Bradford Bingley Staff Pension Scheme 1991 · CAS-58599-D4R5

CAS-58599-D4R5

Ombudsman’s Determination Applicant Mr N

Scheme Bradford & Bingley Staff Pension Scheme 1991 (Bradford & Bingley Scheme)

Respondent The Trustee of the Bradford & Bingley Staff Pension Scheme 1991 (the Trustee)

Complaint Summary

Summary of the Ombudsman’s Determination and reasons

1 CAS-58599-D4R5 Detailed Determination Material facts

In her Determination dated 11 May 2020 of Mr N’s complaint (PO-25899), the Deputy Pensions Ombudsman concluded that:-

The Deputy Pensions Ombudsman consequently upheld Mr N’s complaint and directed the Trustee in her Determination to:

Deloitte Total Reward and Benefits Limited (Deloitte) sent on behalf of the Trustee a letter dated 6 July 2020 to Mr N which said that:-

2 CAS-58599-D4R5 When Mr N sought clarification on how the Trustee had calculated the figures, Deloitte replied that:-

“You are currently in full receipt of your pension earned whilst in the Bradford & Bingley Scheme and the HSBC (HBOS) Scheme, via the HBOS Scheme. You are also receiving the GMP that was accrued during your period at Clydesdale Bank, via the HBOS Scheme. The missing element, being the Clydesdale Scheme benefits, will now be paid by the Bradford & Bingley Scheme as determined by the Ombudsman…Being provided with this benefit completes your entitlement across all of your pension arrangements…”

Mr N subsequently referred his complaint to The Pensions Ombudsman and one of my Adjudicators provided Deloitte with his opinion on it in October 2021 as follows:-

3 CAS-58599-D4R5

Deloitte informed the Adjudicator on 17 November 2021 that the Clydesdale Scheme actuary had said that he was unable to calculate Mr N’s CETV because:-

The Adjudicator was dissatisfied with this reply and informed Deloitte that his opinion of Mr N’s complaint had not changed.

4 CAS-58599-D4R5 On 10 December 2021, Deloitte notified the Adjudicator that the Trustee had asked the Scheme actuary to investigate whether he could: (a) carry out the calculation requested of the Clydesdale Scheme actuary, with caveats around the calculation methodology and assumptions; and (b) determine the service credit in a way that would be fair to Mr N.

Deloitte provided the Adjudicator with details of the Scheme actuary’s calculations of Mr N’s service credit in an e-mail dated 18 January 2022 as follows:

”Transfer-out calculation

Revaluing XS*: revaluing pension x S52a** x transfer factor (revaluing pension)

142.70 x 2.705 x 0.9655 = 372.69

Non-revaluing XS: non-revaluing pension x transfer factor (non-revaluing pension)

1,021.44 x 1.0543 = 1,076.90

Total = 372.69 + 1,076.90 = 1,449.59

Transfer-in calculation: Service credit

Transfer value / (1/60 x projected salary@60 x transfer factor) = 1,449.59 / (1/60 x 8,146 x 1.0625^33 x 0.9655) = 1 year 6 months

Value for money underpin

Transfer value / transfer factor (non-revaluing) = 1,449.59 / 1.0543 = 1,374.93 payable from age 60.”

*XS = excess

**S52a = section 52a orders issued each year specifying the rate of increase to be applied to excess over GMP benefits during the deferment period from DOL.

Deloitte said that:

“The CETV from the Clydesdale Scheme has been calculated by the Scheme actuary using various assumptions regarding the factors that would have applied in 1986 and is based on our understanding of Mr N’s benefits under the Clydesdale Scheme…given the passage of time, it is not possible to calculate this amount exactly, but the Scheme actuary is comfortable that the estimate is reasonable, based on all the information available.

In relation to the calculation of the resulting service credit in the Bradford & Bingley Scheme, the Scheme actuary has used the transfer-in calculation model that appears to have been used…since around 1997. The Scheme actuary does not have any information to indicate the exact transfer-in 5 CAS-58599-D4R5 calculation model that applied in 1986 but, again, is comfortable that it would be reasonable to use this method for the purposes of these calculations.

The service credit calculated in the Bradford & Bingley Scheme assumes that the member stays in service until age 60 and assumes salary growth during that time of 6.25% per annum.

Mr N’s salary actually grew by more than the assumed salary growth assumption, but he left service before age 60. As at the DOL the Bradford & Bingley Scheme, the deferred pension would have been calculated as follows: 1.5 / 60 x 19,090 = £477.25 per annum at 17 July 1992.

This pension would then revalue up to age 60 in line with statutory revaluation orders. Therefore, at age 60, the pension in respect of the service credit would have been £915.37 per annum.

Under the Bradford & Bingley Scheme, a “Value for Money” underpin applies in respect of transfers-in…the purpose of this is to ensure that members get reasonable value from their transfer-in if they were to leave the Bradford & Bingley Scheme before age 60 (as is the case in respect of Mr N). The Scheme actuary is of the view that the Value for Money underpin would apply in respect of Mr N’s deemed transfer in 1986. This would result in a figure only slightly lower than the previously calculated figure of £1,407.44 per annum from age 60. Therefore, the Scheme actuary is comfortable that a deferred pension of £1,407.44 p.a. is a reasonable assessment of Mr N’s deferred benefit in the Bradford & Bingley Scheme.”

