Scottish Teachers Pension Scheme 2015 · CAS-46795-Y3P2

CAS-46795-Y3P2

Ombudsman’s Determination Applicant Mrs E

Scheme Scottish Teachers' Pension Scheme 2015 (the Scheme)

Respondents SPPA Policy (SPPA)

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.

Mrs E was a member of both the final salary and the career average (the 2015 section) sections of the Scheme.

Mrs E had the following options under the 2015 section:

• To use FA and increase her accrual rate from the standard rate of 1/57th of pensionable pay to any of the following:

o 1/45th

1 CAS-46795-Y3P2 o 1/50th

o 1/55th

• To have the FA commence from the next available 1 April or backdate it to the date of joining the 2015 section.

Under the final salary section, Mrs E also had the following options:

• Elect to buy out the standard early retirement reduction (ERRBO)

• Lower the Scheme retirement age (which was linked to her State Pension Age (SPA) of 66) by one, two or three years.

The Scheme provided an Annual Benefit Statement (ABS) each year, which showed accrued benefits and the accrual rates applied if any FA had been purchased.

On 12 September 2015, Mrs E completed and returned two application forms to SPPA, one regarding FA and the other for the ERRBO. The FA application form said on its first page:

“Please read the Faster Accrual factsheet (the Factsheet) at www.2015.sppa.gov.uk before making your application.”

The Factsheet stated that:

“Applications must be made within one month of joining the 2015 Scheme if the election is to take effect from your start date. Thereafter, applications must be made before the end of each year for the contract to begin the following 1 April. The election will run for one scheme year only from 1 April to 31 March.

Faster accrual contributions are based on your age on your last birthday at the start date of the election. You must pay the higher contributions for the one- year period of the election unless the agreement is revoked.”

Mrs E confirmed on the FA form that her current employer was West Lothian Council (WLC). Under the heading “Please provide details if this is to be applied to more than one employment contract”, Mrs E identified City of Edinburgh Council (CEC) as a secondary employer. She selected FA of 1/45th and requested that her chosen FA rate should start from 1 April 2016.

On 12 September 2015, Mrs E signed and dated the declaration page of the FA application form below the statement which said:

“I understand that the extra contribution rates must be paid for a complete Scheme year.”

Mrs E had returned the completed ERRBO form the same day. She had elected to purchase the maximum three years’ worth of buy-out.

On 25 September 2015, SPPA wrote to Mrs E saying: 2 CAS-46795-Y3P2 • The quotation for the purchase of 1/45th FA would require her to contribute an extra 6.79% of her pensionable earnings divided into equal monthly contributions between 1 April 2016 and 31 March 2017.

• If she accepted the quotation, she should complete the attached acceptance form, which stated:

“I have read the Factsheet and understand the conditions for making an agreement to purchase Teachers’ Faster Accrual.”

On 23 October 2015, Mrs E sent an email to SPPA asking if her completed acceptance forms had been received. SPPA emailed its reply by return and confirmed her forms had both been received and would be processed in due course and that it would be in touch with her and with her employer “very soon”.

On 26 November 2015, SPPA wrote to Mrs E regarding her FA application, saying:

• As she had taken out an ERRBO, her Scheme retirement age had been amended to 65.

• This had resulted in a change of factors for calculating her FA.

3 CAS-46795-Y3P2 • The FA quotation for the 1/45th accrual rate would result in the requirement for her to pay an extra 7.27% rather than 6.97% of her pensionable earnings between 1 April 2016 and 31 March 2017.

• Should she wish to proceed with the FA, she should complete and return a new acceptance form, which was attached to the email.

The form which Mrs E was required to sign and date, contained a declaration as follows:

“I have read the factsheet and understand the conditions for making an agreement to purchase Teachers’ Faster Accrual.”

On 14 December 2015, SPPA wrote to CEC to confirm that Mrs E had elected to pay extra contributions at the rate of 7.27% which should be deducted from her pensionable pay with effect from 1 April 2016 until 31 March 2017.

Also on 14 December 2015, SPPA wrote to Mrs E, confirming her recent election to purchase FA and reiterated the declaration stated in paragraph 22.

On 22 December 2015, SPPA wrote to Mrs E to confirm:

• She had elected to purchase FA at the rate of 1/45th.

• The extra percentage contributions required for the FA would be deducted from her pensionable pay by her employer at the rate of 7.27% per year.

• The deductions would be due monthly between 1 April 2016 to 31 March 2017.

