Prudential Staff Pension Scheme · CAS-37539-Q0R8

CAS-37539-Q0R8

Ombudsman’s Determination Applicant Mr L

Scheme The Prudential Staff Pension Scheme (the Scheme)

Respondent Prudential Staff Pensions Limited (the Trustee)

Outcome

Complaint summary

Background information, including submissions from the parties

“The State Spreading Option is a facility whereby you can elect to permanently give up an amount of your Prudential pension in exchange for a higher temporary pension payable until you reach State Pension Age. The temporary pension will then cease and be replaced by your basic State ‘old age’ pension.

1 CAS-37539-Q0R8 This arrangement is designed to ensure that your total pension income in retirement is broadly the same both before and after State Pension Age.”

“State Pension Age is currently 65 for men and 60 for women however, for women this will change from 2020 to age 65. This will be phased in over a 10 year period from 2010.”

“At retirement you elected to surrender part of your pension in exchange for an additional temporary pension under the State Spreading Option (SSO). This temporary pension is due to cease on [your 65th birthday]. (In practice your pension will be reduced with effect from the first of the month immediately following this date).”

• The pension reduction should have been applied from when he reached SPA and not his 65th birthday. 2 CAS-37539-Q0R8 • The additional £1,300 per annum up to his 65th birthday, in exchange for a reduction of over £6,000 per annum from age 65, was a poor deal.

• He had received no advance warning that his pension would be reduced.

• At the time early payment of Mr L’s deferred benefits was approved, the SSO was calculated by reference to his anticipated State Pension Date in June 2019.

• The cost neutral actuarial adjustment of his benefits was carried out on that basis.

• Under the Scheme Rules, the additional pension was payable until the anticipated date Mr L’s State pension was expected to be paid, as determined at the point that the Trustee permitted Mr L to exercise the SSO. When the Trustee approved Mr L’s request to exercise the SSO, the anticipated date was his 65th birthday.

• Different figures would have been quoted if Prudential had known that the additional pension would have to be paid longer.

• The Trustee was not aware of the Government’s plans to change the SPA when retirement options were quoted to Mr L.

• It agreed that the form Mr L signed when accepting the SSO only referred to SPA. However, it stated that this needed to be read in conjunction with the notes that were attached. These defined the SPA used in the calculation of his entitlement as being his 65th birthday.

• It recognised that the notification of the cessation of Mr L’s temporary pension was not to the standard that it expected. As a result of this, it offered Mr L a £500 ex- gratia payment.

“(A At the written request of a member who is considered by the Trustees to be prospectively entitled to a pension under the National Insurance Acts 1946 to 1966 the Trustees to the intent that the Member’s total pension during his or her retirement may remain of an approximately level annual amount may determine that the Member’s pension under this Scheme 3 CAS-37539-Q0R8 whilst remaining of the same capital value will be of a varying annual amount the amount payable (subject to the provisions of the Scheme) until the date determined by the Trustees as being the anticipated date of the commencement of the National Insurance Pension being an increased amount and the amount payable (subject to the provisions of the Scheme) thereafter being a reduced amount.”

Adjudicator’s Opinion

• The Adjudicator said that the Trustee is responsible for paying benefits in accordance with the Scheme Rules. He went on to note that Rule 34(A) sets out that, under the SSO, the pension is due to decrease on the date the Trustee determines is the anticipated SPA, which was age 65 in Mr L’s case.

• The Adjudicator noted that actuarial calculations were undertaken at the time of Mr L’s retirement to ensure that the value of his benefits without the SSO was equivalent to his benefits with the SSO applied. He also noted that these calculations were based on Mr L’s pension being reduced when he attained SPA which was, at that time, age 65.

• The Adjudicator was satisfied that Mr L had not suffered a financial loss. He said that, if the Trustee had agreed to continue paying Mr L higher benefits until his revised SPA, he would have received more benefits from the Scheme than he was entitled to.

• The Adjudicator noted that the retirement information provided by Prudential referred mainly to SPA. However, the original SSO option form signed by Mr L in 2003 defined SPA as age 65. The Adjudicator took the view that Mr L ought reasonably to have been aware that the higher benefits were only payable until his 65th birthday.

• The Adjudicator noted that Mr L was unhappy about the value for money offered to him by the SSO. The Adjudicator recognised that the SSO was intended, when taking Mr L’s State Pension into account, to provide him with a consistent pension income. This aim was not fully achieved due to legislative changes that increased Mr L’s SPA. However, the Adjudicator was of the opinion that Mr L had received the same overall value of benefits from the Scheme to which he was entitled.

• The Adjudicator noted that the Trustee had acknowledged shortcomings in the way Mr L was notified of the impact of the change in his SPA on his benefits. He also noted it had offered Mr L a £500 ex-gratia payment.

4 CAS-37539-Q0R8 Mr L did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider.

Mr L provided his further comments which do not change the outcome. He said:-

• He still has concerns about how the SSO was sold to him.

• He received no notifications from Prudential concerning the reduction in his pension from age 65 until he contacted it after the reduction had been applied. In particular, he stated that he did not receive the communications dated 19 February 2003, 25 March 2019 and 24 June 2019.

• The form that he signed when accepting the SSO had no attaching notes that defined SPA.

I agree with the Adjudicator’s Opinion and note the additional points raised by Mr L.

Ombudsman’s decision

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I do not uphold Mr L’s complaint.

Anthony Arter

Pensions Ombudsman 18 May 2021

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