Local Government Pension Scheme · CAS-141301-G9R0

CAS-141301-G9R0

Ombudsman’s Determination Applicant Ms S

Scheme Local Government Pension Scheme (the Scheme)

Respondent Local Pensions Partnership Administration (the Administrator)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

On 8 August 2020, Ms S’ husband, who was a member of the Scheme, passed away.

On 9 August 2020, Ms S began receiving an annual survivor’s pension from the Scheme.

Ms S’ husband accrued pension benefits with two separate pension funds: the London Pension Fund Authority (LPFA) and the Royal Borough of Greenwich Pension Fund (RBG). Both are part of the Local Government Pension Scheme (LGPS). Both pensions are administered separately, with the Administrator acting in relation to the LPFA benefits. Under section 168 of the Finance Act 2004 (the 2004 Act, see Appendix below) all pensions in the Scheme must be commuted simultaneously. This condition is regulated by His Majesty’s Revenue and Customs (HMRC) and LGPS Regulations. Ms S could not commute her benefits under LPPA and continue to receive annual benefits from the RBG.

LPPA CAS-141301-G9R0 On 12 June 2023, the Administrator wrote to Ms S. Following her request, it provided her with information regarding the potential option to commute her pension payments into a one-off lump sum of £29,762.79. It also stated that for payment to be made in this way certain conditions needed to be met as set out by HMRC, and considering her late husband’s pension benefits with RBG.

On 13 June 2023, Ms S sent the Administrator the necessary paperwork to commute the pension into a one-off lump sum and it began processing her request.

During this time Ms S stated she made several calls (the Calls) to the Administrator pursuing payment.

On 13 July 2023, the Administrator contacted RBG to confirm Ms S’ election to commute her survivor’s pension into a one-off lump sum.

On 14 July 2023, RBG contacted the Administrator and confirmed it also paid Ms S a survivor’s pension. However, its policy did not offer trivial commutation of pensions as it could not meet the relevant statutory conditions.

On 27 July 2023, Ms S emailed the Administrator. After contacting The Pensions Ombudsman (TPO), she submitted a formal complaint to the Administrator regarding the delays and inconsistent information regarding the lump sum payment.

On 4 August 2023, the Administrator wrote to Ms S. In compliance with the conditions set out by HMRC and the LGPS Regulations, it explained that as RBG would not commute her annual pension into a lump sum, it was unable to commute the pension it administered into a lump sum payment.

On 10 August 2023, Ms S emailed HMRC to enquire about whether it was possible for her to receive a one-off lump sum from the LGPS.

On 6 September 2023, the Administrator emailed Ms S. It confirmed that it was unable to commute her pension benefits into a one-off lump sum as it was unable to meet the conditions set by HMRC and the LGPS Regulations.

On 28 September 2023, the Department for Levelling Up, Housing and Communities, on behalf of the Administrator, contacted Ms S and issued its complaint decision. It essentially confirmed the Administrator’s email of 4 August 2023 was correct. It also acknowledged the conflicting information and delays from the Administrator.

Ms S subsequently escalated her complaint under the Administrator’s Internal Dispute Resolution Procedure (IDRP). However, the matter remained unsolved.

On 28 July 2025, the Administrator contacted Ms S and provided its IDRP Stage 2 decision. It awarded her £500 compensation for the distress and inconvenience. This was due to the provision of incorrect information about the commutation, the lack of transparency regarding the process and the inconsistent/delayed information.

Following the complaint being referred to TPO, Ms S and the Administrator made the following submissions. 2 CAS-141301-G9R0 Summary of Ms S’ position

Summary of the Administrator’s position The Administrator acknowledges that it was not transparent about the confirmation needed from RBG for commutation. Additionally, its communication was slow and delayed. It apologised for the distress and inconvenience this caused Ms S and found £500 as compensation appropriate.

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Adjudicator’s Opinion

• Under the HMRC guidelines1 Ms S could commute her survivor’s pension if the value of her benefits under all the registered schemes were no more than £30,000. By doing so the payment must extinguish her entitlement to benefits under the Scheme. This means that her benefits under both RBG and LPFA would need to be commuted, which was not possible due to RBG’s policy. Therefore, she would have been ineligible to receive the lump sum.

