Principal Civil Service Pension Scheme · CAS-37803-K0V7

CAS-37803-K0V7

Ombudsman’s Determination Applicant Dr E

Scheme Principal Civil Service Pension Scheme (the Scheme)

Respondents The Cabinet Office MyCSP Health and Safety Executive (the Employer)

Outcome

Complaint summary

Background information, including submissions from the parties

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• MyCSP had not provided him with the requested PSS for tax year 2015/2016 in order to validate his tax charge, despite it knowing of the urgency of the situation.

• He had not been notified about exceeding his AA and he may have exceeded his Lifetime Allowance too.

• The ABS did not notify him of the tax charge being due.

• MyCSP expected him to work out his tax charge without having notified him about exceeding the AA previously.

• MyCSP had also failed to identify that he was in a “taper group” as part of the Alpha section of the Scheme. Only when he insisted to be in this taper group did MyCSP include him in it.

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“This year, we’ve made a number of changes to [ABS], including the way we use pensionable earnings to calculate benefits. This change means that the figure quoted on your 2016 statement is less than in previous years.

In classic, premium and classic plus this year, the pensionable earnings used to calculate your benefits are based on your basic pay as at 31 March 2016 and any pensionable allowances and bonuses that may be applicable to you. For more information about which parts of your pay are pensionable please contact your employer directly.

I can therefore confirm your current [ABS] has calculated your benefits using your current earnings of £94,454. I can confirm that we do hold you in the classic plus scheme, this is also reflected on your benefit statement.”

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• It offered its apology for the delay in providing its response and thanked Dr E for his patience while his concerns were being investigated and guidance sought.

• It confirmed that ABSs were issued to his registered home address on 25 November 2015 and 14 November 2016.

• As the administration of the Scheme changed in September 2014 from Capita Hartshead, it was regrettably unable to comment on Dr E not receiving ABSs for the tax years 2012/2013, 2013/2014 or 2014/2015.

• While PSSs were available on request, its process was to send a PSS to Dr E’s registered home address whenever his PIA breached the notional AA. He should have received a PSS automatically in tax year 2014/2015 and it apologised that it was not sent.

• It initially received information from the Employer that he had been enrolled into the Alpha section of the Scheme from 1 April 2015. Following his advice that he had not received the Alpha option pack, a pack was issued to him and his record updated to reflect he would enrol on 1 December 2020. It apologised for not issuing the pack earlier.

• An ABS provided an estimate of the pension benefits currently accrued and did not contain information regarding his AA or any potential tax charges.

• Following queries with the Employer, his records were updated to reflect his pensionable allowances accurately, and the changes were reflected in the 2017 ABS.

• The PSS issued on 19 April 2016 was inaccurate due to his record reflecting inaccurate pensionable allowances. It rectified this issue on 2 February 2017 prior to issuing a revised PSS on 3 February 2017.

• The PSS was calculated based on data supplied by the Employer. It usually relied on the data supplied to be accurate and up to date. However, in the event that the

5 CAS-37803-K0V7 information did not accurately reflect the correct details, it used established channels to contact the Employer to clarify the correct information.

• It had issued a revised PSS to him on 3 February 2017 and confirmed the correct PIA on 7 March 2017.

• He would have ceased paying AVCs had he been provided with a correct PSS. The late provision of the PSS affected his pension planning for the following years. This resulted in him unnecessarily paying AVCs for a further 36 months.

• He claimed financial loss in respect of the tax charge and financial penalties he had been required to pay to HMRC. He believed MyCSP and the Employer were responsible for these charges due to delays in issuing his PSS.

• He incurred late payment charges in respect of the 2014 PIP to the amount of £4,818.00.

• It confirmed the principles for sending out PSSs. For the tax year 2013/2014, the deadline for issuing a PSS was 6 October 2014, and it provided a link to HMRC’s website to find more information.

• Although it was required to provide a PSS, the determination of any tax charge was still wholly the responsibility of the member. This was because the scheme administrator did not have complete details of all the information required to make such a determination.

• Scheme Pays was introduced on 6 April 2011, to assist those members who could not afford to pay their tax charge. It referred to the same HMRC link for more information.

