Old British Steel Pension Scheme · CAS-89142-L1R8

CAS-89142-L1R8

Ombudsman’s Determination Applicant Mr L, on behalf of the estate of Mr O

Scheme Old British Steel Pension Scheme (the Scheme)

Respondents Open Trustees Limited (the Trustee) Barnett Waddingham (the Administrator)

Outcome

Complaint summary Mr L complained that as his father, Mr O, entered into an agreement to exchange his pension for a one-off lump sum before he died, even though the lump sum was paid after his death, the Scheme should not recover the amount from his father’s estate.

Background information, including submissions from the parties Mr O was the father of Mr L and Mrs N. Mr N is Mrs N’s husband.

Mr O was a pensioner member of the Scheme.

The Scheme’s administrator is Barnett Wadingham.

The Scheme’s Trustee is Open Trustees Limited.

Clause 18 (5) of the Scheme’s Trust Deed and Rules (the Rules) dated 31 January 2013, as amended, is relevant to this complaint. Clause 18 (5) of the Rules states that:

“The Trustee may, at its sole discretion at any time while this Clause 18 [Winding Up of the Scheme] applies and from time to time, in the case of any person or persons as it so determines, commute benefits otherwise payable for a “winding up lump sum” as defined in paragraph 10, Schedule 29 to the Finance Act [2004]. The terms applicable to any such benefit will be determined by the Trustee from time to time.”

1 Open Trustees Limited, Barnett Waddingham CAS-89142-L1R8 The sections of the Finance Act 2004 (the 2004 Act) relevant to this complaint are as follows:

“Section 151 (1)

In this Part “member” in relation to a pension scheme, means any active member, pensioner member, deferred member or pension credit member of the pension scheme.”

…

“Section 164 (1)

The only payments a registered pension scheme is authorised to make to or in respect of a person who is or has been a member of the pension scheme are –

…

(b) lump sums permitted by the lump sum rule or the lump sum death benefit rules to be paid to or in respect of a member (see sections 166 and 168).”

…

“Section 166 (1)

This is the rule relating to the payment of lump sums by a registered pension scheme to a member of the pension scheme (“the lump sum rule”).

Lump sum rule

No lump sum may be paid other than –

(a) a pension commencement lump sum,

(b) a serious ill-health lump sum,

(ba) an uncrystallised funds pension lump sum,

(c) a short service refund lump sum,

(d) a refund of excess contributions lump sum,

(e) a trivial commutation lump sum,

(f) a winding-up lump sum,

(g) a lifetime allowance excess lump sum, or

(h) a transitional 2013/14 lump sum.”

2 CAS-89142-L1R8 In October 2020, the Administrator wrote to Mr O and told him that the Scheme was exiting its Pension Protection Fund assessment period and was going to complete a buy-out with an insurer in 2021. Some members with benefits worth less than a certain amount would be offered the option to exchange their benefits for a one-off lump sum in early 2021 (the Exchange Offer).

On 16 December 2020, the Trustee amended the Scheme’s Rules to allow it to pay members a “winding up lump sum”.

In December 2020, the Administrator wrote to Mr O and offered to provide information to him about the Exchange Offer.

On 2 January 2021, Mr O signed an opt-in form to receive information about the Exchange Offer.

In February 2021, the Administrator provided Mr O with the following details about the Exchange Offer:-

• His current pension was £3,575.40 per annum. His estimated pension after the buy-out was £3,943 per annum.

• His one-off lump sum was £17,811 (£14,249 net of tax).

The Administrator also stated the following:

“Once paid, you’ll leave the Scheme and you and your family will get no more benefits from the Scheme.”

“If you decide to opt for the one-off cash payment, we intend to pay it to you in May 2021.”

“Your last pension payment from the Scheme will be made on 1 April 2021.”

“If you tell us you want to take the one-off cash payment option, you can’t change your mind, so it’s important to think carefully before you decide.”

If Mr O wanted to accept the Exchange Offer, he needed to complete and sign a form.