• The Administrator did not provide Ms S with incorrect information in the June letter, however it failed to correctly outline all the conditions necessary for her to commute her LGPS benefits. Namely that it needed RBG’s confirmation that it would be willing to commute her benefits under that section of the LGPS. This was because the commutation needed to be simultaneous.

• The Administrator acknowledges that it was not transparent about the confirmation needed from RBG for commutation. Additionally, its communication was inconsistent, slow and delayed, hence it offered £500 as compensation for distress and inconvenience. This was not disputed and as its actions amount to maladministration. However, the maladministration alone did not automatically entitle Ms S to the commutation lump sum. While it was reasonable for her to rely on the June letter, she was still subject to the 2004 Act and the conditions for the trivial commutation, which is also evidenced in the HMRC correspondence of 28 September 2023.

• As RBG would not commute her pension, Ms S could not then commute her benefits from LPFA as the commutation had to be completed simultaneously in compliance with the 2004 Act. Therefore, Ms S was not legally entitled to the commutation lump sum payment.

• While Ms S’ financial circumstances were unfortunate, she had not suffered financial loss as a direct result of the Administrator’s maladministration. Rather the losses she identified were pre-existing debts that she already owed prior to the maladministration. While the commutation payment would have assisted her in paying the debts, they did not come about as a result of it.

1 HMRC Pensions Tax Manual PTM063500 - Member benefits: lump sums: trivial commutation lump sum

4 CAS-141301-G9R0 • The Administrator’s compensation offer of £500 was insufficient recognition of the distress and inconvenience she has suffered. It was slow to update Ms S as to her true position. The quick realisation of her position between the June letter and the August letter was only a result of her continuous pursuit. Had she not pursued, the mistake likely would have persisted further.

• Even during the brief period, the Administrator continued to provide Ms S with conflicting and inconsistent information giving her unrealistic expectations on multiple occasions. She was informed by its telephone representatives that payment would be made, which was incorrect. This led her to believe that her debts, while pre-existing, would be offset and ease her financial burden. As imagined, this would have added to her distress and would have affected her general wellbeing when she was informed of the true position.

• Given the delays and incorrect information Ms S had to enquire externally with HMRC and conduct her independent research into the criteria for commutation lump sum payments. The process followed by the Administrator was unclear and the explanation of the conditions were not fully explained in the June letter. Further, she was provided incomplete and misleading information.

• Based on the facts of the case, the Adjudicator found £1,000 was appropriate and in line with the Ombudsman's guidance for non-financial injustice of this type, and recognition of the serious distress and inconvenience caused.

Ms S did not accept the Adjudicator’s Opinion, and the complaint was passed to me to consider. Ms S provided her further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Ms S for the sake of completeness.

• The June letter clearly identified that the Administrator was aware that Ms S’ husband had a pension with RBG. Therefore, at that point it ought to have contacted RBG to explore whether it was possible for her to commute or not. However, its actions imply that this consideration was an afterthought that was considered after the June letter.

• The Finance Act 2004 does not mention any restriction on the LGPS. If anything, it supports the commutation of death benefits into lump sums. The Administrator has been unable to confirm which part of the legislation places restrictions on commutation lump sum payments.

• HMRC’s letter was following her call to enquire about the restrictions on the commutation of lump sum benefits. In its letter, HMRC specifically stated its main concern was on the tax payments of commuted lump sums paid. It did not corroborate the LGPS restrictions on commutating lump sums as stated by the Adjudicator.

5 CAS-141301-G9R0 Ombudsman’s decision

2 Defined as a “trivial commutation lump sum death benefit” (for which the maximum amount is £30,000 from any one scheme under Paragraph 20(2) of Schedule 20 to the Finance Act 2004). 3 1b; Paragraph 20(1A) Schedule 29 Finance Act 2004

6 CAS-141301-G9R0 This is also emphasised in the HMRC guidelines4 and the Paragraph 34 (2A) Local Government Pension Scheme Regulations 2013 which reflect the conditions in the Finance Act 2004 (see appendix).

