Keeping systems in check: pensions administrator liable for errors in automated system

The Pensions Ombudsman (TPO) has recently determined that pensions administrators can be held liable for errors made by an automated system. The recent decision (CAS-90501-T3V1) following a complaint by  Mrs K against her employer (the NHS) and the pensions administrator (the NHS Business Servies Authority (NHS BSA)), saw TPO find that NHS BSA were liable for inaccurate pensions estimates provided to Mrs K by her employer, who had utilised the NHS BSA's automated system to prepare the estimate.

Mrs K was ultimately only awarded £1,000 in respect of distress and inconvenience because she was unable to demonstrate a financial loss flowing from the erroneous estimates. Part of the reason for this was because NHS BSA took steps to attempt to correct previous errors. This decision serves as a reminder to administrators not only to (a) ensure that data and automated systems are accurate and produce reliable information, but also to (b) take steps to remedy an error as quickly as possible, in order to limit exposure.

Background

Mrs K was a member of the NHS Pension Scheme. Between 2018 and 2020, Mrs K sought various estimates of her pension benefits, with a view to taking early retirement.  Her employer provided estimates via its access to NHS BSA's automated system. The estimates provided between 2018 and May 2020 were correct. 

In October 2020, Mrs K obtained a further estimate from her employer, but the estimate showed benefits which were nearly twice as high as the previous estimate (only 5 months earlier), both in respect of annual income and lump sum.  Mrs K queried the accuracy of the estimate with her employer, given the stark difference, and was provided with a second erroneous estimate in November 2020, with an assurance that the estimate was correct. That said, the estimates contained disclaimers that they were not intended to be relied upon for making retirement decisions.

As before, these two estimates were provided by Mrs K's employer, which they produced via access to NHS BSA's automated system. The queries that Mrs K raised regarding the accuracy of the estimates were not passed to NHS BSA for their comment.

Mrs K gave notice of her retirement, with a retirement date set for 5 March 2021. NHS BSA received her application for retirement benefits in January 2021 and sent her a quotation (which, importantly, carried a different status to an estimate). The quotation contained the correct figures, but Mrs K claimed that she did not receive the quotation. 

Mrs K retired on 5 March 2021 and on 11 March 2021, NHS BSA wrote to Mrs K to advise her again of her correct benefit entitlement levels. On 16 March 2021, Mrs K received her first benefit payment and telephoned NHS BSA to query why her benefits were lower than what had been stated in the October and November 2020 estimates.

Following an investigation, in June 2021, NHS BSA wrote to Mrs K to advise her of the previous error, confirm the correct benefits entitlement, and offer Mrs K the option to cancel her retirement and return to work.  Mrs K declined to take up this offer and instead notified NHS BSA that she had suffered financial hardship due to the mistake and raised an official complaint via their Internal Dispute Resolution Procedure (IDRP).

In her complaint, Mrs K stated that she had made the decision to retire early in reliance on the incorrect October and November 2020 estimates. She had elected to pay off pre-existing debts due to the benefits she thought she would receive and now found herself in financial hardship as a result.

NSA BSA did not uphold Mrs K's complaint at stage 1. While it recognised the error in the estimates, it attributed this to a system error. It acknowledged that Mrs K had queried the erroneous October 2020 estimate but explained that the query had never been raised with NHS BSA, as it should have been.  NHS BSA further maintained that it had provided Mrs K with accurate information concerning her benefits in the January 2021 quotation, prior to her retirement.

Mrs K disagreed with the outcome and requested that the complaint be moved to stage 2 of the IDRP. Again, the complaint was not upheld, and NHS BSA reached the same conclusion, finding that, given the prior consistency of the estimates Mrs K received prior to October 2020, she should have known it was 'unsafe' to rely upon the figures in the October and November 2020 estimates in making her retirement decision.  In both IDRP decisions, it was maintained that in any event, Mrs K could only be paid what she was entitled to under the Scheme Rules, and this was the lower amount.

TPO Decision

Mrs K then referred her complaint to TPO where it was partly upheld. TPO found that NHS BSA was responsible for all of the incorrect estimates provided to Mrs K, even though these were not provided directly by NHS BSA but through their automated system. Mrs K's employer provided the estimates via access to NHS BSA's automated systems and as an authorised user of NHS BSA's systems, the employer acted as a representative of NHS BSA. As such, they were found liable for maladministration and TPO awarded Mrs K £1,000 for distress and inconvenience on that basis.

However, TPO found that where disclaimers were included in the estimates, it was not reasonable for Mrs K to rely upon these in making her decision to retire. Furthermore, Mrs K suffered no financial loss in relying upon the incorrect estimates, as the debts she paid off with the initial sums received were pre-existing, and NHS BSA had made her aware of the error (and provided the correct quotation) prior to the payments being made. Further, where NHS BSA made Mrs K aware of the error 6 days after her retirement, she could have returned to her former role, thereby mitigating her financial circumstances, but chose not to do so.

Takeaways

This decision serves as a reminder to pensions administrators of the importance of ensuring that automated systems function properly, that the data used in these processes is accurate, and that authorised users of their systems follow best practices in communicating potential issues to administrators.  While this complaint did not result in a large liability for NHS BSA, there is potential in the future for similar errors to result in significant risks to administrators.

Data accuracy and the efficiency of automated systems is already on TPO's radar with the rollout of Pensions Dashboards which has the potential to produce similar complaints to Mrs K's if administrators do not ensure that strong controls and checks are in place.

The decision also emphasises that, when errors do occur, it is vital for administrators to communicate this to members as quickly as possible to limit their potential liability by giving members a reasonable opportunity to make any required changes. 

To read the full TPO decision, click here.