Deloitte subsequently told the Adjudicator that the Scheme actuary had:

The Adjudicator informed Deloitte that:-

Deloitte responded in its letter dated 10 March 2002 to the Adjudicator as follows:- 6 CAS-58599-D4R5

In his e-mail dated 6 April 2022 to the Adjudicator, Mr N requested that his backdated pension payments from the Scheme be treated as “compensation for lost benefits” and not as income. He said that the cumulative amount of these payments would disproportionately affect his tax position, taking him into the next tax bracket.

The complaint was considered by one of our Adjudicators who agreed with Mr N that it should be upheld, and further action was required by the Trustee. The Adjudicator’s findings are summarised in paragraphs 9 and 16 above.

As the Trustee was not prepared to recalculate Mr N’s service credit from the Bradford & Bingley Scheme in the way suggested by the Adjudicator the complaint was passed to me to consider.

Conclusions

I have carefully examined the Trustee’s explanation on how it originally calculated the deferred pension and retirement options available to Mr N from the Bradford & Bingley Scheme. I find that its approach did not comply with the Deputy Pensions Ombudsman’s directions, for essentially the reasons given by the Adjudicator.

I consider that the Trustee satisfactorily reconstructed Mr N’s deferred pension at DOL the Clydesdale Scheme based on the limited information available. However, in order for the Trustee to determine the deferred pension available to Mr N following a transfer of these pension rights into the Bradford & Bingley Scheme, it would have had to calculate a service credit for him beforehand.

7 CAS-58599-D4R5 The benefits which the Trustee granted Mr N in the Bradford & Bingley Scheme, as detailed in Deloitte’s letter dated 6 July 2020, was the excess over GMP element of the deferred pension available from the Clydesdale Scheme as at 28 March 1986, revalued during deferment to his 60th birthday in September 2018.

I do not consider that the deferred pension available to Mr N at DOL the Clydesdale Bank, irrespective of whether the GMP of £163.80 per annum is taken into account, represents his additional deferred pension from the Bradford & Bingley Scheme. This can only be calculated from Mr N’s service credit and his final pensionable salary at DOL the Bradford & Bingley Scheme on 17 July 1992 of £19,090 per annum.

Consequently, I find that the Trustee’s failure to calculate this service credit and use it to determine Mr N’s retirement options from the Bradford & Bingley Scheme constitutes maladministration on its part.

I note that the Trustee subsequently did try to put matters right for Mr N by asking the Scheme Actuary to calculate the service credit available to him from the Bradford & Bingley Scheme in a way that would be fair, as recommended by the Adjudicator.

It is unfortunate, but not surprising, that the methods and assumptions used back in October 1986 for transfer calculations in the Clydesdale Scheme and the Bradford & Bingley Scheme are no longer readily available.

The Scheme actuary decided to select the prescribed method and assumptions of calculating the MFR that came into force in April 1997 as a proxy:

I see no reason to doubt the Scheme actuary’s professional view that it was reasonable to use this methodology for the purposes of these calculations.

However, I agree with the Adjudicator that it was incorrect for the Trustee and the Scheme actuary to: (a) disregard Mr N’s Clydesdale Scheme GMP of £163.80 per annum; and (b) use an actual S52a factor which would not have been available in October 1986 when calculating Mr N’s service credit.

The Trustee accepts that:-

8 CAS-58599-D4R5 Despite this, the Trustee believes that it is no longer responsible for paying this GMP because it is already being paid to Mr N in the HBOS Scheme.

However, HMRC records show that payment of Mr N’s Clydesdale Scheme GMP is the responsibility of the HBOS Scheme only because the Trustee, through the Assistant Secretary (Membership) of Bradford & Bingley Pensions Limited, had incorrectly notified HMRC in April 1995 that it had been transferred to the HSBC Pension Scheme when, in fact, it had not.

Because of this mistake, the HSBC (HBOS) Scheme would presumably have used part of the CETV attributable to the excess over GMP benefits that Mr N accrued in the Bradford & Bingley Scheme to cover the cash equivalent of the Clydesdale Scheme GMP which was not paid. As a result, the excess over GMP benefits available to Mr N from the HBOS Scheme would be lower than they should have been.

What is evident is that the cash equivalent of Mr N’s Clydesdale Scheme GMP was not paid into the HSBC Pension Scheme, and this represents an actual loss to Mr N for which he should be compensated by the Trustee. I therefore consider that the Scheme actuary should allow for this GMP in the calculation of Mr N’s service credit which can then be used to provide additional pension in excess of GMP for him in the Bradford & Bingley Scheme.

The Scheme actuary chose the method and assumptions for calculating the MFR as a proxy to those used for transfer calculations in the Clydesdale Scheme and the Bradford & Bingley Scheme in October 1986. According to the MFR regulations, the long term financial assumption for the rate of statutory revaluation for deferred benefits was 4% per annum. In order to perform the service credit calculation in 1986, I find that the Scheme actuary should have used this assumption to calculate the S52a factor rather than the actual one which would not have been available until some 32 years after the calculation date.

I uphold Mr N’s complaint and make the appropriate directions below.

Directions

Within 28 days of the date of this Determination, the Trustee, with the assistance of the Scheme actuary, shall:-

If Mr N decides to receive the retirement benefits available to him from the Bradford & Bingley Scheme backdated to his 60th birthday, the Trustee should pay him simple 9 CAS-58599-D4R5 interest for late payment of his benefits calculated at the base rate for the time being quoted by the Bank of England. If the payment of this sum results in an additional tax liability on Mr N, then the Trustee should pay Mr N the equivalent amount.

Anthony Arter

Pensions Ombudsman 23 May 2022

10