Pensions Ombudsman offers guidance on member information requirements

The PO decision provides helpful commentary given the restrictions on providing financial advice to members and the risk for a trustee or pension provider of overstepping the advice and guidance boundary.  

In this case (12 pages / 870 KB), Mr S was a member of his employer’s defined contribution pension scheme (‘the old scheme’). The old scheme closed to new contributions in February 2013 and Mr S became a deferred member. On the same day, Mr S became an active member of his employer’s section of a defined contribution master trust (‘the new scheme’).

In September 2013, Mr S was told by the trustee of the old scheme that his deferred benefits would be transferred to the new scheme. His active and deferred benefits would be held in separate sections of the new scheme, in the “active arrangement” and “deferred arrangement” respectively, and he would have a separate personal investment account under each of those arrangements. He was notified that the transfer had completed in December 2013.

Mr S’s funds were invested in the same equity funds through his two arrangements. The communication he was sent in September 2013 told him that members who were already part of the active arrangement may pay different annual management charges for the same funds in the active arrangement and deferred arrangement. The communication he was sent in December 2013 told him that he could change his fund choices in his deferred arrangement to any of the fund choices available in deferred arrangement or active arrangement and that “different charges applied to the [active arrangement] funds”.

In February 2021, Mr S called the master trust provider, noting that he was invested in the same investment funds through his two arrangements but that the charges applied to those funds appeared to be different under each arrangement. In response, the provider sent him a table setting out the charges that applied to the investment funds in each of his arrangements, together with the discounts that applied in each arrangement. The table showed that the gross charges applicable to the investment funds were the same in each arrangement but that different discounts applied.  One of the funds had a lower net charge in the active arrangement, but this was not explicitly stated.

Mr S complained that this information was unclear. The provider responded that Mr S was correct in saying that the charges for the funds between both of his arrangements differed. However, this was not due to the overall charge of the fund being different but rather due to a difference in the discount that was being applied to the fund. The different discounts had been agreed by the employer.

Mr S complained that he had had to ask for clarification and asked if he could disinvest from the fund in the deferred arrangement, which had less favourable terms, and transfer those monies to the same fund in his active arrangement, which had a lower net charge. He subsequently made this transfer. 

In his complaint to the PO, Mr S argued that the provider and/or the trustee of the new scheme should have advised him that he could transfer from one of his funds in the deferred arrangement to the same fund in his active arrangement to benefit from a lower net charge and asked to be compensated for the difference in the net charges applied. 

The PO decided that, while the provider’s initial response to the member’s enquiry had some scope for improved clarity, the member had been given sufficient information to understand the net charges applicable to his arrangements. Moreover, the information provided to Mr S in 2013 made it clear that different charges could apply in the two arrangements, and this should have prompted him to check the position at that time.

The PO did not expect the trustee to give Mr S “bespoke information about the funds he had invested in and a side-by-side comparison, as he would have liked”. The relevant information was available in the member guides provided to Mr S and on the new scheme’s website and app to allow Mr S to make an informed decision about how to manage his investments. 

In his complaint, Mr S also asked that the provider be required to contact all members in his position with detailed information about their comparative charges. He complained that the trustees of the old and new schemes should not have agreed to transfer his benefits to the deferred arrangement on terms that were less favourable than under the active arrangement. In this determination, it was helpfully confirmed that the PO had no jurisdiction to investigate or make directions in relation to members who were not party to the complaint and that the PO would not interfere with commercial discussions.