On 19 February 2021, Mr O completed and signed the form for accepting the Exchange Offer, and by doing so, agreed to the following statements:

“I release the Scheme and the Scheme trustee from any liability or obligation to provide me with any sums, and from all actions, demands or claims against them in relation to my benefits under the Scheme.”

“I understand and accept that the payment of this one-cash payment is in full and final settlement of any rights I have under the Scheme.”

3 CAS-89142-L1R8 On 22 February 2021, Mrs N telephoned the Administrator and asked how she could set up Mr O’s online pension account to allow him to accept the Exchange Offer online. The Administrator told her that it would be easier for Mr O to complete and post a hard copy of the acceptance form, which he did.

On 8 March 2021, the Administrator wrote to Mr O and confirmed that it would proceed with the Exchange Offer for him. It said that it had everything it needed to make a one-off lump sum payment to him in May 2021.

On 30 March 2021, Mr O died.

On 1 April 2021, Mr O’s April 2021 monthly pension of £275.55 was paid into his bank account.

On 8 April 2021, Mr O’s death certificate (the Death Certificate) was registered. The Death Certificate stated that Mrs N was the informant of Mr O’s death.

On 3 May 2021, the Administrator wrote to Mr O and confirmed that he had accepted the Exchange Offer. His one-off lump sum was £17,811 before tax. He was also due an arrears payment of £1,156 before tax. This was to correct an underpayment of Mr O’s past pension. After tax, his one-off lump sum was £11,764.39 (the Lump Sum), which would be paid to him on or shortly after 5 May 2021.

On 5 May 2021, the Lump Sum was paid to Mr O’s bank account.

On 11 May 2021, after receiving results of the Scheme’s regular monthly mortality screening conducted by a third party, the Administrator became aware of the possibility of Mr O’s death.

On 12 May and 8 June 2021, the Administrator sent letters to Mr O’s address and asked his next of kin if Mr O had died.

On 15 June 2021, Mr N telephoned the Administrator and confirmed that Mr O had died without a surviving spouse or children under the age of 23. Mr N queried the tax that had been deducted from the Lump Sum. The Administrator requested the Death Certificate, which was sent to the Administrator the same day.

Later the same day, the Administrator wrote to Mr N (the June 2021 Letter) and made the following points:-

• It acknowledged receipt of the Death Certificate. It also requested two forms to be completed, the Family Information form and the Special Category Data Consent form.

• As Mr O had died before the Lump Sum had been paid to him, he was no longer entitled to future pension payments and was not eligible to receive the Lump Sum. The Lump Sum could not form part of Mr O’s estate, and it needed to be returned to the Scheme.

4 CAS-89142-L1R8 • The Trustee had no discretion to pay benefits that were not provided for under the Rules or pensions law and had a legal duty to recover any overpayments.

• Mr O’s pension had also been overpaid by £275.55 for his April 2021 pension payment, as it was paid monthly in advance.

• The amounts due from Mr O’s estate was £11,764.39 for the Lump Sum (the Overpayment) and £275.55 for the pension paid in advance.

On 7 July 2021, the Administrator wrote to Mr N and asked for the two forms to be completed and the Overpayment and the pension paid in advance to be repaid.

On 14 July 2021, Mr N emailed the Administrator and said that Mr L would be dealing with the matter.

On 31 July 2021, Mr O’s Grant of Probate was issued. Mr L is the executor of Mr O’s estate (the Estate). It confirmed that the net value of the Estate was £227,776.

During the period July 2021 to January 2022, Mr L complained to the Trustee under the Scheme’s Internal Dispute Resolution Process (IDRP).

Mr L’s complaint under the Scheme’s IDRP consisted of the following points:-

• The Exchange Offer was irrevocable and established a contract between Mr O and the Administrator on either 19 February 2021, when Mr O had signed the acceptance form, or on 8 March 2021, when the Administrator confirmed everything was in place.

• The Administrator had benefitted from “consideration” on the day the contract was made and its “consideration” was the release of the Scheme from any liabilities or obligations which it had benefitted from. The payment of the Lump Sum was a delayed payment, as it was not paid on the date of the contract but on an agreed future date.

• The June 2021 Letter referred to the Rules and pensions law but no further evidence about this had been provided.