6 CAS-37803-K0V7 • The Cabinet Office issued EPN286 notification to employers covered by the Scheme. “EPN286 Changes to pensions tax relief: Annual Allowance and Lifetime Allowance Questions and Answers” was issued on 1 November 2010.

• It was unable to indicate the reason for not sending a PSS in respect of his AA breaches.

• Errors resulted from inaccurate information provided to it by the Employer. It was completely reliant on such information. It was the Employer’s responsibility to ensure all data provided to MyCSP was accurate and up to date.

• By providing inaccurate data, the Employer did not fulfil its responsibility and it therefore must uphold this aspect of Dr E’s appeal.

• It had seen no evidence of Dr E’s argument that had he been provided with a correct PSS, he would have stopped paying AVCs.

• It was clear that AVCs were underpaid for a period of time. It was the Employer’s responsibility to make sure correct deductions were taken from a member’s salary.

• Part-time employees paid a higher percentage rate as added pension contracts were calculated on a full-time basis. Therefore, when Dr E’s hours reduced, the amount of contributions should have increased.

• The Employer’s Pension Guide (EPG) told employers what they needed to know regarding their responsibility in delivering arrangements to their employees. The EPG should be read in conjunction with EPNs.

• Dr E’s records indicated that he reduced his working hours and as such he was required to pay contributions at an increased rate. However, there was no evidence that the Employer provided formal notification to the previous Scheme administrator (Capita Hartshead) in order for it to recalculate the percentage rate in respect of the contributions deductible from his salary.

• This resulted in Dr E underpaying his AVCs from July 2013 to July 2017. It noted that the Employer had taken responsibility for this and that Dr E had since paid the shortfall of contributions. These errors by the Employer amounted to maladministration therefore it upheld this aspect of Dr E’s appeal.

• It appreciated that it took a considerable amount of time to provide the Alpha option pack. However, it was satisfied that it had rectified this issue and provided suitable remedial action in respect of this. Dr E was given an option to join Alpha on 1 December 2020.

• The argument that Dr E would have stopped paying his AVCs had he known his correct pension position was hypothetical. The tax charge he had acquired was in respect of the pension he would receive at retirement. So, the tax charge he was

7 CAS-37803-K0V7 required to pay was calculated solely on the basis of the growth of his actual pension.

• MyCSP was required to inform members that they have exceeded the AA but it could not be held responsible for the actual growth of his pension or any tax charges that arose as a result of this.

• In addition, MyCSP had informed Dr E that he was able to utilise the voluntary Scheme Pays option in order for MyCSP to pay any tax charge on his behalf. While he would have been required to surrender part of his pension in order to do this, the immediate tax payment to HRMC would have been reduced accordingly.

• It could be argued that MyCSP could be liable for any late payment charges he had incurred as a result of the delay in paying any tax charge owed to HMRC. However, tax was still an individual matter and members should still be proactive in monitoring their financial arrangements. While Dr E was not provided with a PSS, it was reasonable to suggest he should have contacted MyCSP to request a statement if he believed the growth of his pension, the payment of AVCs or a significant increase in his pay could have resulted in him exceeding the AA.

• EPN286 was issued prior to the 2012 PIP. The information provided in this EPN detailed the number of factors which could have resulted in a member breaching the AA, including a significant pay rise or AVC payments. Having received this information, Dr E could have contacted MyCSP to enquire as to whether he was close to breaching the AA.

• However, it recognised that the actions of MyCSP would have caused considerable distress and inconvenience and for this it apologised on behalf of MyCSP. In light of this, it offered Dr E an ex gratia payment of £1,000.

• It also recognised that the Employer had provided incorrect information to MyCSP. This resulted in MyCSP providing Dr E with pension figures based on incorrect earnings. The Employer also did not provide formal notification to the previous Scheme Administrator of the reduction in his working hours, resulting in a shortfall of his AVCs. In light of this, it instructed the Employer to make an ex-gratia payment of £500 to Dr E.

• HMRC had agreed to waive the late payment charge of £4,818 but had not agreed to waive the daily interest charge of £1,911.

