United Utilities Pension Scheme · CAS-44123-K4V8

CAS-44123-K4V8

Ombudsman’s Determination Applicant Mr Y

Scheme United Utilities Pension Scheme (the Scheme)

Respondents United Utilities (the Employer) United Utilities Pensions Trustee Limited (the Trustee) Willis Towers Watson (WTW) Aegon

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

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• Since he was over age 50 and was leaving the Scheme under the terms of VR, he could take his Scheme benefits on the date of his redundancy.

• These benefits would be reduced for early payment, as they would be paid over a longer period.

• There was a 6% “top-up” applied to benefits built up to 31 March 2010, however what would actually happen was the early reduction would be 6% less than it should be.

• The lump sum available from Mr Y’s Scheme benefits was tax free.

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• Take the entire value of the AVC, which was £43,851.20, as a lump sum. 25% of this value would be paid tax free, with the balance being taxed at Mr Y’s marginal rate of income tax (Option 1).

• Take a tax free cash (TFC) sum of £10,962.80 and a yearly pension of £538.54 (Option 2).

• Take a yearly pension of £718.05 (Option 3).

• Take his main Scheme benefits. By doing so, he also had to take his AVC benefits. He could not transfer out and could not take his AVC benefits unless he also took his Scheme benefits.

• Transfer his Scheme benefits and his AVC benefits at the same time. Once he transferred them to another pension scheme, he could not take benefits until age 55.

• Leave his benefits in the Scheme. Under this option he would not be able to take his benefits until age 55.

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• As he had left the Scheme through “severance”, he retained a protected minimum pension age of 50. Normally, the earliest he could take his benefits was age 55.

• The Trustee had taken legal advice and had established that for those members that elected to take their benefits prior to age 55, any AVCs would have to be taken at the same time as their Scheme benefits.

• If Mr Y deferred his AVC past March 2018, he would be unable to receive it as a lump sum and would have no option but to take it as pension income.

• If Mr Y transferred his AVC to another pension arrangement, his benefits from the AVC and the Scheme would be classed as an unauthorised payment and he would be liable to a tax charge.

• He could not return his Scheme benefits or his VR payment in order to cancel the AVC and transfer his Scheme benefits. If he felt strongly about this issue, he should submit a formal request in writing, so WTW could liaise with the Employer and the Trustee.

• His only options regarding the AVC were: take the entire amount as a lump sum; take it as a lump sum and a pension; or take it as a pension only.

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Adjudicator’s Opinion

13 CAS-44123-K4V8 According to Mr Y, the Employer told him that he could pay the taxable part of his VR money into an AVC and gain tax efficiency on the first 25%. The Employer has accepted that it told Mr Y that it would be possible to draw part of the AVC benefits as TFC. In the Adjudicator’s view, what the Employer told Mr Y was correct. He could pay the taxable part of his VR money into an AVC and could take 25% of the AVC’s value as TFC. So, there had been no negligent misstatement by the Employer about this issue.

There was no contemporaneous evidence to show that Mr Y’s specific intentions were discussed with the Employer. Even if such a discussion took place, the Employer would not have been in a position to give financial or tax advice to Mr Y. None of the Respondents were permitted or had a duty to give financial or tax advice.

The MPAA was not triggered as a result of Mr Y paying part of his VR money into an AVC. It was triggered by his decision to take the entire value of the AVC as a lump sum.

The only way Mr Y could take the entire AVC value as a lump sum was in the form of a UFPLS. However, he did not have to take a UFPLS. Had he chosen Option 2 or Option 3, an MPAA would not have been triggered. He would have been able to take 25% of the AVC value as a TFC and use the balance to receive a regular pension.

Prior to selecting Option 1, WTW was in communication with the Adviser. In addition, Mr Y signed a declaration form which confirmed he had received financial advice regarding his AVC benefits. As Mr Y received financial advice and elected the option that triggered the MPAA, none of the Respondents were responsible for any financial loss he had incurred as a result of that decision.