• Neither of the next of kin letters sent by the Administrator after Mr O’s death were received.

• The Administrator had misled him, as it requested the Death Certificate and told him about the Overpayment on the same day. So, it had informed him of the Overpayment before it received the Death Certificate. The Administrator wrote to him when his family was still grieving. By doing this, it had abused its position of trust by asking for the Death Certificate for a false reason.

• His family had been mistreated as the Administrator had tried to obtain the contractual payment that it was not entitled to.

5 CAS-89142-L1R8 • The Administrator did not suggest that he should obtain independent legal advice on the matter.

The Trustee replied to Mr L’s complaint under the Scheme’s IDRP with the following points:-

• Mr O was told that the Lump Sum would be paid in May 2021, with regular pension instalments continuing to be paid to him up to April 2021.

• For the Lump Sum to be “authorised” for overriding pension law, it needed to fall within the definition of a “winding-up lump sum”, which is set out in legislation relating to “winding-up lump sums”.

• Mr O’s entitlement to the Exchange Offer arose under the legislation and clause 18 (5) of the Rules. Entitlement to the Lump Sum ceased on Mr O’s death because:-

o Clause 18 (5) says that a one-off cash payment could be paid if it qualified as a “winding-up lump sum” for the purposes of paragraph 10 of Schedule 29 of the 2004 Act.

o Pension schemes are only authorised by HM Revenue & Customs to make certain types of payments to or in respect of members as set out in section 164 (1) of the 2004 Act.

o A pension scheme can only make a lump sum payment:

▪ directly to a member while they are alive under “the lump sum rule”, which is set out in section 166 (1) of the 2004 Act; or

▪ following the death of a member, under “the lump sum death benefit rule”, which is set out in section 168 (1) of the 2004 Act.

o A “winding-up lump sum” was one of the types of lump sum payment that a scheme can make directly to a member under “the lump sum rule”. The definition of a member is set out in section 151 (1) of the 2004 Act and means an active, deferred or pensioner member of the scheme and does not include a member who has died.

o A “winding-up lump sum” was not one of the types of lump sum payments that a pension scheme could make in respect of the death of an active, deferred or pensioner member under “the lump sum death benefit rule”.

o Paragraph 10 of Schedule 29 to the 2004 Act does not provide for payment being made to a member who has died.

o When a member dies, they cease to be entitled to any benefits under the pension scheme. So, it was not possible to pay a “winding-up lump sum” to a former member who had died.

6 CAS-89142-L1R8 o The payment of the Lump Sum after Mr O’s death was not permitted by clause 18 (5) of the Rules nor overriding law.

o It referred to a Determination by the PO for a similar complaint to Mr L’s, case number PO-212541, in which the PO confirmed that entitlement to a lump sum ceased on death.

• There had been no contract formed between Mr O and the Scheme for the following reasons:-

o The Lump Sum payment was based solely on an option that was already available under Clause 18 (5) of the Rules.

o Not all the necessary elements needed to form a contract separately to the Rules existed, that is, offer, acceptance, consideration and the intention to enter into legal relations.

o Even if there had been a separate contractual offer capable of acceptance, no consideration had been provided, as Mr O was exercising the option already available to him under the Rules. Also, the Lump Sum payment was due in May 2021, which was after Mr O died, so it would not have been possible to perform the contract and Mr O’s estate could not enforce the contract as the contract, if it existed, was with Mr O.

• If the Administrator had been informed of Mr O’s death sooner, it would not have paid the Lump Sum in May 2021 and would have stopped Mr O’s monthly pension. The family was not proactive in informing the Administrator of Mr O’s death until three months after it had happened.

• The Administrator did not request the Death Certificate for the purpose of seeking return of the Overpayment. In these circumstances it was standard industry practice to request a death certificate.

• The Administrator was not under an obligation to advise the Estate to seek legal advice on the matter.

• It did not uphold his complaint.

On 14 February 2022, Mr L notified the Trustee that he was going to submit his complaint to The Pensions Ombudsman (TPO) and would not be repaying the Overpayment.