• How was he supposed to monitor his pension situation when MyCSP did not send him basic information in ABSs or PSSs.

8 CAS-37803-K0V7 • Compensation offered in stage one of the IDRP was not sufficient. He was threatened with debt collectors as his tax charge had to be paid within three months and he could not afford it.

• The matter had caused him a severe level of distress, with the numerous errors compounded over a number of years. Several opportunities to notice and remedy mistakes were missed.

• He missed the opportunity to use Scheme Pays for the tax year 2011/2012.

• He had to use savings to pay the tax charge and incurred the loss of interest on the savings for which he would like to be compensated. The reason he used his savings was because HMRC was charging him daily interest.

• It offered sincere apologies for the delay in completing its investigation.

• It was clear that it had taken considerable time and effort in dealing with MyCSP to try to get answers to Dr E’s questions, and make sure his pension record was correct.

• MyCSP had adequately addressed the issues around the incorrect ABSs, the delays in sending information and the Alpha option pack, and the underpayment of AVCs. It agreed with the £1,000 offered by MyCSP as well as directing the Employer to pay £500 for its mistakes. It did not believe any further redress was appropriate for the non-financial injustice.

• It did not uphold his appeal for compensation for the loss of interest on the savings he had used to pay the tax charge. He had exceeded the AA in 2012 and 2014, therefore, as a matter of fact, he would have been subject to a tax charge.

• It could not agree that MyCSP’s failure prevented him from stopping the AVCs sooner. Although a PSS confirmed the breach, it did not forewarn members of a potential breach. He would already have breached the AA by the time MyCSP ought to have issued a PSS.

• However, it agreed that Dr E had suffered some financial loss as a result of MyCSP’s failure to send a PSS advising him of the AA breach. This resulted in HMRC applying a daily interest charge. It agreed that the interest charge of £1,911 was an actual loss, which MyCSP should reimburse.

• Finally, in recognition of the further distress and inconvenience the delay in investigating this appeal had caused, it offered him an additional £250.

9 CAS-37803-K0V7 • The Cabinet Office took over a year to respond to his stage two appeal when it should have taken three months. This had caused additional distress and inconvenience to him.

• Since 2018 he had not had any updates from the Cabinet Office or an explanation for the delays.

• He suggested an award of £3,000: £2,000 from MyCSP and £1,000 from the Employer as more appropriate remedy for the injustice he had suffered.

• He would like to be reimbursed for the underpayment of AVCs of £3,938.

• He would like to be reimbursed for 20% of the total tax charge of £32,189, which is £6,438.

• He would like to be reimbursed for the loss of interest from savings for £1,237 he had to use to pay the tax charge in 2017.

• The Employer never informed employees, including him, regarding the changes to the AA.

• This information would have been sent to all employees including Dr E.

• It accepted that it did not fulfil its responsibility as an employer and failed to provide MyCSP with accurate and up to date information regarding Dr E’s pay.

• However, it believed the matter was taken into account and dealt with by the IDRP resulting in it making an ex-gratia payment of £500 to Dr E.

• It had continued to support Dr E in other queries that he had raised with MyCSP regarding his ABS and PSS and it believed it could not be held responsible or made liable for any further issues that arose thereafter.

Adjudicator’s Opinion

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Dr E did not accept the Adjudicator’s Opinion, and, in summary, he said:-

• The deadline to respond to the Scheme Pays Quote was 14 December 2016. Before that, a member should have attended Tax Awareness Sessions (Sessions) provided by a tax adviser. He could not attend those Sessions since

12 CAS-37803-K0V7 he had not been provided with any PSS. He disagreed with the Adjudicator who expected him to make serious pension decisions based on inadequate information

• He is not asserting that these Sessions provided financial advice. However, they would prompt a review of decisions that would contribute to pension growth, and prompt members to receive financial advice.

• MyCSP failed to send him a PSS for tax year 2015/2016 in October 2016. The Adjudicator failed to consider this issue.

• He contends that MyCSP was not notified by the Employer of a change in his working hours as of 12 March 2012. He said the Employer confirmed to him on 23 March 2012 that it had told MyCSP of the change, and the same also happened in 2004 and 2006.

