If a pension scheme provides an incorrect benefit statement to a member who decides to retire based on that incorrect information, will the scheme manager be liable to the member?

The Pensions Ombudsman has made a substantial financial loss award against a fire and rescue authority as manager of the Firemen’s Pension Scheme 1992 in a case where the authority provided incorrect information to the member about his pension entitlement which resulted in the member retiring earlier than he otherwise would have done (Mr R CAS-84083-M5S5). 

Background facts

Mr R had been temporarily promoted to the role of Area Manager in June 2017.  In March 2018 he applied for a permanent role as Area Manager.  As part of the appointment process, Mr R gave a commitment that, if successful, he would give a two year commitment to the fire service. The appointment process assessed four candidates as “successful” and then ranked them in order, with Mr R ranked second.  The idea behind this was that if future Area Manager vacancies arose in the next year or two,  the fire service would not run a fresh selection process, but would instead offer the position to the successful candidates in the order in which they had been ranked.  The candidate who had been ranked first was immediately promoted to Area Manager, leaving Mr R as next in line for promotion if a  vacancy were to arise.  

The decision to retire

The Chief Fire Officer (CFO) told Mr R that if he was going to retire in the near future, it would be more beneficial to retire in June 2018 rather than September 2018 because his nine months’ service as temporary Area Manager would be taken into account.  Following this conversation, Mr R requested retirement quotations showing the benefits he could receive if he retired in June 2018 or September 2018 respectively.  The figures for June 2018 said that Mr R would receive an annual pension of £34,213.53.  The September figures were lower.  Mr R retired in June 2018.  Another permanent Area Manager vacancy arose in September 2018.  As Mr R had retired by then, the candidate ranked immediately below Mr R in the previous selection process was appointed to the role.

Notification of overpayment

In February 2019 the fire service wrote to Mr R saying that his pension had been overpaid due to a failure to apply special rules which required pensionable salary to be calculated differently where the salary related to a temporary rather than permanent promotion.  It said that Mr R’s future pension would be reduced by £4645.75 per year.

Mr R’s complaint

Mr R complained that he would not have retired in June 2018 had he been provided with the correct figures, as his decision had been heavily influenced by the pension calculations which assumed that pensionable salary while on temporary promotion would count as pensionable salary in the normal way. 

The Ombudsman’s decision

The Ombudsman said that case law had clearly established that a scheme administrator responding to a member’s request for information is under a duty to ensure the information is accurate.  For Mr R’s claim to succeed, he needed to establish that:

• he had relied on the statement;
• that reliance was reasonable; and
• that he would have acted differently if told the correct position.

The Ombudsman found that Mr R had reasonably relied on the statement.  He noted that there was no suggestion that the statement had included any form of disclaimer to suggest that the figures could not be relied on.  The Ombudsman also found on the balance of probabilities that Mr R would not have retired in June 2018 had he been provided with correct information.  He was therefore entitled to be put in the position he would have been in had the incorrect statement not been made.  

The Ombudsman found on the balance of probabilities that, had Mr R been given the correct information, he would have still been in post in September 2018 and would have been offered and accepted the permanent Area Manager role. The Ombudsman directed the Authority to compensate Mr R for the financial loss incurred by comparing his actual financial position compared with his financial position had he been promoted to permanent Area Manager in September 2018.and retired in September 2020 (as per his previous commitment to remain with the fire service for at least 2 years if promoted).

Our thoughts

It is relatively unusual for a member to succeed in a claim for financial loss based on an incorrect benefit statement.  In this case the benefit statement does not appear to have included any form of disclaimer saying that it was for illustrative purposes only.  The Ombudsman specifically commented on this point, so it may be his decision would have been different had the incorrect statement included a disclaimer.  It is also often difficult for members to show that they would have behaved differently had the correct information been provided.  However, this decision shows that it is not impossible for members to satisfy the Ombudsman that this is the case.  The member only needs to establish this “on the balance of probabilities”, ie that it was more likely than not that the incorrect information affected the decision.