Ombudsman finds administrator not responsible for member's decision to opt out following letter on LTA changes

The Deputy Pensions Ombudsman has partly upheld a complaint by a member of a DB public sector scheme who alleged that the administrator had provided incorrect information about his lifetime allowance (LTA) which led him to opt out of the scheme.

In early 2016, the administrator wrote to the member informing him that he "may be affected" by a reduction in the LTA coming into effect in April 2016. The letter was sent following an incorrect overstatement of the member’s pension benefits provided by the employer. The member claimed that the letter led him to believe that the value of his benefits was approaching his LTA and as a result, he decided to opt out of paying contributions. A year later, after discovering that the value of his benefits was unlikely to breach the LTA, he opted back in. However, by this time, he had lost the ability to make further contributions into his added years contract under the scheme's rules.

The Ombudsman held that the administrator was not responsible for the provision of incorrect information by the employer. Neither did the administrator provide any incorrect information about the LTA in its 2016 letter. The letter did not say that the member was close to, or in excess of, the LTA, nor did it recommend any specific action. Ultimately, it was the member's responsibility to establish his LTA position and the administrator was not responsible for the financial consequences of the member's decision to opt out.

However, the Ombudsman did find that the administrator had made other errors constituting maladministration, including taking around nine months to respond to the member's complaint and overpaying the member's lump sum. Consequently, the administrator was ordered to pay the member £1,000 for the serious distress and inconvenience caused.

Generally, employers should avoid giving members financial advice. Where there are major changes in the law which could affect members, information should be provided without going into detail on how benefits could be affected. The member bears the ultimate responsibility for determining how changes affect them personally.

Read the Determination.