• He never contended that the tax charge is not his responsibility. The breach post the 2012 PIP was marginal and completely irrelevant. The liability arose post the 2014 PIP.

• He provided correspondence showing he contacted MyCSP in February and March 2014 via emails, regarding his AVCs, which were ignored by MyCSP.

• MyCSP was struggling from 2013, which was why he believed the Capita Hartshead contract was terminated and awarded to the current Scheme administrators. The change of providers exacerbated a deteriorating situation and partly explains why MyCSP stopped answering calls, emails and letters in 2014.

• The issues with the Scheme administration was so severe that the National Audit Office subsequently investigated it.

• A PSS is akin to a possession whose peaceful enjoyment he was denied. All his work colleagues received their PSS'.

• He had number of concurrent AVCs. There were different types of AVC: (i) in the form of additional voluntary contributions; (ii) added years; or (iii) added pension contributions. The Adjudicator made no distinction between them. However, the AVCs are very flexible and could have easily been amended had he known his true position. The fact that he cancelled AVCs at a later stage demonstrates he would have cancelled them sooner.

• He disagrees that he could use Scheme Pays in November 2016. As far as HMRC was concerned tax was due at least by January 2015. He has incurred a loss of interest on savings as he could not use Scheme Pays.

• MyCSP failed to address all of the issues raised in his complaint in 25 April 2017, regarding two misleading inaccurate statements issued to him in November 2014. One of the two statements of November 2014 showed his classic pension of £5,204 up to 31 August 2014. He could not work out from this figure any amount of AA breach, in order to seek financial advice. 13 CAS-37803-K0V7 • He is unhappy with the Cabinet Office’s offer of £250 in recognition of its delays when dealing with the stage two IDRP. He believes a higher amount should be awarded to him.

• Dr E submitted a request for me to hold an oral hearing.

Dr E has referred the matter to me for consideration. I agree with the Adjudicator’s Opinion and note the additional points raised by Dr E.

Ombudsman’s decision Dr E contends that had he been provided with a PSS earlier he would have taken appropriate action to mitigate his tax charge. It appears that Dr E puts the onus entirely on MyCSP for not sending him a PSS more quickly. But PSSs do not forewarn members of the potential AA breaches.

Dr E says he could have attended Sessions and sought financial advice. However, although MyCSP was required to provide Dr E with a PSS, Dr E would have already breached his AA. I find that Dr E could have mitigated his loss much earlier than waiting to receive the PSS. He could have mitigated his breach by contacting MyCSP, checking the Civil Service website or by seeking financial advice, especially since his pay fluctuated. Had Dr E taken action in November 2010, when he would have been informed of the AA changes, he would have avoided his later issues.

I acknowledge that the correspondence Dr E sent to support his case shows he contacted MyCSP on a number of occasions in 2004, 2014 and 2016, regarding his AVCs but this was a request to increase his AVCs. I have seen no evidence that Dr E made specific enquiries on how the changes in his hours would affect his AVCs. As Dr E paid the shortfall of AVCs, it suggests he was happy to do so. I am not persuaded that Dr E would have cancelled his AVCs, had he known his true pension position.

The other issues raised by Dr E concern a change of Scheme administrator and receiving incorrect ABSs. I appreciate these would have caused additional distress and inconvenience, but the Adjudicator has already considered these issues in her Opinion. I am satisfied that the Cabinet Office’s offer of £1,911, in recognition of financial loss incurred in the form of HMRC’s daily interest penalty was reasonable and appropriate.

I note MyCSP offered £1,000 in recognition of not sending Dr E his PSS sooner and for the errors with his ABSs. The Cabinet Office further offered £250 in recognition of the delay in sending its stage two IDRP response. I find that the total of £1,250 for distress and inconvenience suffered plus £1,911 in recognition of the financial loss incurred, is sufficient redress and broadly in line with what I would direct. I find that no further award is warranted in this case.

14 CAS-37803-K0V7 The Employer has offered Dr E £500 in respect of its failure to provide formal notification to the previous Scheme Administrator of the reduction in Dr E’s working hours, resulting in a shortfall in his AVCs. I find that the offer is a reasonable one and if Dr E has not already received this sum he should contact the Employer if he now wishes to accept the award.