• Mrs E’s present employers had been informed of the contract and had been instructed to deduct the relevant contributions.

• If she should commence new or concurrent employment, the onus was on her to inform the relevant employers of her current FA contract.

• Her payroll department had been asked to contact her to arrange collection of any arrears that were due.

On 26 April 2016, Mrs E sent an email to SPPA saying her employer had heard nothing about the applications she had made for the FA and the ERRBO. She asked SPPA to forward the relevant documentation to her employer, WLC, using the email link she had supplied in her email.

On 15 August 2016, Mrs E raised a query about her 2015 ABS via the online web query service. She asked:

• Why the details of her employer were different from the employer which provided her main employment. 4 CAS-46795-Y3P2 • Where she could find information about her elections for ERRBO and FA on the online member homepage.

On 22 September 2016, SPPA responded to Mrs E as follows:

• It confirmed that when the 2015 ABS was generated, Mrs E was still employed by her previous employer, CEC. The ERRBO task had been created after the end of the 2014/15 year.

• By the time the 2016 ABS became available, it would reflect her current employer’s details.

On 27 August 2019, Mrs E sent an email to SPPA following up on a telephone conversation on 20 August 2019. She sought clarification on the following:

• She had been told during the previous telephone call to check her payslips for deductions at the rate of 1/45th but was unsure how to do so. She had been checking her statements on the website but, during the telephone call she had been told these were inaccurate.

• She asked about how she could ensure the FA continued in future years, saying she had no evidence of ever having received documentation about the FA.

• She had not been informed about the need for annual FA reapplications and asked when this information had been sent to her.

• If SPPA already knew the statements were wrong, why had it not informed her in writing of this situation.

• She was very distressed to learn during the phone call that the FA was not being applied as she had limited time between now and retirement to adjust her retirement planning.

• She wanted to know what SPPA was going to do about the situation.

SPPA treated Mrs E’s email as a formal complaint and, on 29 August 2019 sent its Stage One response under its Internal Dispute Resolution Procedure (IDRP) as follows:

• It confirmed the standard accrual rate for teachers was 1/57th of pensionable pay each year.

• FA was an annual contract which allowed members the flexibility to save more for their pension without tying themselves into a long-term agreement, which may be financially difficult to maintain over an entire career.

5 CAS-46795-Y3P2 • It provided a copy of the Factsheet, confirming that it was available for members at the outset of any application for FA.

• It confirmed the application form which Mrs E had signed stated that the contract was for one year only.

• Further, the letter of acceptance that Mrs E had signed stated that the contract would run from 1 April 2016 to 31 March 2017, which was one Scheme year.

• It had investigated Mrs E’s record which indicated her employer, WLC, had failed to deduct, or report that it had deducted, any contributions for the FA.

• It apologised for the misleading 2018 and 2019 ABS’ and confirmed the correct accrual rate for these should be 1/57th, the Scheme standard accrual rate, and the rate Mrs E had been paying for both of those Scheme years.

• Regarding the ERRBO, it confirmed that, while the system was presently incapable of showing ERRBO updates on the ABS’, Mrs E’s contributions were up to date.

• It confirmed the “pension statement earnings” was Mrs E’s pensionable pay from both her employments in the years 2017 and 2018.

• Each ABS was automatically generated by the SPPA system, meaning if errors occurred, it would not know about them until a member provided correct information or raised a query, which would then be investigated.

On 7 September 2019, Mrs E responded to SPPA’s letter of 29 August 2019 saying:

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On 4 October 2019, Mrs E responded to SPPA to ask:

• Would it be possible to provide her with two different statements, one showing her current pension value and a further statement showing what the value would be if she were to make the one-off payment proposed by SPPA.

• Could SPPA explain what was meant by the column headed “Saving to Mrs E”. She commented that the figures quoted to bring the FA up to the level it would have been had it been deducted monthly over the preceding years, seemed high when compared to her monthly take-home salary. She also thought the figures did not take into account deductions made prior to income tax deduction. This meant the one-off payment would cost her 20% more than if the contributions had been made monthly when they should have been made.

• She would be willing to consider making a one-off payment to rectify matters, but not if the cost of doing so exceeded what it would have cost if she had been paying monthly since her original application. 8 CAS-46795-Y3P2 • She asked if SPPA would be prepared to reduce the payment figure following this principle.

On 4 October 2019, SPPA received an undated letter from Mrs E which she had sent in response to SPPA’s letter and offer dated 1 October 2019. Mrs E said:

• SPPA appeared to be saying that, by making a one-off payment of £7,913, she could increase her pension by £103 per annum.

