Pension sharing update – What happens when a transfer value is miscalculated by the pension provider?

Thursday 11 July 2013

In 2010 Mrs McNicholas was divorced from her husband. During the financial proceedings information was obtained about the value of his pension. Mr McNicholas’s financial advisor wrote to Scottish Widows http://www.scottishwidows.co.uk/ requesting “a transfer value for divorce purposes” which is normal practice.

In reply Scottish Widows stated that the value of his pension in relation to divorce proceedings was £608,436.74. They also made several references to Pension Sharing Orders.

This information was then relayed in Mr McNicholas’s Form E which was provided to Mrs McNicholas as part of the usual exchange of financial information.

Following a period of negotiation the parties reached an agreement and a settlement was agreed based on her current and future needs. Part of the settlement was a Pension Sharing Order in Mrs McNicholas’s favour for 50% of the value of her husband’s pension.

Scottish Widows implemented that agreement and sent a payment of £311,473 to Mrs McNicholas’ own pension scheme, representing 50% of the fund value initially provided by Scotttish Widows.

On 31 January 2011 Mrs McNicholas then received a letter from the Schemes Trustees informing her that there had been an error in their calculations. The Trustee had been advised by Scottish Widows that the figure had been recalculated and using the correct figures this resulted in a reduction in the value and the sum she should receive. She had in effect been overpaid £97,626 and the letter advised that Scottish Widows were seeking repayment and interest, including any legal costs and court fees that might be incurred.

Mrs McNicholas was not to blame for this and neither was her husband. The dispute was referred to the Pensions Ombudsman http://www.pensions-ombudsman.org.uk/ who determined that Mrs McNicholas need not repay Scottish Widows the overpayment which was a result of an incorrect transfer value provided by the scheme administrator themselves. This is because if Mrs McNicholas had known the true value of the pension she may have been able to negotiate a larger share of the pension or of the other assets instead. She was no longer in a position to do that.

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…”

The Ombudsman went on to direct that Scottish Widows shall not take any steps to recover the overpayment and shall pay her £250 in respect of the distress and anxiety caused.

The Ombudsman has acknowledged that divorce settlements involve difficult calculations and the parties have every reason to rely upon information provided by such organisations as being correct. They base their negotiations on such figures and once agreed the calculations cannot be revisited.