On 30 March 2022, the Trustee told Mr L that as it had not received an update on his TPO complaint, it intended to issue formal court proceedings if the Overpayment was not repaid by 13 April 2022.

1 https://www.pensions-ombudsman.org.uk/sites/default/files/decisions/PO-21254.pdf

7 CAS-89142-L1R8 Mr L said that on 13 April 2022, the pension overpayment of £275.55 was repaid to the Scheme.

On 13 May 2022, the Trustee asked TPO whether it had received a complaint from Mr L on the matter. TPO confirmed that it had not.

On 28 June 2022, the Trustee told Mr L that it would commence formal court proceedings to recover the Overpayment.

On 5 July 2022, the Trustee asked TPO again whether it had received a complaint from Mr L. TPO confirmed that it had received Mr L’s complaint.

On 30 September 2022, Mr L wrote to the Trustee and said that he would keep it updated on the progress of his TPO complaint.

On 1 August 2023, the Scheme’s liabilities were transferred to an insurer through a buy-out policy.

Summary of Mr L’s position

The Scheme was not being wound up, so the Lump Sum was not a “winding-up lump sum”.

There was a contract between Mr O and the Scheme that came into force on either 19 February or 8 March 2021, when Mr O was still alive. The elements of the contract were as follows:-

• Mr O agreed to an irrevocable offer whereby he would receive a one-off payment for releasing the Scheme from any further obligations.

• The Scheme would be relieved of any future obligations or liabilities.

• The Lump Sum was agreed as consideration at a future date in exchange for the mutual benefits.

Mr O was not told that the payment of the Lump Sum was subject to any further conditions, for example, the requirement to be alive on the date of the payment.

A delay caused by the Administrator meant the Lump Sum was paid to Mr O after his death. Mr O’s estate should not be penalised for the administrative delay.

Mr O’s family had notified the Administrator of his death, not the company conducting the Scheme’s regular monthly mortality screening.

On two occasions the Trustee had missed deadlines agreed with TPO, which was consistent with how the Trustee had treated him while dealing with his complaint.

The Overpayment had been spent on Mr O’s funeral and outstanding bills.

Summary of the Trustee’s and the Administrator’s positions

The elements necessary to form a contract did not exist. 8 CAS-89142-L1R8 As the Lump Sum was not allowed under the Rules or pensions law, and was not a contract, it was an overpayment and could not form part of the Estate.

Adjudicator’s Opinion

53.1 The Estate was overpaid the Overpayment on 5 May 2021. The Trustee was not allowed to pay Mr O or the Estate his winding up lump sum after his death. This was clarified in Sections 151 (1) and 166 (1) of the 2004 Act.

Repayment claim

• change of position;

• estoppel;

• limitation; and

• hardship.

Change of position

• good faith - the recipient of the overpayment must be acting in good faith;

2 Lipkin Gorman (a firm) v Karpale [1991] 2 AC 548 as per Lord Goff at paragraph [580C]. Lord Goff set out this principle in general terms and the courts have subsequently developed principles about where such a defence applies. 9 CAS-89142-L1R8 • detriment - their circumstances must have changed detrimentally as a result of the overpayment or in anticipation of receiving it. Generally, this means that the money must have been spent and the expenditure cannot be legally or practically reversed, or any asset bought with the overpayment cannot be easily sold; and

• causation - there must be a causal link between the change of position and receipt of the overpayment (as a minimum it is necessary to show at least that “but for” the mistake the applicant would not have acted as they did).

10 CAS-89142-L1R8

Contract

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 are set out below:

I have considered Mr L’s comments, but they do not change the outcome. I agree with the Adjudicator’s Opinion.

Ombudsman’s decision

11 CAS-89142-L1R8 In respect of Mr L’s view that the Exchange Offer was a contract that allowed the lump sum to be paid after Mr O’s death, I disagree. It is clear to me that the nature of any agreement was that a winding up lump sum would be paid and, as a result of Mr O’s intervening death, payment of that lump sum was no longer possible.

I do not uphold Mr L’s complaint.

Dominic Harris

Pensions Ombudsman 18 November 2025

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