Recent rulings show why trustees should make sure they are aware of any members entitled to GARs

What happened?

The Pensions Ombudsman has published two decisions regarding whether DC pensions providers have a duty to inform members about any guaranteed annuity rates (GARs) on their schemes.


Tech briefing

Both cases involve the Paine Webber (UK) Pension Plan and both relate to a GAR offered by Abbey Life. In the first, a Mr Sayer claimed that Abbey Life and scheme administrator Towers Watson should have informed him that the plan contained a GAR when he decided to transfer out of the scheme in 2002.

In the second, a Mrs Godfrey accused Abbey Life of maladministration for failing to provide her with a pre-retirement option letter and also claimed that Towers Watson should have enquired whether she was entitled to the GAR.

The Ombudsman found against Mr Sayers, stating that as he took independent financial advice regarding his transfer his IFA should have asked about a GAR rather than expecting Abbey Life or Towers Watson to disclose the information.

In the case of Mrs Godfrey, however, the Ombudsman upheld the complaint, noting that Abbey Life had not followed its own pre-retirement procedures by failing to contact her while Towers Watson had not made appropriate enquiries regarding the existence of a GAR.

As Mrs Godfrey had opted for an annuity with a lower rate than the GAR she should have been offered, the Ombudsman ordered Abbey Life to pay her the difference in what she would have received since retiring - £7,603 plus interest – and provide her with a top-up annuity. Abbey Life and Towers Watson also had to pay her £750 each for the inconvenience of bringing the claim.

What does it mean for trustees?

In neither case was the trustee of the scheme seen to be at fault, and in fact the Paine Webber trustee assisted both claimants in bringing their claim to the Ombudsman.

However, given the uncertainty over whether trustees have an obligation to inform members about benefits, it could be worth taking steps to ensure they know of any relevant GARs.

As Andrew Holehouse, a partner at law firm Shepherd and Wedderburn, says: “The scope, if any, of trustees’ duties to advise members about benefits options has always been uncertain, and it seems that the outcome of any complaint brought against the trustees of the scheme would depend on the applicable facts.

“Where schemes contain a GAR these cases highlight the extent to which this should be brought to members’ attention. They serve as a reminder that customary practices should not be diverged from without good reason.”