The confusing feature of the Scheme is that it is treated as one scheme for the purposes of the Finance Act 2004 and the conditions for commuting death benefit even though for other purposes the LPFA and RBG are separately administered funds. As such, Ms S’ benefits under both the LPFA and RBG need to be commuted simultaneously to ensure the commutation payment (or payments) will extinguish all her benefit entitlements in respect of Mr S under the Scheme (i.e. under all separate funds of the local government pension scheme).

I am satisfied that where RBG is unwilling to commute the survivor’s pension that it pays, then the Administrator is unable to extinguish the dependant’s entitlement under the LPFA and the commutation cannot proceed. While I appreciate Ms S would like the Administrator to pay the benefits as a commuted lump sum this is not possible. There would also be a very significant unauthorised payment tax charge under the Finance Act 2004.

Therefore, I partly uphold Ms S’ complaint for the reasons set out by the Adjudicator.

Directions

Camilla Barry

Deputy Pensions Ombudsman 31 March 2026

4 HMRC Pensions Tax Manual PTM063500 - Member benefits: lump sums: trivial commutation lump sum; PTM063500 - Member benefits: lump sums: trivial commutation lump sum - HMRC internal manual - GOV.UK 7 CAS-141301-G9R0

Appendix Section 168 Finance Act 2004 Lump sum death benefit rule

(1) This is the rule relating to the payment of lump sum death benefits by a registered pension scheme in respect of a member of the pension scheme (“the lump sum death benefit rule”).

Lump sum death benefit rule

No lump sum death benefit may be paid other than—

(a) a defined benefits lump sum death benefit,

(b) a pension protection lump sum death benefit,

(c) an uncrystallised funds lump sum death benefit,

(d) an annuity protection lump sum death benefit,

[F1(e)a drawdown pension fund lump sum death benefit,]

[F2(ea)a flexi-access drawdown fund lump sum death benefit,]

(f)a charity lump sum death benefit [F3, or]

F4(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(h)a trivial commutation lump sum death benefit, F5...

F5(i). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) In this Part “lump sum death benefit” means a lump sum payable on the death of the member [F6, or a lump sum payable in respect of the member on the subsequent death of a dependant, nominee or successor of the member.] (3) Part 2 of Schedule 29 gives the meaning of expressions used in the lump sum death benefit rule. (4) Schedule 36 contains (in Part 3) transitional provision about lump sum death benefits.

Section 20(1A) Schedule 29 Finance Act 2004 Defined benefits and money purchase arrangements

Trivial commutation lump sum death benefit

8 CAS-141301-G9R0 20(1) A lump sum death benefit is a trivial commutation lump sum death benefit [F142 if condition A or B is met.]

[F143(1A)Condition A is that the lump sum—

(a) is paid to a dependant entitled under the pension scheme to pension death benefit in respect of the member, and

(b) extinguishes the dependant's entitlement under the pension scheme to pension death benefit and lump sum death benefit in respect of the member.

Section 34 The Local Government Pension Scheme Regulations 2013 Commutation and small pensions

[F72(2A) In the case of an eligible member, the pension used to calculate a payment under paragraph (1) is to include—

(a) where the pension is in payment— (i) any final guarantee amount calculated in respect of the eligible member’s pension account under regulation 4B or 4C of the 2014 Regulations; and (ii) any revaluation adjustment or index rate adjustment that has been applied to the retirement pension account as a consequence of a final guarantee amount; (b) where the pension is not in payment, any final guarantee amount that would be paid were the payment under paragraph (1)(a) or (c) not to proceed; or (c) where the eligible member is deceased— (i) any survivor guarantee amount payable to the survivor member in respect of the eligible member; and (ii) any revaluation adjustment or index rate adjustment that has been applied to a survivor member’s pension account as a consequence of the survivor guarantee amount.] (3) If a member receives a payment under this regulation, any pension account relating to that payment must be closed and the member is entitled to no further benefits in relation to that account and no survivor benefits are subsequently payable upon the death of the member.

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