Principal Civil Service Pension Scheme · CAS-59872-D9D3

CAS-59872-D9D3

Ombudsman’s Determination Applicant Mr L

Scheme Principal Civil Service Pension Scheme (the Scheme)

Respondents MyCSP Cabinet Office

Outcome

Complaint summary

Background information, including submissions from the parties

“Retirement and Death Benefits 3.11 A [member] who resigns or opts out of the scheme and who (i) has two or more years' qualifying service; or (ii) is a woman [member] who resigns on or after 6 April 1978 and who leaves the [Scheme] after the end of the tax year preceding that in which she attains the age of 60 (notwithstanding that she has not completed 2 years' qualifying service); or (iii) was formerly entitled to rights under a personal pension scheme in respect of which a transfer payment has been made to this scheme and who does not opt to transfer the whole or, under rule 6.2(iv), part of his accrued pension benefits out of this scheme, will be awarded a preserved pension and lump sum in respect of such part of his accrued pension benefits as is not transferred. Subject to rule 3.12, these will be brought into payment when the civil servant reaches the pension age, and will be calculated in the way described in rule 3.1… 1 CAS-59872-D9D3 Re-employment 3.26 If a person receiving a pension under rule 3.1 or a preserved pension under rules 3.11 or 3.24a(ii) or a person entitled to receive a partial retirement pension under rule 3.3b is re-employed [and re-joins the Scheme] before his 75th birthday at a salary equal to, or higher than, his old salary, the whole of the pension will be suspended. If he is re-employed at a salary lower than his old salary, the pension in payment to him (including any increase under the Pensions (Increase) Act 1971 as amended) will be reduced to the amount by which his old salary exceeds his salary on his first day of re-employment. While he is re-employed, the pension in payment will attract pensions increase but will not be otherwise adjusted unless a relevant event specified in rule 3.25d occurs. In any of those events, the amount of abatement will be increased (or decreased) by the amount of increase (or decrease) in his annual rate of salary resulting from the change…”

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On the same day Mr L he emailed MyCSP and questioned whether he could be “penalised” by abatement, if he retired at age 60, because his pension, in addition to his part-time pay, would exceed his salary of reference.

MyCSP responded on 19 September 2012 and said “The issue for you in respect of avoiding abatement is the same as for someone who is working full-time in that you need to reduce your ongoing earnings by at least 20% to do so.”

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On 17 September 2013, Mr L wrote to the Employer and said:

“For clarification, I shall be 60 in [December 2013], whereupon I wish to draw my deferred Classic pension. This is allowed under the terms of the Principle (sic) Civil Service Pension Scheme. I have taken advice from MyCSP, HR and Capita and I am fully aware of the financial implications of this move in respect of my deferred pension and my future pension. By ceasing to receive the CIDAA Intermediate Allowance I will be able to receive the maximum pension award that is allowed. It is therefore important that Capita are advised of this migration before the calculation of my pension award.”

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In December 2013, he had expected to receive his full retirement pension immediately and continue to earn his existing full-time salary. However, due to the incorrect application of abatement “he was asked to reduce his salary at that time in order to receive any of that pension”. This caused a loss of income and reduced the value of his second retirement pension from the Scheme that has been in payment since April 2019.

MyCSP became aware of the issue regarding some members’ deferred pension entitlement being abated at retirement in error, in November 2018, but did not contact him at that time. It was only due to the fact that he contacted MyCSP in March 2020 that his pension arrears were paid.

When the error was eventually identified, he received a lump sum of pension arrears totalling £35,778.63, which was inappropriately taxed at the higher earnings rate of 40% instead of the basic rate of 20%. MyCSP and Cabinet Office should award interest at the Bank of England base rate on the pension arrears.

After contacting HM Revenue & Customs, he received a tax rebate to correct his tax liability, but the effort involved caused him distress and inconvenience. MyCSP should offer an award in recognition of this.

Adjudicator’s Opinion

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• MyCSP would not have been aware that abatement should not have applied in Mr L’s case until the amended guidance was received in 2018. However, this issue was not resolved until 2020. In the Adjudicator’s view, MyCSP’s failure, having received the Cabinet Office’s revised guidance, to identify Mr L as a member who could be affected by the error, amounted to maladministration.

• The Cabinet Office had been responsible for ensuring that any guidance it provided to MyCSP was appropriate and properly reflected the Scheme Regulations at the time of Mr L’s initial retirement, in December 2013. It was not until 7 November 2018 that the Cabinet Office provided MyCSP with appropriate guidance regarding the way that members, including Mr L, who had opted out of the Scheme, and re-joined before reaching the Scheme’s NRA, should be treated when retiring.

• The Cabinet Office’s initial failure to provide appropriate guidance to MyCSP amounts to maladministration. So, the normal course of action would be, as far as possible, to put Mr L back in the position he would have been in, had the errors not occurred. However, that has already happened following the payment of the wrongly abated pension. So, the remaining issue was whether Mr L incurred a financial loss or whether non-financial injustice flowed from the incorrectly abated pension.

