Pension Protection Fund · CAS-59038-H7W0

CAS-59038-H7W0

Ombudsman’s Determination Applicant Mr E

Scheme Pension Protection Fund (the Pension Protection Fund)

Respondent The Board of the Pension Protection Fund (the Board)

Outcome

Referral summary

Background information, including submissions from the parties Mr E accrued pensionable service in the McTay Engineering Group 1976 Staff Pension Scheme (the McTay Scheme) between 1 May 1985 and 1 July 1988.

On 9 October 1992, the trustee of the McTay Scheme wrote to the members (the 1992 Letter) and, as relevant, said:

“You will recall from the announcement letters issued earlier this year and the subsequent meetings…held to give members the opportunity to voice any queries and to enquire regarding the future of the [McTay Scheme].

After the meetings, all members were given an agreement form to sign, date and return. It was pleased to report that 100% of the McTay Scheme membership had indicated their agreement to the amalgamation of the McTay Scheme into the Mowlem Staff Pension and Life Assurance Scheme [the Mowlem Scheme].

Since then, discussions have continued with the Norwich Union and it was envisaged that the McTay Scheme funds would be transferred (in name only) to the Mowlem Scheme trustees [the Trustees], at the end of 1992. The actual funds will remain with the Norwich Union for the time being but, at 31 December 1992, the opportunity will be taken to transfer from the current insured fund to a managed fund. 1 Pension Protection Fund CAS-59038-H7W0 Scheme contributions will continue to be remitted to the Norwich Union probably up to 31 December 1992 but, thereafter, would be invested with the Mowlem Scheme monies. Additional voluntary contributions made by existing contributors will continue to be remitted to the Norwich Union.

…the transfer to the Mowlem Scheme does not affect your scale of benefits or the calculation of your entitlements which will continue to be calculated in exactly the same way as under the McTay Scheme.”

Norwich Union is now known as Aviva and hereafter in this Determination, Norwich Union will be referred to as Aviva.

The McTay Scheme’s assets and liabilities were bulk transferred to the Mowlem Scheme on 31 December 1992.

The Mowlem Scheme was one of the Carillion defined benefit occupational pension schemes (the Carillion Scheme).

On 23 January 2018, Mr E wrote to the trustee of the Carillion Scheme and said in summary:-

• As a member of the McTay Scheme, he had been in receipt of his pension since May 2014. He was concerned that the Trustees were about to place his pension with the PPF. The rules displayed on the PPF’s website stated that pensions accrued before 1997 would not increase, whereas his current pension provision increased by 5% each year.

• This meant that over an expected 30-year period, the PPF would only pay approximately 43% of his current entitlement. This was inequitable, with deferred members receiving 90% of their scheme pension as well as some entitlement to annual increases.

• The most recent actuarial valuation of the whole Mowlem Scheme was declared at 66% in the 2016 review. Therefore, even after a revaluation, it was highly likely that the members of the McTay Scheme would be far better off by retaining the McTay share of the Mowlem Scheme, and not being placed with the PPF. Pensions could be equitably adjusted, as necessary.

• He realised that this would have had an impact on the other members of the McTay Scheme, but as the McTay Scheme was closed to new members in the early 1980s, he believed that they too would not benefit from increases but would benefit from his proposed measure. So, he requested a list of members and their contact details so he could give consideration to their views.

2 CAS-59038-H7W0 The Mowlem Scheme transferred to the PPF on 5 February 2020.

On the same date, the PPF sent Mr E a welcome letter and said in summary:-

• It had formally taken responsibility for the Mowlem Scheme on 5 February 2020. This meant that Mr E was now a PPF member, and he would receive compensation from the PPF rather than a pension from his original scheme.

• The PPF was set up to protect people if their employer or previous employer became insolvent and their employer could not afford to pay the pension they were promised. Mr E could rest assured that he would receive payments from the PPF.

• Mr E’s gross annual compensation was £3,575.16. The PPF would pay him the first instalment of his ongoing compensation from 1 March 2020, and then future instalments every month. His first instalment would include any back payments he was due.1

• If Mr E disagreed with the amount of compensation he was entitled to, he should get in touch with the PPF.

On 24 February 2020, Mr E wrote to the PPF and said in summary:-

• He was one of the last members of the McTay Scheme which was established before McTay Engineering was bought out by Mowlem Engineering (Mowlem). The McTay Scheme was set up and funded to pay annual increases of 5% and those increases were paid until Mowlem’s insolvency.

• It appeared that somewhere along the way, the McTay Scheme became administered by the Mowlem Scheme. However, the McTay Scheme rules continued to be applied.

• The application of standard PPF conditions meant that members like him were likely to lose around 55-60% of their entitlement, yet actuarial valuations had taken into account their full 100% entitlement. It was inequitable to place the McTay Scheme with the Mowlem Scheme as the McTay Scheme would still be “far better off” outside the PPF.

• He also noted that the average funds market had recovered 14% since the date of the PPF assessment of assets, and this would have applied to the McTay Scheme, which meant that any shortfall was reduced.

• He disagreed with the PPF’s inclusion of the McTay Scheme within the PPF and the level of compensation he was informed he was entitled to.

1 This letter included a schedule of payments that showed the compensation Mr E was going to receive.

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• It appeared that the PPF had not understood his letter of 24 February 2020, particularly the fact that the McTay Scheme was a separate scheme from the Mowlem Scheme and was only administered by the Mowlem Scheme.

• The funding of the McTay Scheme was greater due to the need to pay annual increases of 5% for the member’s lifetime. So, the shortfall was not as high as that applicable to the basic Mowlem Scheme.

