Scottish Widows bound by incorrect transfer value provided to parties
The Pensions Ombudsman has determined that a divorcee need not repay to Scottish Widows an overpayment secured in her divorce settlement as a result of an incorrect transfer value provided by the pension scheme administrator.
Natalie McNicholas complained that Scottish Widows, the administrator of her former husband’s pension scheme, transferred an incorrect payment, which it then sought to recover from her.
The Pensions Ombudsman determined that the complaint should be upheld because the administrator provided inaccurate information and calculated the payment due to Mrs McNicholas incorrectly, as a result of which she entered into a divorce settlement on the basis of incorrect information.
In 2010 Mr and Mrs McNicholas were divorced and, prior to the divorce, information was obtained about the value of his pension in relation to the financial proceedings.
In July 2009 Mr McNicholas’ financial adviser sent a request to Scottish Widows for “a transfer value for divorce purposes…” giving Mr McNicholas’ correct name and date of birth.
In reply, Scottish Widows advised that the value of his pension was £608,436.74. The reply referred to “this request being in connection with divorce proceedings…” and there were various references in Scottish Widows’ letter to the process relating to a pension sharing order. A statement giving this figure was then provided to Mr McNicholas by his financial advisers and in turn provided to Mrs McNicholas, who was told that his pension was all contained in the Scheme, and the total value of those pension assets was £608,436.74. It was included in Mr McNicholas’ financial statement filed with the court and passed on to Mrs McNicholas as part of the exchange of financial information within the divorce proceedings.
The information provided showed that in addition to his pension, Mr McNicholas’ had a range of other assets including business interests, savings, investments and a trust fund. The total net value of his assets was more than £1.1m. (This included his half share in the matrimonial home, the other half share being owned by Mrs McNicholas.)
Following a period of negotiations Mr and Mrs McNicholas reached an agreement and in February 2010, the court approved a consent order detailing the financial settlement agreed between them. Mrs Nicholas received a lump sum payment from the proceeds of sale of the former matrimonial home and maintenance payments, together with a pension sharing order in her favour for 50% of the value of her husband’s pension. Although Mrs McNicholas was given 50% of the pension, the other assets were not divided equally. Mrs McNicholas received 66.85% of the net proceeds of the sale of their home and approximately 70% of the total net assets (based, of course, on the incorrect valuation of the pension).
Mrs McNicholas asked for the 50% share to be transferred to a Self Invested Personal Pension (“SIPP”) she had set up with Legal & General, with a commencement date of 12 May 2010. Mr McNicholas’ financial adviser gave details of the pension sharing order to Scottish Widows. The Court Order was then implemented, with Scottish Widows requesting the Trustee to send the payment to Legal & General. When this was carried out, a slightly increased valuation of £622,946 was used, meaning that the 50% payment sent to Legal & General amounted to £311,473.
On 31 January 2011 the Scheme’s Trustee wrote to Mrs McNicholas advising her that there had been an error in the calculation of Mr McNicholas’ pension. The Trustee had been advised by Scottish Widows, the Scheme administrator, that it had now recalculated the value of her former husband’s pension using the correct figures. This had resulted in a reduction in the value of the pension and, accordingly, in the sum that should have been transferred to her. Instead of receiving £311,473, the sum she would have received if the figures had been calculated correctly was in fact £213,847. There had, therefore, been an overpayment to her of £97,626. The letter advised that Scottish Widows would be contacting Legal & General to obtain a refund of the overpayment.
The Ombudsman determined:
“I consider that the injustice caused to her by repayment would outweigh the injustice to Scottish Widows and it would be inequitable to require her to repay the money.
“…. [T]here is no doubt that the overpayment arose through maladministration by Scottish Widows. Had that maladministration not occurred, Mrs McNicholas would have known the true value of the pension and would have been able to negotiate either a larger share of the pension or a more favourable division of other assets. She has lost the opportunity to do either of those things, which in itself is an injustice arising as a result of the maladministration. In addition, if she had to repay the overpayment, she would be left in a worse position financially and would thus have suffered a loss as a result of the maladministration, for which she would be entitled to compensation. To require her to repay the sum, and then direct Scottish Widows to pay compensation, would be an unnecessarily cumbersome way to resolve matters.
“Finally, this whole process has caused Mrs McNicholas a great deal of distress and uncertainty. She has been faced with the prospect of having to repay this money and suffered the anxiety of wondering whether the arrangements she has made for the future may have to be revisited. I consider a payment should be made to reflect this.”
The Ombudsman directed that Scottish Widows:
- shall not take any steps to recover the overpayment from Mrs McNicholas;
- shall within 28 days pay to Mrs McNicholas the sum of £250 in respect of the distress and anxiety caused to her.
The full determination can be accessed from the decisions page of the Pensions Ombudsman’s website.
SOURCE: Family Law Week