• On 4 September 2012, Mr L emailed MyCSP and enquired whether it would be possible to work part-time for the Employer beyond age 60, and still claim retirement benefits. This suggests that Mr L had been considering a change to part-time hours with a corresponding reduction in pensionable salary as a personal choice. On 12 September 2012, Mr L emailed MyCSP and said he understood that if he retired at age 60 and continued working for the Employer, abatement could be applicable.

• Mr L then submitted a pension claim form to MyCSP on 16 August 2013, confirming his change to part-time hours and reduction in pensionable salary. In the attached covering letter Mr L did not state that this had been a requirement to claim the retirement pension. Mr L simply said that he intended to retire at age 60, in December 2013, and he understood abatement would apply.

9 CAS-59872-D9D3 • The £500 award that MyCSP paid Mr L is sufficient recognition of the distress and inconvenience Mr L has suffered. The Cabinet Office was responsible for the late payment of Mr L’s benefits for the period December 2013 to 6 November 2018, when inappropriate guidance was provided to MyCSP. MyCSP was at fault for the late payment of Mr L’s benefits covering the period 7 November 2018 to 31 March 2020 having failed to act immediately upon receipt of revised guidance from the Cabinet Office.

Mr L did not accept the Adjudicator’s Opinion, and the complaint was passed to me to consider. Mr L and the Cabinet Office provided their further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Mr L and the Cabinet Office.

Mr L’s additional comments

When he initially applied for payment of his deferred pension he was already in part- time employment and at that time he had ‘never heard of abatement’.

MyCSP’s email of 18 September 2012 was “clear” in confirming that his retirement pension would be subject to abatement. On the same day he emailed MyCSP in response and questioned whether he could be “penalised” by abatement, if he retired at age 60, because the pension, in addition to his part-time pay, would exceed his salary of reference.

MyCSP then emailed him on 19 September 2012 stating that “The issue for you in respect of avoiding abatement is the same as for someone who is working full-time in that you need to reduce your ongoing earnings by at least 20% to do so.”

As a result of the emails received from MyCSP on 18 September 2012 and 19 September 2012, he decided to reduce his income and avoid abatement. He was already working on a part-time basis at the time so he had no other option than to forgo the Investigation Allowance he was receiving at the time to do so.

During a telephone conversation with MyCSP around the time of his retirement in December 2013, he was again told that his pensionable salary would need to reduce following the application of abatement. As he was already working part-time hours of

10 CAS-59872-D9D3 24 hours a week, he sacrificed an Investigation Allowance he had been receiving to comply with that guidance.

He only accepted abatement on his retirement benefits as MyCSP said that it would apply in the email of 18 September 2012 and Capita incorrectly confirmed this in the letter of 20 November 2013. If MyCSP had not made its error he would have continued receiving his pre-retirement salary from November 2013.

Those higher earnings would also have formed the basis of the calculations for the benefits when he retired again in February 2019. Before receiving the misinformation from MyCSP in September 2012, he had thought that his full pension would be paid as the retirement benefits were in the Classic Section.

His pensionable pay was not forcibly reduced by MyCSP. However, he decided to reduce it because “…in my mind I had no choice but to do so, as otherwise I would have received none of the pension to which I was entitled. Therefore, I felt I was being forced to do so.” As his deferred pension was made subject to abatement, he could ‘only receive any of the benefits by reducing his pay’.

He should be put into the position he would have been in if abatement had not been incorrectly applied; and to his mind that includes carrying on receiving the salary he was receiving in November 2013 and that salary then being used to calculate his second pension from December 2013 to April 2020.

Cabinet Office’s additional comments

Mr L’s full-time equivalent salary was £30,331 a year but based on his part-time working arrangement of 24 hours per week, his actual pay was £20,220 before 1 December 2013. From that date his pay remained the same but he ceased receiving the pensionable Investigation Allowance of £4,278.96 a year.

There was no requirement under the Classic Regulations for Mr L to reduce his pensionable earnings to claim his benefits in December 2013. Neither was this stipulated in any guidance provided by the Cabinet Office to MyCSP.

MyCSP’s email of 19 September 2012 incorrectly compared Mr L’s situation to that of a member seeking partial retirement. So, the email incorrectly stated that Mr L would need to reduce his earnings by 20%. However, this guidance was only provided to assist him in avoiding abatement.

There is no record of either MyCSP or the Cabinet Office informing Mr L that he needed to reduce his pensionable earnings to claim any of his deferred pension in December 2013. There is also no record of a telephone conversation between Mr L and MyCSP in 2013.

The Employer paid Investigation Allowances to reflect an employee's role. On 17 September 2013, Mr L wrote to the Employer explaining that he would like to cease this part of his role so that he could receive the “maximum” benefits with no abatement applied when retiring at age 60. 11 CAS-59872-D9D3 Mr L also said he was aware of the financial implications of doing so in respect of his future benefit entitlements from the Scheme. This shows Mr L was aware that his future pension accrual would be affected by foregoing the Investigation Allowance he had previously received.

