Early retirement – The case study of Mr M

In the lead up to his retirement Mr M obtained several different benefit illustrations from his pension scheme (the Scheme). Unfortunately, he misinterpreted them and did not realise that because of contracting-out requirements, by electing to draw his pension benefits at 64 he would lose his option to take the tax-free lump sum on retirement. This became apparent to Mr M when he reached 65. At that point his pension was increased to match his guaranteed minimum pension, but the lump sum option that he had been expecting was not available.

We told Mr M that in our view the Scheme’s illustrations were factually correct. We therefore did not think he could successfully argue he had been misled or contend that he should be allowed to retrospectively change his options.

However, we were curious as to whether the Scheme’s approach complied with the requirement that the actuarial value of early retirement benefits should be equal to the value of the normal retirement benefits given up.[1]

After considering this point carefully, the trustees of the Scheme instructed their administrators to recalculate Mr M’s benefits to check whether they complied with legislation. This check identified that Mr M’s pension should be uprated by 39%.

Mr M confirmed that he was happy with the proposal and agreed that his complaint was resolved.

[1] The Occupational Pension Schemes (Preservation of Benefits) Regulations 1991 (SI 1991/167)