• The figures seemed to be wrong, implying that accrual at 1/45th over a period of 3½ years represented the total cost of the pension accruing at that rate, but ignoring the fact that she had already been paying throughout the period in question at the rate of 1/57th. She was not confident of SPPA’s figures and asked for them to be re-checked.

On 14 October 2019, SPPA sent a further letter to Mrs E, responding to the queries she had raised on 4 October 2019 as follows:

• It provided a table of figures showing how much her pension would likely increase if she purchased FA at the rate of 1/45th for the three years between 2016 and 2019.

• It explained the “Saving to Mrs E” column was the amount she would save if she purchased FA for these years. The saving was the difference between the cost if purchasing now, and the cost had FA been purchased in the correct years.

• Because SPPA had offered the opportunity to purchase FA at the “old rate”, the offer to purchase the entire three years’ FA in one lump sum represented a saving to Mrs E of £670.02.

• It confirmed Mrs E’s impression that the cost was high. It explained this was because the tax relief was not illustrated in the calculation and that this was because only Mrs E’s employer could deduct tax from her salary.

• It provided a link to the HMRC leaflet which explained how tax relief on the lump sum payment could be arranged, and suggested Mrs E speak with her employer regarding this issue.

On 25 October 2019, SPPA emailed Mrs E to explain the effect on her pension if she opted to buy all three years’ FA, saying:

• Mrs E appeared to have read the comparisons incorrectly. The increase in her pension, if she opted to purchase all three years’ FA would be £536.27 annually, not £103, as Mrs E had calculated.

• The starting point for working out what her pension would be was the 2019 ABS, which showed the current value of her pension as £2,151.24.

• Mrs E could buy FA at the 1/45th rate for the following years:

9 CAS-46795-Y3P2 o 2016/2017; o 2017/2018; o 2018/2019.

• If she did so, the revalued figure for her 2019 pension would become £2,687.51 which was an annual increase of £536.27, compared to the pension without FA for those years.

• SPPA invited Mrs E to get in touch by telephone so the figures could be discussed in more detail.

Adjudicator’s Opinion

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Mrs E did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Mrs E provided her further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Mrs E, which are summarised below:

• Her pension had not increased as she had intended it to and was lower at this stage of her retirement planning than it should have been because SPPA had failed to manage her requests competently.

• SPPA did not fulfil its duties as it did not contact her main employer WLC at the outset. She did not agree that the initial error of writing to CEC instead of WLC was swiftly rectified, since WLC had been her main employer since 2006 onwards. She considered that SPPA’s records had not been accurately maintained. 11 CAS-46795-Y3P2 • The Factsheet was not sent out as standard, but rather was only made available online. This was inconvenient and obstructive.

• The FA application form cannot be submitted without being signed, meaning the applicant is also signing a disclaimer saying they have read the Factsheet, whether they have done so or not. However, she acknowledged that she had not read it but had signed the application forms, regardless of that fact. She did not believe her complaint should hinge on that single fact.

• Despite returning the FA quotation form and telephoning SPPA, she had to use the online web query service to follow up because SPPA had not sent the paperwork back to her within a week, as promised.

• She had been involved in a series of telephone calls and emails trying to obtain information about deductions, without success. As a result, she turned to the ABS’ for information, but she has subsequently found these were often incorrect, and so were misleading.

• She had been informed on 20 August 2019 that the ABS’ were incorrect and there was no plan to fix them going forward.

• She had requested that SPPA correct her ABS more than once to bring it into an accurate state, reflecting her actual contributions to date.

• However, SPPA did confirm to her that the service figure for her 2017 and 2018 ABS’ had been updated, as was reflected her 2020 ABS. SPPA had apologised to her for any inconvenience caused by these issues.

• She did not understand the offer that was put forward by SPPA and would have expected professional typed responses to her queries, rather than a spreadsheet with hand-annotated information colour-highlighted on a “scrap of paper”.

• She said her payslips were also incorrect but she believed SPPA should have been checking her contribution rate rather than it being her responsibility. If any of the contributions were wrong, SPPA should have contacted her employer, as it was not her responsibility to do so.

• She disagreed that it was her responsibility to liaise between the employer and SPPA over deductions from her salary and the setting up of pension contributions.

• It was unsatisfactory for SPPA to blame the employer for mistakes as this left her caught in the middle.

• The pension administrator and the employer should be working together to provide accurate services to pension fund members.