Dr E submitted a request for me to hold an oral hearing. The purpose of an oral hearing is to assist me in reaching my Determination. Circumstances in which a hearing may be appropriate include where there are differing accounts of a particular material event and the credibility of witnesses needs to be tested; where the honesty and integrity of a party has been questioned and the party concerned has requested a hearing; or where there is disputed material and primary facts which cannot be properly determined from the papers.

I do not consider that any of these circumstances apply here so I do not find it necessary to hold an oral hearing in this case. There is sufficient documentary evidence for the complaint to be decided without an oral hearing. I can properly determine the case on the basis of the detailed written representations and the documentation which has already been submitted by the parties.

I do not uphold Dr E’s complaint.

Anthony Arter

Pensions Ombudsman 2 March 2022

15 CAS-37803-K0V7 Appendix Information posted on the Employer’s intranet

“Changes to tax relief for pensions

Annual Allowance and Lifetime Allowance to be reduced

A new approach to the current pension tax regime will be introduced from tax year 2011-12.

The Annual Allowance (AA) for tax-privileged saving will be reduced from its current level of £255,000 to £50,000 (and the basis of calculation will change).

From 6 April 2012, the Lifetime Allowance (LTA) will be reduced from its current level of £1.8m to £1.5m.

Individuals will be able to carry forward three years’ of unused AA.

The current pensions tax regime has been in place since April 2006 and gives tax relief on all pension saving up to the level of the Annual Allowance. On retirement, the total of an individual’s pension benefits (other than state pension) is then assessed against the Lifetime Allowance. Where pension saving exceeds the LTA, a “recovery charge” is payable. This is intended to recoup excess tax relief granted during the period of saving. The LTA is currently £1.8m and the AA is £255,000. These levels are such that they have had very little impact on the vast majority of civil servants. While some senior retirees have paid LTA tax, no civil servants have been caught by the AA.

The changes in detail are:

i) The Annual Allowance is to be set at a new level of £50,000 and calculated in a slightly different way. The Annual Allowance could potentially now be an issue for a far wider population including senior civil servants and others who receive one-off significant increases in pension (for instance, because of a promotion or early retirement (after 31 December 2010) under the current CER or FER terms). This is not to say that AA tax charges will necessarily arise, but these groups of staff will need to be aware of the AA and how it could affect them. The new AA will apply from tax year 2011-12 and will include some carry-forward provisions to mitigate the effect of “spikes” where people have one-off increases in benefits.

ii) The Lifetime Allowance is to be reduced from £1.8m to £1.5m from 6 April 2012. The current level of LTA means that it bites on someone with a pension in premium of £90,000 or more (or someone in classic with a pension in excess of £78,261 plus the associated lump sum). The new LTA would affect someone in premium with a pension in excess of £75,000 (and someone in classic with a pension in excess of £65,217 plus associated lump sum). Where individuals have other pension arrangements as well, these 16 CAS-37803-K0V7 figures would of course be lower. Further information on the Lifetime Allowance is available on the HMRC website. The Treasury has indicated that transitional protection measures will be introduced to protect those who have already built up pension pots between £1.5m and £1.8m and that elections made for Primary and Enhanced Protection at 5 April 2006 will be honoured. Details of the new transitional protection measures are not yet available.

Further information, including a Cabinet Office Q&A document is available on the Civil Service website.” (original emphasis)

Information provided in weekly email on the Employer’s intranet

“e-express

Items for e-express should be sent to the e-express account

Monday 22 November 2010

…

Changes to tax relief in pensions

http://intranet/news/archive/10nov/hse1100.htm?ebul=eexp/22-nov-10&cr=3

A new approach to the current pension tax regime will be introduced from tax year 2011-12. The Annual Allowance for tax-privileged saving will be reduced from its current level of £255,000 to £50,000. From 6 April 2012, the Lifetime Allowance will be reduced from its current level of £1.8m to £1.5m. Click on the link to see how this could affect you.” (original emphasis)

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