My Conclusions
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Parliamentary Commissioner for Administration
State earnings-related pension scheme (SERPS) inheritance provisions: redress for maladministration
11. My primary concern is those who have suffered an unremedied injustice as a result of departmental maladministration—those who made decisions about their future pension arrangements on the strength of misleading advice obtained directly or indirectly from DSS or BA. In my previous report I said that whatever approach the department decided upon in order to make good the effects of their maladministration, it would need to be capable of providing appropriate redress on a global, rather than an individual, basis. I am satisfied that the Government's proposals are capable of providing a global solution to the problem. They seek to avoid the administrative difficulties of identifying those who might actually have been misled by departmental advice by providing a fresh period of notice, tapered in, in which those approaching state pension age may make any adjustments to their financial arrangements that they consider necessary and affordable, while protecting the position of those who have reached state pension age by the time the proposals come into force and who are unlikely to be in a position to make adjustments to their existing pension arrangements.
12. I therefore welcome the Government's proposals that the widow or widower of anybody who reaches state pension age before 6 October 2002 will be able to inherit up to 100% of his or her late spouse's SERPS entitlement. Those in that age group, and anybody widowed before 6 October 2002, will not have to demonstrate that they or their spouses were misled by leaflets, letters, telephone calls or other communications directly or indirectly from DSS or BA in order to maintain that entitlement. Of the 344 individuals who put complaints to me through Members, I have sufficient information about 334 to know how they will be affected by the Government's proposals. 313 of them, including all four whose complaints I investigated in my sample of complaints, will be of state pension age by 6 October 2002, so that their spouses will be able to inherit up to 100% of their SERPS entitlement. Any injustice they may have suffered as a result of having been misled by DSS or BA about the change made in 1986 will therefore be fully remedied.
13. For those who are due to reach state pension age on or after 6 October 2002, it seems to me that the Government's proposals amount to a reasonable and practical approach to the problem. Indeed, the proposal to provide for a tapered reduction in the inheritance entitlement for those reaching state pension age before 6 October 2010, rather than a single cut-off date, offers a substantial improvement over their previous position to those concerned. (15 of those who put complaints through Members to me and whose details are known fall into that category.) I am not aware of any anomaly that arises in the cases of those who have complained to me and that would cause me to seek to dissuade Parliament from endorsing the proposals, subject to the safeguards I discuss in paragraphs 14 to 16 below.
14. It is clearly essential that the Government's new proposals should be publicised widely and accurately, to quell the anxieties of those who fear that they have made ill-advised decisions, and particularly to make sure that those who will be approaching state pension age in October 2002 are put in a position to make properly informed choices about whether or not to make alternative pension arrangements to make good the reduction in SERPS inheritance entitlement. I therefore asked the Permanent Secretary to let me know what steps the department proposed to take in order to ensure that all those who will be affected by the proposals have the opportunity to learn of the scheme. The Permanent Secretary told me that the department would write to all pensioners during February and March to tell them of the rules and that they do not need to do anything to protect the position of their spouse. Once that has been done, a similar letter will be sent to those who have not yet reached state pension age but will do so by 5 October 2002. An advertising campaign will be run in parallel, principally to inform those whose current addresses are not known to the department. The advertisements will include a telephone number for people to ring for more information. The department also propose to write to people whose spouses stand to inherit between 60% and 90% of their additional pension, although they acknowledge that their records of the addresses of people who are not receiving pensions or other benefits are in many cases out of date. They are therefore exploring options for checking the records and will report back to Ministers. When they write to this group of people there is likely to be a parallel advertising campaign to inform those who do not receive their letters. The department have also launched a strategy for raising awareness of pensions generally and will include the changes to the inheritance rules of SERPS in that strategy. The Permanent Secretary added that the department had taken steps to ensure that staff understood the new proposals and were trained to give correct information in response to queries about the new rules. She said that the department had also written to some 90,000 advisers and people with an interest in welfare to inform them about the changes. I welcome the intention to write individually to those affected and whose addresses can be identified, and the Permanent Secretary's assurances about publicity aimed at those who for various reasons do not receive those letters. I also welcome her assurances about ensuring that staff are properly informed about the new rules. While only time will tell how effective the arrangements for communication and publicity are, the proposals seem to me to demonstrate a proper level of commitment to making sure that everyone who should know about the new arrangements has their attention drawn to them.
15. What of those who, despite the benefits of the new proposals, nevertheless have grounds for asserting that they have suffered an unremedied injustice as a result of having been misled about the changes introduced by the 1986 legislation? I said in my previous report that complaints that the changes in the 1986 Act were themselves unfair were not a matter for me, since the content of legislation is a matter for Parliament. However, it seems to me that there may be circumstances in which a person can reasonably claim, not that he or she has suffered an absolute loss of financial resources beyond that willed by Parliament, but that on the strength of misleading advice directly or indirectly from DSS or BA, he or she has made an unsuitable or inconvenient disposition of resources which is now for practical purposes irreversible. Such persons may include those who made a disposition of resources in preparation for early retirement before state pension age, whether on grounds of ill-health, redundancy or for reasons of personal choice, and whose calculation of their and their spouse's financial prospects included an assumption, based on misleading advice, that inheritance of up to 100% of their SERPS entitlement would apply. They may also include those who took a decision, in which the inheritance provisions were a critical factor, to contract into SERPS rather than to commit themselves wholly or partly to an occupational pension scheme or private pension plan, and have been financially disadvantaged as a result.
16. I emphasised the point in my previous report that it seemed to me that in considering redress for the misleading advice given on the SERPS inheritance rules, the burden of proof that a person would not have acted differently had he or she not been misinformed rested on the department. Under the Government's new proposals to defer and re-phase the reduction in SERPS inheritance entitlement there will no longer be an issue of burden of proof for the great majority of those affected. The proposals therefore present an entirely different background against which I must consider the adequacy of the arrangements for redress for those for whom the proposals do not provide a full remedy. I welcome the Secretary of State's assurance that persons who have nevertheless suffered an actual financial loss as a result of earlier misinformation will be eligible to seek compensation within the terms of DSS's standard scheme of financial redress for maladministration. I understand that the intention is, so far as possible, to make compensation by way of a lump-sum payment, calculated actuarially as appropriate, to settle the financial loss incurred. I recognise, and accept as in the changed circumstances reasonable, that those claiming compensation will need to produce some evidence to show that they altered their circumstances to their financial detriment as a direct result of incorrect departmental advice and that, to that extent, the burden of proof will fall to the applicant. I observe, however, that under the existing DSS scheme of financial redress (annex B) documentary or incontrovertible proof of misdirection is not an essential requirement for the authorisation of compensation. Moreover, the starting point for consideration will be an assumption that DSS or BA advice was likely to have been inaccurate.
17. Finally, it will, of course, remain open to anyone who feels that they have suffered an unremedied injustice notwithstanding the Government's proposals, and after exploring with DSS the scope for compensation under the standard scheme of financial redress, to put a complaint through a Member to me.
M S Buckley