• The requirement for an annual application for the FA seemed counter-intuitive to her, and at the very least some sort of reminder should have been sent to her by

12 CAS-46795-Y3P2 SPPA. There seemed to be an urgent need for SPPA to significantly improve the accuracy, timeliness and level of detail provided in their statements.

• Mrs E wanted a better offer from SPPA that would cost her less than had been quoted but would still put her in the position she should have been but for the errors and omissions in respect of the FA.

Ombudsman’s decision Mrs E has complained that she was not told that her request for FA had to be applied for annually. She has also complained that no contributions had been deducted for FA, meaning she had only accrued pension benefits at the standard rate. Mrs E also says that the various incorrect ABS’ misled her into believing her financial situation was better than it was.

Mrs E contends that it should be SPPA who checks for errors in information supplied by the employer, and errors in contributions sent to it by the employer. Mrs E believes that it is not her role to make sure her employer provides accurate information to the Scheme administrator.

Mrs E elected to enter into a financial arrangement with SPPA whereby, for an increased rate of contributions, she would accrue pension benefits at a faster rate. Although Mrs E might argue the responsibility to implement this arrangement did not rest with her, I disagree.

Mrs E had a responsibility to ensure her wishes had been followed and the relevant amounts deducted. At the very least, it would have been prudent for her to have checked her payslip after the prospective start date of her FA contract. Had she done so she would have seen that additional FA deductions had not been made. If she had been unsure on this matter, she should have then contacted her payroll department. Despite this, I note that SPPA have made an offer that, if she accepted, would place her in a position equal to or better than would have been the case, had the first election been completed as requested and further years’ FA been accrued, as Mrs E had intended.

Turning now to the issue of information held by SPPA and the fact that it wrote to a former or secondary employer at the outset of the FA application process, rather than to WLC. SPPA has confirmed it can only amend information when it is received from employers, and if its information is out of date, then it relies upon members to make sure their employers update their information. It is reasonable, therefore, to expect Mrs E to have ensured her information was accurate and up-to-date, and to have checked with her employer so as to avoid mistakes and delays in relation to her pension planning.

When SPPA was informed that it had not written to WLC, it corrected this error the same day it was discovered. Accordingly, I do not agree that SPPA delayed in putting things right for Mrs E in this regard.

13 CAS-46795-Y3P2 The employer’s subsequent failure to arrange for FA contributions to be deducted from Mrs E’s salary cannot be attributed to SPPA. It was Mrs E’s responsibility to check her payslips and ABS’ and, if she did not understand their content, to have clarified matters with her employer.

Mrs E has argued that important information about the FA process was withheld or made difficult to access. However, it is for SPPA to decide how and in what depth it will supply information to its members. That it chose to supply the Factsheet online is not maladministration.

Further, I note that before finalising the FA application, members are directed to the Factsheet and asked to confirm that they have read and understood its content. Mrs E has admitted she did not do so, which is regrettable. However, SPPA cannot be held responsible for this failure. Had Mrs E read the Factsheet, as she signed to say she had, it is more likely than not that she would have realised a yearly FA election was required.

SPPA is not obliged to set up an FA scheme in any particular manner, and it has the power to decide whether the FA should be annually renewable or continuous. It can also choose whether, or not, to provide reminders to members that their FA contribution year is coming to an end. It is for the individual member to take responsibility for ensuring any additional contributions arrangements are set up and renewed.

It is also the responsibility of the member to ensure deductions are being made from their salary. Mrs E had the responsibility to ensure she fully understood the process for contributing to the FA rather than acting on her own assumptions.

In respect of the information on the ABS’ that Mrs E found to be misleading, I note that while the accrual rate was recorded incorrectly the amount of pension accrued in any year was stated correctly.

Given that Mrs E has said she found her payslips to be confusing and did not understand the offer when it was explained to her with hand-written notes and highlights, I do not think the issue of incorrect accrual rates, of itself, would have likely misled her into the belief that her FA was in place. In any event, as Mrs E has now confirmed, SPPA did correct the information within a reasonable period of time.

The offer SPPA made to Mrs E would put her in the position she would have been in had the FA been deducted in the first available year and had been renewed each subsequent year.

14 CAS-46795-Y3P2 It is for Mrs E to decide whether she accepts it, or not. She should take this matter up directly with SPPA should she decide to accept the offer.

I do not uphold Mrs E’s complaint.

Anthony Arter Pensions Ombudsman

4 October 2021

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