Mr L’s full pension if abatement had not been applied incorrectly from December 2013 ought to have been £12,611.50 a year. However, a pension of only £6,160.93 a year was paid from that time until the error was identified. Consequently, a lump sum of pension arrears totalling £35,778.63 was paid into Mr L’s bank account on 31 March 2020.

Ombudsman’s decision

More recently Mr L has also argued that he should be put into the position he would have been in if abatement had not been incorrectly applied. That is that he would not have foregone the Investigation Allowance that he was receiving in November 2013 as part of his role had he not been told that abatement would apply. Mr L considered that the higher salary should be used to calculate the benefits he accrued in the Scheme between December 2013 and April 2019.

There is no dispute that abatement was wrongly applied to Mr L’s retirement benefits for the period from December 2013 to 31 March 2020. This has been partly remedied by the payment of the pension arrears totalling £35,778.63 which has been paid to Mr L.

However, it was not until March 2020 that this resolution was reached as the Cabinet Office had initially provided incorrect guidance to MyCSP regarding the way in which members, who had opted out of the Scheme, and re-joined before reaching the Scheme’s NRA, should be treated at retirement. Having then received corrected guidance in 2018, MyCSP failed to identify Mr L as a member who could be affected by the Cabinet Office’s initial error. I find that these errors amount to maladministration by the Cabinet Office and MyCSP. The resulting delay in paying Mr L his full benefit entitlement from December 2013 until 31 March 2020 would have caused him financial detriment that has not been fully recognised in the payments of pension arrears lump sum Mr L received.

I agree that it is appropriate for interest to be added to the payment of the pension arrears and that the Cabinet Office is responsible for the late payment of Mr L’s benefits for the period December 2013 to 6 November 2018, when it provided appropriate guidance. MyCSP is responsible for the period from November 2018 to 12 CAS-59872-D9D3 March 2020 when it eventually acted in accordance with the revised guidance, and paid Mr L’s pension arrears. I find that this is sufficient to fully redress the late payment of Mr L’s full pension entitlement for the period from December 2013 to March 2020.

Mr L contended that if MyCSP had not said in its email of 19 September 2012 that there was a requirement to reduce his pensionable pay by at least 20%, he would not have reduced his salary from December 2013. Mr L said he was again told that his pensionable salary would need to reduce following the application of abatement during a telephone call with MyCSP in December 2013. MyCSP has no record of this telephone call. So, I am unable to place any weight on the contents of that telephone call in my findings.

Having reviewed the emails that MyCSP exchanged with Mr L on 18 September 2012 and 19 September 2012, I note that abatement, and the ways in which Mr L could avoid it were discussed and that MyCSP’s email of 19 September 2012 incorrectly stated that Mr L would need to reduce his pay by at least 20%.

Mr L applied for payment of his deferred benefits in August 2013, claiming the maximum lump sum permitted under the Scheme of £37,834.51, and a residual pension of £6,160.93 a year, after the incorrect application of abatement. Then on 17 September 2013, Mr L wrote to the Employer confirming that he would like to stop receiving the Investigation Allowance so that he could receive “maximum” benefits from the Scheme. Mr L also stated that he was aware of the financial implications of doing so in respect of his future benefit entitlements from the Scheme.

It is clear that the reason why Mr L chose to forgo the additional Investigation Allowance was to mitigate the effects of abatement. While I agree with Cabinet Office’s view that Mr L was aware of the financial implications this decision would have in respect of his future benefit entitlements from the Scheme. The question is what would Mr L have done had he been aware of the correct position in 2013?

Mr L contends that he would not have made that decision and would have continued to undertake that part of his role and so receive the higher salary. The Cabinet Office said that Mr L has made this claim with the benefit of hindsight. While I acknowledge that it is somewhat difficult to provide evidence of actions that might have been taken but were not, I find that there is a high level of uncertainty in Mr L’s claim. For example, it is unclear what the investigation allowance entailed to justify the additional payments, but I would assume it was a not insignificant additional responsibility. Further, Mr L may not have chosen to continue to undertake the additional responsibilities for the full period between 2013 and 2019 or indeed the Employer may not have wanted or required him to do so for the entirety of that period. I find that, given the variable outcomes of these questions, it is not possible to conclude that the loss argued for by Mr L is one that should naturally flow from the emails sent by MyCSP to Mr L.

13 CAS-59872-D9D3 However, I do accept that the maladministration identified will have caused Mr L serious distress and inconvenience which should be recognised, so I find that £1,000 (i.e. an additional £500, on top of the amount already paid by MyCSP) is an appropriate award in the circumstances of this case.

I partly uphold Mr L’s complaint.

Directions Within 28 days of this Determination:

• The Cabinet Office shall pay Mr L a lump sum equal to simple interest on the arrrears of pension payments for the period December 2013 to 6 November 2018 calculated at the base rate for the time being quoted by the Bank of England.

• MyCSP shall pay Mr L a lump sum equal to simple interest on the arrrears of pension payments for the period 7 November 2018 to 31 March 2020 calculated at the base rate for the time being quoted by the Bank of England.

• MyCSP shall pay Mr L an additional £500 in recognition of the serious distress and inconvenience caused.

Dominic Harris

Pensions Ombudsman 27 December 2023

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