Victory for mother after Scottish Widows demanded she repay £100,000 in two weeks after it got pension sums wrong

A mother who was ordered by Scottish Widows to surrender almost £100,000 at 14 days' notice because the insurer had mis-calculated a pension valuation has won her battle to keep the savings.

Natalie McNicholas, a mother of three from Bournemouth, received the demand a year after a court ordered that she receive half of her husbands pension pot in their divorce settlement in 2010.

The award for £311,473 was transferred to a pension scheme in her name. The figure was based on 50 per cent of the total valuation of his pension, which had been put at £622,946 by Scottish Widows in a submission to the court.

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But in 2011 the insurer wrote to Natalie telling her that it had got its sums wrong. It said the total valuation should have been about £400,000, making her entitled to just £200,000.

Scottish Widows said that it would be approaching Natalie's pension scheme to retrieve the outstanding £97,626.39, which Natalie would have to agree to.

'I wasn't going to sign away that amount of money simply because they said so,' she said. 'At no stage did they explain what the reason for the miscalculation was. If I did have to pay the money then I would but I wasn't going to do it simply because they told me to.'

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Natalie had moved to Bournemouth following her divorce to make a new start. Her youngest child suffers from a severe disability and she is his full-time carer.

When she refused to hand over the money Scottish Widows - a division of giant part-taxpayer-owned Lloyds Banking Group - upped the pressure on Natalie.

It instructed lawyers to write to her demanding that she repay the money within 14 days or the insurer would begin court proceedings. Scottish Widows said it would pursue Natalie for legal fees, interest on the overpaid money and court costs.

'As the carer of a child with disabilities, the long-term future is a scary thing anyway. My only priority is to protect my children and particularly provide for my son.

'Getting a letter saying that a third of my retirement fund would be taken away was very alarming. It was my whole future.'

HELP! I'M BEING THREATENED WITH LEGAL ACTION

There can be few things more alarming than receiving a letter from the lawyers of a large company threatening you with legal action.

Firms know very well that mention of legal fees and court costs terrify normal people and can be enough to bounce them into complying without a fight.

Thankfully, consumers in dispute financial companies have other ways to fight back.

The Pensions Advisory Service (TPAS) is an independent non-profit organisation that provides free information, advice and guidance on work and personal pensions. If you find that your complaint is not being dealt with you can ask it to help you. (0845 601 2923)

The Pensions Ombudsman is a Government-appointed arbiter of disputes between individuals and pension companies. It is designed for normal people to use and does not incur legal costs. (020 7630 2200)

Disputes with all regulated financial services companies can also be taken to Financial Ombudsman Service, which can also settle complaints without the need for lawyers. (0800 023 4567)

Natalie contacted the Pension Advisory Service, a Government-funded free guidance service. It recommended she find legal representation but Natalie said many of the pension specialist lawyers she approached seemed reluctant to take on a case against such a large pensions company.

She eventually found a firm, Wedlake Bell, to take on her case following a recommendation from a friend. Lawyers at the firm immediately spotted that Natalie could fight her corner through the Pensions Ombudsman, a quasi-legal process designed to settle disputes between individuals and pension companies, more cheaply than through the courts.

Natalie said: 'Scottish Widows were threatening to take me to the cleaners and I think the reason they didn't mention the Ombudsman was that they wanted to bully me.

'It was pure scare tactics.'

Justin McGilloway, pensions partner at Wedlake Bell who handled Natalie's case, said: 'This is a classic case of David vs Goliath. My client was put under pressure to repay the monies within a short period of time or face court proceedings which carried the risk of not just having to repay the overpayment but also interest and Scottish Widows' legal fees.

'It was clear from an early stage that this case did not warrant expensive court proceedings. Our advice to Natalie was to stand up to Scottish Widows and to seek redress via the Pensions Ombudsman – a much cheaper and less intimidating forum in which to settle disputes.'

The Ombudsman returned its verdict this week, ruling that Natalie will not have to repay the money because the overpayment arose from 'maladministration' by Scottish Widows.

While there is normally a presumption in law that those who gain financially because of an error should repay the money, the Ombudsman said that Scottish Widows' initial valuation had influenced the couple's entire divorce settlement and therefore determined the amount Natalie will have in the future to support her children.

Repaying the money would require a brand new settlement.

In its ruling the Ombudsman said: 'In reliance on a mistake as to the true value of the pension she has entered into commitments that she could not otherwise afford, and is unable not to go back and renegotiate the financial settlement or seek to vary the court order.'

Natalie has been left with some legal bills, albeit smaller ones than would have arisen had the case been settled in the courts. She has recovered £2,000 from Scottish Widows and the Ombudsman ordered Scottish Widows to pay her £250 for stress caused.

Natalie said: 'It was a brutal process and really pushed me to breaking point. I just hate to think of those people who don't fight and just pay up.'

A Scottish Widows spokesperson said: 'We accept the Pensions Ombudsman decision into this isolated case and are very sorry for any distress and inconvenience caused.'