Civil service payout shows need for comms care

Schemes that fail to communicate their rules in member literature properly are at risk of fines by the ombudsman and member dissatisfaction.

In the case, pensions ombudsman Tony King ruled that the incorrectly worded booklet by PCSPS was maladministration.

The employee, Ronald Paffey, suffered “financial hardship” as a result of “incorrect and misleading” information in the booklet, King said. The amount to be paid is yet to be decided.

To prevent fines and member dissatisfaction, schemes are advised to consult their legal advisers, ensure communications are in line with legal documents and update all scheme literature whenever changes occur.

Civil service trouble

Paffey joined the PPF as a member of its relationships team in 2009, aged 55. 

Error is human – we all have to keep checking things.

Camilla Barry, Macfarlanes

PPF members join the PCSPS, which is managed by the Cabinet Office.

The scheme has 1.5 million members, of which 564,000 are active. 

The PPF dismissed Paffey after he had three strokes on September 7 2009 on the grounds of capability and denied him the pension.

He transferred two personal pension plans into the civil service scheme but not his four occupational schemes as the booklet stated he would lose the opportunity of future discretionary increases.

The Cabinet Office accepted the wording was wrong but said scheme rules took precedence and denied Paffey the chance to apply for an incapacity pension.

King said: “Paffey’s decision to transfer the personal pensions was a perfectly rational one on the basis of his understanding.”

“Paffey relied to his detriment on a statement in the scheme booklet that was incorrect and misleading.”

He ordered the Cabinet Office to refer Paffey to the scheme’s medical adviser to assess the case and pay the equivalent of what he would have received under scheme rules.

How to prevent fines

Schemes can ask legal advisers to check that the trust deed or document governing the scheme matches the booklet to minimise the risk of future claims from unsatisfied members.

Most schemes have one or more of these documentation time bombs

Steve Delo, Pan Trustees

Camilla Barry, partner at Macfarlanes, said member communications could create rights beyond the rights in the legal documentation, even though they weren't legally binding.

“There is a risk people can bring claims if the booklet is wrong, if it is to the scheme’s disadvantage,” Barry said.

Schemes were advised to expect that members would rely on information in the booklet to plan for retirement.

Disclaimers that state scheme rules override any communications will not be enough to protect the scheme at a later date.

“Use simple plain English that reflects the technical provisions. But error is human – we all have to keep checking things,” Barry added. 

Schemes should ensure those in charge of delegating are aware of the legal detail and implications of specific terms, said Steve Delo, chief executive at Pan Trustees.

Delo said the following areas presented a “minefield of fiddly wording”:

• Ill-health benefits;

• Death benefits;

• Definitions of children’s pensions; and

• Early and late retirement factors.

He said more problems would arise within the onset of auto-enrolment from inconsistencies between workers’ contracts of employment and pension scheme rules.

“A good proportion of schemes – maybe most schemes – have one or more of these documentation time bombs,” he added.

Trustee sub-committees could be set up with the responsibility of making sure communications are accurate.

Katie Frost, director at Shilling Communications, said: “Look at communications whenever there is a change, such as closure to future accrual, change in contribution levels, administrators or changing accrual.”

She said checks should be built into scheme governance as good practice.

PCSPS told schemeXpert.com it accepted responsibility for its mistake and the PPF said it was pleased the matter had been resolved.