On 13 July 2018 and 5 February 2019, Mr Y was given the opportunity to return the UFPLS and select one of the alternative options. Had he returned the UFPLS and chosen either Option 2 or Option 3, he would have avoided the MPAA.

Mr Y said that it was always his intention to take the entire AVC as a lump sum. However, as he had already received TFC of £53,720.12 from his main Scheme benefits, an amount that he did not plan to receive originally, he could have selected Option 2 or 3, instead of Option 1. The Respondents gave Mr Y the opportunity to avoid an MPAA. As he decided to retain the UFPLS, they were not liable for Mr Y incurring an MPAA.

Mr Y had also complained about not being informed that he had to take both his AVC and Scheme benefits at the same time. Had he decided to defer taking his main Scheme benefits, or had he transferred them, he would not have been able to access them until age 55. Given that any early retirement reduction would have been offset by the 6% top-up that applied to his benefits, the Adjudicator concluded that it was more likely that he would have selected the last option. This was because it would have allowed Mr Y to receive his main Scheme benefits five years earlier, with any reduction for early retirement being offset by the 6% top up to his benefits. He would

14 CAS-44123-K4V8 have also received 25% of the taxable VR money free of tax and he would not have triggered the MPAA, assuming he had chosen Options 2 or 3.

Consequently, even if Mr Y had been made aware about taking both the AVC and main Scheme benefits at the same time, the Adjudicator’s opinion was that he would have been in the same position as he currently was. The only significant difference being that he had incurred an MPAA because he selected Option 1 (for which the Respondents were not responsible).

The Adjudicator accepted that the Employer could have informed WTW earlier, about Mr Y’s intention to pay AVCs. Had it done so, it was likely that Mr Y would have received the Money Advice Service booklet and would have been informed about the MPAA. However, regardless of the lack of communication between the Employer and WTW, Mr Y had the opportunity to reverse the MPAA but chose not to do so. So, the non-provision of the booklet and the lack of communication between the Employer and WTW did not cause Mr Y any financial injustice.

As the Respondents were not responsible for Mr Y incurring an MPAA, they were also not liable for any financial injustice he had suffered as a result of the MPAA.

The Trustee offered Mr Y £1,000 for any inconvenience this matter had caused him. The Adjudicator concluded that the Employer’s lack of communication with WTW and BlackRock’s letter of 27 March 2018 did not cause Mr Y a level of distress and inconvenience that would warrant an award by the PO towards non-financial injustice. Particularly as he did not consider that the Respondents were responsible for Mr Y’s financial injustice.

Ombudsman’s decision

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WTW and Aegon owed a duty to Mr Y to act with reasonable care and skill in the performance of the functions set out in paragraph 61. But in this case, the MPAA was triggered by Mr Y’s decision to take his AVC benefits under Option 1. To impose liability on WTW or Aegon by reason of an obligation to perform functions which did not cause the loss claimed, has no substance.

In addition, Mr Y was given the opportunity to avoid an MPAA, by returning the lump sum he received from the AVC and choose Option 2 or Option 3 instead. His decision not to do so, meant that he decided to trigger the MPAA in full knowledge that any tax relief in future pension contributions would be limited. I find that any financial loss Mr Y has incurred or will incur as a result of this decision cannot be attributed to the Respondents.

I have reviewed the remaining issues that Mr Y has raised in his complaint. I do not intend to address them in detail, as I agree with the Adjudicator’s opinion and for the same reasons.

While I accept that the Employer could have communicated with WTW more efficiently and Aegon could have provided the correct MPAA figure in its correspondence with Mr Y, these issues did not cause Mr Y a level of distress and

16 CAS-44123-K4V8 inconvenience that would warrant an award towards non-financial injustice and I make no such award.

I do not uphold Mr Y’s complaint.

Anthony Arter CBE

Deputy Pensions Ombudsman 23 March 2023

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