Ombudsman 1 – Freedom 0

pensions ombudsman

It would seem that Mr T (neither of the A-team or of this blog) has been sent packing by the Pensions Ombudsman.

Mr T sued Standard Life’s staff pension trustees to max-up his CETV. He did so using an online portal which gave him sight of what his CETV might have been, had he applied for it on that day.

The Ombudsman’s view is that the quote you get is what you’re offered according to the scheme rules and you shouldn’t be driving yourself and everyone else mad pointing out that the CETV would have been higher every time the valuation discount rate changed.

Let’s hope that that sets a few  ground- rules.

  1. On-line portals to CETVs are not a good idea; the ABI have mentioned that the pensions dashboard might offer on-line CETVs that go up and down like the bishop’s knickers. This is a terrible idea and would lead to chaos.
  2. Defined Benefit schemes are not unit-linked insurance policies, you cannot have a daily price, no matter how much you’d like to.
  3. Pension Freedom is folly if it supposes that you can turn pension to cash with any accuracy.

Mr T is a chancer and he’s been told to push off; but he’s a smart chancer, playing the insurer at its own game.  Standard Life will be major beneficiaries this year of the “dash for cash” promoted by Ros Altmann and the FT’s senior journalists.

I spoke to one CIO this week who is having to unpick the trustee’s investment strategy to create the extra liquidity needed to pay the anticipated transfers, we are talking here of billion pound adjustments.

I hear reports that FRS 102 accounts in 2017 are starting to show an adjustment for anticipated transfer values which will show an immediate windfall to the balance sheet. (CETVs pay out benefits on a best-estimate rather than a risk-free discount rate).

In short, Mr T is only doing what everyone else is doing; legitimate financial looting. The CIO sees the cost in terms of transaction costs, but if you’re a CFO valuing your scheme at the risk-free rate, you rather like Mr T.

Even at the highest possible CETV, Mr T is still taking out of the scheme less than the cost you’ve put on his staying in it!


The Standard Life pension trustees will breathe a sigh of relief. Had Mr T won, they could have been on the hook for unlimited CETV quotes , capturing every adjustment to the scheme discount rate. At £500 a pop (First Actuarial estimate), CETV quotes don’t come cheap and they form part of scheme expenses. The cost of the extra administration and the additional cost of paying out the highest ever CETV puts strain on the scheme funding and reduces other member’s benefits. The trustees will be thanking the Ombudsman.

Standard Life won’t be so pleased. The cost of paying out highest ever CETVs to Mr T would have  been lower than Mr T’s liabilities in the company’s accounts. Worse, the constituency of transferors that might have signed up to Standard Life personal pensions will be diminished.

But let’s be clear about this; the promise made to Mr T when he joined Standard Life was for a defined benefit pension, the property rights to a CETV were never the main event. Standard Life have complied with their disclosures and according to the Pension Ombudsman

There is no evidence to support that he has been financially disadvantaged as a result of the alleged maladministration

The message to pension schemes is clear. On line valuations of CETVs may sound good but they can create confusion and frustration for members and have the potential for all kinds of legal battles when the variations in CETVs become clear. Trustees should resist any attempt to twist their arms to provide such things as part of the pension dashboard project.

The message to members is clear, your CETV is a function of discount rates that you cannot control or second-guess. There is an element of discount-rate lottery in taking a CETV but that is in the system and the system cannot be gamed.

The message to employers is that DB schemes are not open-doors to pension freedoms and that much as employers would like to kiss goodbye to pension liabilities, the interests of remaining pensioners are not suited by Mr T’s games. In the long-term, over-payment of CETVs and the administrative chaos of unfettered CETVs is not good for you as a business.

The message to Government is that, no matter how much you may want everything on your pension dashboard to be as simple as a Cash Isa, pensions are different. If we follow further down the road of the cash equivalent pension, how long till we pay the State Pension as a taxed lump sum?

Mr T

There is an excellent report of the judgement here ;

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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