A former member of the Ryland Group Pension Scheme will not have to reimburse Prudential after the provider botched the administration of his pension sharing order, the Pensions Ombudsman ruled in March.
“Mr S” complained to the ombudsman over an administrative mistake that Prudential had made in 2014.
Having failed to correctly fulfil a PSO agreed in 2011 with Mr S’s ex-wife, Prudential made a payment to his ex-wife of £50,000 before trying to recover the money from Mr S.
Prudential argued that Mr S should repay the funds on the basis that he had been “unjustly enriched, ultimately at Prudential’s expense”, according to the ombudsman. It rejected this claim.
If the correct steps are not taken and recorded, there is a risk that the order will be overlooked in future and incorrect benefits paid by the scheme
Michael Kemp, Pinsent Masons
The ombudsman did not, however, agree that Mr S should receive an award for the distress and inconvenience he had incurred from Prudential’s actions.
Prudential failed to implement the PSO
In October 2011, after his divorce, all of Mr S’s benefits in the Ryland scheme were allocated to his ex-wife. Prudential was informed by Ms S’s solicitor in the following month.
Prudential responded with the requirements necessary to carry out the PSO, and then sent a reminder in December. It did not receive a response and closed the case.
In 2014, Mr S’s financial adviser requested information from Prudential about his benefits in the scheme. Prudential told the adviser that it had not been informed of any PSO linked to the scheme.
It then transferred his benefits to Rowanmoor, a small self-administered scheme, at his request. Shortly afterwards, the SSAS loaned £50,000 to a business of his that subsequently failed.
In 2018, Ms S contacted her ex-husband with concerns that she had lost her pension from Prudential.
Exchanges followed between Mr S and Prudential, with the provider subsequently confirming that while it had been notified about the PSO, it had failed to implement the order and had continued to send him annual benefit statements suggesting that the scheme funds were still his.
It had incorrectly informed his adviser in 2014 that it had not been notified of a PSO linked to the scheme.
When Prudential received the request to move the funds to Rowanmoor that year, it acknowledged that it should have realised that there was an outstanding PSO.
Instead, it failed to notice this and sent the full fund value to Rowanmoor. Prudential realised the error in late 2018 when contacted by the financial adviser and apologised.
Mr S had been ‘unjustly enriched’
Prudential said it would request £50,000 back from Rowanmoor, leaving Mr S with any fund growth and an additional £2,309.43. This would be in lieu of any compensation for its errors.
It argued that Mr S would have been aware of the PSO, that these funds had been allocated to his ex-wife, and that they were not for his use — yet he still requested to transfer them.
Having paid Ms S the pension she was entitled to under the PSO, the provider wanted Mr S to repay the funds it had mistakenly transferred to Rowanmoor.
It argued that Mr S had been unjustly enriched at its expense by funds to which he had not been entitled.
Mr S said that he did not receive any statements from Prudential after his divorce, and that he was not aware the funds in the scheme were no longer his.
Had Prudential confirmed before the SSAS had made its loan that the PSO had not been fulfilled, the loan would have been unable to take place. The loan was written off when the business failed.
Members must show they can act in good faith
The Pensions Ombudsman rejected Prudential’s argument that Mr S had been enriched by the transfer. Almost all of the transferred funds went to the business, while these funds went to two shareholders, one of which was dissolved and the other with no direct link to Mr S.
“It appears that Prudential is arguing that by ‘stepping into the shoes’ of Ms S, it discharged a debt owed by Mr S to Ms S, and so it is entitled to recover those funds from Mr S,” the ombudsman said.
“I do not consider that this argument is well founded,” he added.
The ombudsman did not accept that Mr S was owed compensation over having been caused distress and inconvenience by Prudential, given that the erroneous transfer had been beneficial to his SSAS and his business.
Further, the ombudsman underlined the importance of properly implementing PSOs promptly when schemes are notified, Michael Kemp, senior pensions technician at Pinsent Masons, wrote in a blog post in response to the verdict.
“If the correct steps are not taken and recorded, there is a risk that the order will be overlooked in future and incorrect benefits paid by the scheme,” he said.
USS and University of Southampton make AVC blunder
The Pensions Ombudsman has partially upheld a complaint against the University of Southampton and the Universities Superannuation Scheme trustee after a communication lapse saw a member continue to make annual voluntary contributions after her policy had ended.
“The case also highlights the legal tests that apply when a scheme seeks to recover funds paid out in error on the basis that a beneficiary has been ‘unjustly enriched’.
“Beneficiaries will sometimes argue that they cannot repay sums paid in error because [they] have irreversibly changed their position, but the ombudsman said members must show they have acted in good faith before they can rely on this defence,” Kemp added.
Prudential declined to comment on this story.
