustees' decision to change the basis for calculating cash equivalent transfer values.


The Deputy Pensions Ombudsman (DPO) has rejected a member's complaint regarding the Trustees' decision to change the basis for calculating cash equivalent transfer values (CETVs) where this resulted in the member's cash equivalent transfer value being substantially reduced compared to the one quoted to him just over three months earlier (Mr E PO-13558).

In March 2015, the member had been quoted a CETV of £73,365. The letter made clear that the transfer value was guaranteed until 25 June 2015. Shortly before this date, the scheme administrator sent the member a reminder that the guaranteed transfer value was about to expire. However, the member did not return the requisite transfer forms until shortly after this date. As the guarantee period had expired, the scheme administrator issued a new CETV. Since the first CETV had been issued, the way in which the scheme calculated CETVs had been changed following actuarial advice. The second CETV quoted was £57,079. The member complained about the fact that the Trustees had made changes which resulted in such a significant reduction to his CETV, and queried the timing, which coincided with the introduction of the new "pension freedoms" in April 2015.

The DPO rejected the complaint, stating that the Trustees were legally required to monitor and review the appropriateness of the assumptions and actuarial factors used in the calculation of transfer values. This was not limited to just the interest rates, age and life expectancy factors. Another consideration could be the possibility of an increase in transfer value requests due to changes in legislation, where it was thought that the calculation of transfer values on the existing basis would mean members would be paid transfer values that were too high and detrimental to members who remained in the Scheme. Ultimately, it was a matter for the Trustees to decide, based on their actuary’s advice and recommendation, how the Scheme transfer values should be calculated. The DPO held that it was not within her remit to direct the Trustees on the appropriateness of actuarial factors and assumptions that should be used to calculate transfer values.

Comment

Trustees are likely to welcome this clear signal from the Ombudsman's office that it recognises that trustees have a broad discretion as to the basis they adopt for the calculation of CETVs, and that the Ombudsman is not minded to interfere in the exercise of that discretion.

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Rachel Rawnsley

Rachel Rawnsley

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United Kingdom

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Jade Murray

Jade Murray

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Catherine McAllister

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Rachel Uttley

Rachel Uttley

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United Kingdom

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