• The PPF had a duty to address the funds attributable to the McTay Scheme. As the funds would pay pension levels higher than the PPF fixed levels, the McTay Scheme funds should not be absorbed by the PPF and used to subsidise other schemes.

• It had taken the PPF over two years to come to an incorrect conclusion, during which time there had been no transparency, his correspondence had been ignored and he had already suffered more than a 10% shortfall on his pension payments.

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2 The PPF explained that due to COVID-19, it could not send copies of the Communications to Mr E in the post but that he could access the Communications on the PPF Members’ website. 5 CAS-59038-H7W0

• He had never seen the Communications before. He had received no communication from the Trustees since he ceased employment with Mowlem in 1998.

• When he joined Mowlem, he was advised that it was in his best interest to wait the qualifying year and then join the McTay Scheme, as it was superior to the Mowlem Scheme, and this is what he did.

• The McTay Scheme was an insured scheme with policies provided by Aviva. The scale of benefits and calculation of entitlement remained under the McTay Scheme terms, even if scheme contributions after December 1992 were invested with the Mowlem Scheme monies.

• When he left Mowlem in 1998, Aviva was to provide his McTay Scheme pension by insurance policies when he reached age 65, with the pension administrators for the Carillion Group providing his pension in accordance with the McTay Scheme terms and not the Mowlem Scheme’s terms.

3 https://www.legislation.gov.uk/ukpga/2004/35/section/162

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• It was his understanding that the PPF's duty was to protect the pensions of members of pension schemes where employing organisations had become insolvent. However, the PPF had, so far, sought only to dispute his statements and to produce spurious unchecked documents.

• Having previously inferred that he had consented to a proposed transfer of his pension rights, the PPF now stated that his consent was not required, as it was only necessary to give him one month's notice of a proposed transfer.

• Just as no consultation was ever made, no notice of a transfer was ever given to him, and no advice of a transfer had ever been given prior to Carillion’s insolvency. The Communications were not addressed to him and, in any case, did not mention a transfer of the McTay Scheme.

• He had a copy of a letter referring to the transfer value of his McTay Scheme pension, dated the 18 June 1992.4 There was no mention of any impending or proposed transfer to the Mowlem Scheme.

• Prior to his retirement date, he had received a retirement statement, together with the McTay Scheme rules. If the McTay Scheme had become the Mowlem Scheme, surely the Mowlem Scheme's rules would have been implemented. This was never the case as the McTay Scheme's rules were implemented.

• He noted that the PPF believed the verification of his personal details, when requested, on a form that gave Mowlem Staff plc as the employer meant that his entitlement under the McTay Scheme fell away. Although he was invited to join the McTay Scheme, his employer was always Mowlem. So, letters were always headed Mowlem.

• When he joined Mowlem he was advised to forgo pension scheme membership with the Mowlem Scheme as he was allowed to join the McTay Scheme if he waited for one qualifying year. He did so and sacrificed a year of pensionable salary, under the Mowlem Scheme rules, in order to receive a pension from the McTay Scheme, inclusive of the 5% annual increase. If he had been a member of the Mowlem Scheme then his starting pension would have been a third higher.

• A trustee for the McTay Scheme had previously written to him advising him not to transfer his McTay Scheme pension.5

• He left Mowlem’s employment in 1998. At that time his pension was covered by Aviva annuity policies. One of the Communications dated 9 October 1992 referred to the transfer of funds in 1993. The PPF’s letter dated June 2020 stated:

4 Mr E provided a copy of this letter to the PPF. 5 Mr E provided a copy of this letter to the PPF.

8 CAS-59038-H7W0 “Subsequently, the annuity policies held with Norwich Union were also transferred into the Mowlem scheme.”

• With his pension being covered, over five years earlier, by annuity policies taken out to pay it, he questioned why the PPF had denied him the benefit, when prior to Carillion's insolvency it was clearly covered and administered under the McTay Scheme rules and not the Mowlem Scheme rules.

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6 https://www.legislation.gov.uk/uksi/1991/167/regulation/12/made

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• As part of its investigations during the Mowlem Scheme’s PPF assessment period, it sought confirmation on any historic transfers in. The Trustee confirmed that the McTay Scheme had transferred into the Mowlem Scheme.

• The Pension Regulator’s SCORE record (PSR number 10150809) confirmed the McTay Scheme’s status as “wound up” and references “01/04/1997.”

Annuities secured with Aviva with 5% increases

7 The PPF provided a copy of the booklet to the PPFO.

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Accusations of fraudulent activity by the Mowlem Scheme

8 Relevant extracts of the McTay Scheme booklet are provided in Appendix 1. 9 https://www.legislation.gov.uk/ukpga/2004/35/schedule/7

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Adjudicator’s Opinion

“the Aviva annuitants are all McTay members… Mr [E] is not one of the annuitants.”

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Ombudsman’s decision

While I empathise with Mr E’s position, I do not uphold his referral and no further action is required by the Board.

Anthony Arter CBE

Deputy Pension Protection Fund Ombudsman

9 August 2024

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Appendix

1. Page 1 states:

“You will be pleased to learn that we have chosen to arrange the investment of the pension and death benefits with the Norwich Union Life Insurance Society / Norwich Union Pensions Management Limited. They have a proven record of outstanding investment performance coupled with financial strength – a combination which provides real security for your benefits.”

2. Page 3 states:

“Norwich Union issue insurance policies in the name of the Trustees, which secure your benefits.”

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