The Pensions Ombudsman has now published a 44-page Guide called “How to avoid the Pensions Ombudsman”, which will be of interest to all trustees of pension schemes. It is available at http://www.pensions-ombudsman.org.uk/publications/docs/HowToAvoidThePO.pdf. It sets out the general principles underlying his decision-making (such as fairness, complying with the law and scheme rules and taking account of the Pensions Regulator’s codes of practice), and uses case studies to demonstrate how those principles have been applied in his determinations.
Trustees may understandably be concerned by the statement that the Ombudsman does not see himself as bound by his previous decisions on the same facts. This (and the fact that his statements of best practice sometimes exceed legal requirements) means that even trustees acting in good faith can never be certain that their conduct is Ombudsman-proof.
That said, the Guide contains clear (if occasionally sweeping) statements, and could be used to anticipate his likely determinations in many cases. In this respect it compares favourably with many recent publications from the DWP and Pensions Regulator. The Ombudsman seeks to encourage improvement in scheme administration and decision-making, mirroring the Regulator’s active approach.
The general principles identified include compliance with legal requirements and the avoidance of delay. Other noteworthy comments under each section of the Guide are set out below.
Communicating with members
Trustees should ensure that they provide members with current, accurate and adequate information about the scheme and their benefits, provide the scheme booklet and all revisions to members, and communicate any changes to the scheme in writing. He recommends considering periodically whether the scheme booklet remains accurate and suggests obtaining confirmation from members that scheme documents have been received.
He highlights the pitfalls of giving information orally to members (an issue not least because he may find in the member’s favour even when evidence is not conclusive one way or another), and suggests providing written confirmation of any oral information as quickly as possible, and inviting members to say if they believe they were told anything different from the written document.
Above all, trustees must accept responsibility for the information provided to members, even if the information comes from a third party acting on their behalf: delegation does not in his view dilute ultimate responsibility.
Providing information to individuals – quotations and transfer requests
Trustees should ensure that adequate records are kept and updated. The Ombudsman may expect them to act quickly in some circumstances, even when a longer statutory time limit applies.
The Ombudsman stresses the importance of accuracy in quotations: great care should be taken, as it is “obvious” that members will rely on the information provided. If a misquotation is made, the Ombudsman will try to put the member in the position he would have been in had correct information been provided but, if that cannot be done, compensation may be payable. The member has a duty to mitigate his loss, but even if no direct financial loss has been caused, compensation for disappointment and distress will be awarded.
If an overpayment has been made, the Ombudsman will expect any recovery of an overpayment to take place over no shorter a period of time than that over which the mistake went undetected. This clearly goes beyond the general law, where a party may well, in appropriate circumstances, be able to recover overpayments in a very short timescale.
Running the scheme
Trustees and administrators should be “conversant” with the scheme rules and relevant statutory provisions, and act in accordance with them. Full records should be kept, including details about members who leave the scheme (an area which in practice is often neglected).
Actuarial, legal and investment advice should be taken where appropriate, and the performance of investment managers should be monitored.
Making Decisions – Duties and Standards
The Ombudsman will expect trustees to meet the standards of care laid down by statute and the courts. Trustees should ensure that they know whether the test under the scheme’s rules is mandatory or discretionary: is the issue one of fact or of discretion? When exercising discretions, trustees can use Guidelines which they have adopted, but should not treat these as binding (which might fetter their discretion). The Ombudsman expects the fairness of a decision to be demonstrable.
Employers should take account of the duty of good faith they owe to employees. Subject to satisfying that duty, the Ombudsman will not criticise the employer merely because it reaches a decision that serves its own best interests. However, trustees holding senior positions in the employer must be aware of potential conflicts of interest. The Ombudsman suggests that conflicted trustees should consider resigning their trusteeship, but this may not be enough to satisfy their duties.
The Ombudsman states that he will accept few excuses for not carrying out duties properly from a professional trustee or trustee company (this presumably refers to trust corporations), which “effectively hold themselves out to have special skills and expertise”. This reflects the higher duty of care expected by the common law for such trustees.
Making decisions – Administrative Principles
Trustees must ensure that an authorised person takes decisions, and in good time. A decision to delegate decision-making and to whom should be properly recorded in minutes. Trustees are still ultimately responsible for decisions taken by delegated bodies.
The decision-maker should have all the information required to make a decision. If they wish to take their own advice, the Ombudsman urges the decision-maker to share this with the parties, as it is better to bring errors in the evidence to light before a decision is taken rather than afterwards.
He states that decisions must be minuted and (interestingly) that reasons for the decision should be both recorded in the minutes and given to interested parties. In respect of such reasons, this goes further than the courts would usually require.
Documented reasons need not in the Ombudsman’s view be lengthy, but should indicate which factors have been given some weight and which discounted. The reasons given should be sufficient to enable an aggrieved party to know whether there are grounds to challenge the decision.
The Ombudsman stresses the importance of understanding the test for “ill-health” within the scheme’s rules and who decides it. Where reference is made to the member’s own job, is it clear what that job involves? The Ombudsman is uncomfortable with tests requiring the member to be incapable of taking any kind of work to qualify for an ill-health pension and suggests an implied qualification in such tests to have regard to the kind of work that might reasonably be expected of the employee.
The provision of medical evidence does not usually transfer the responsibility for the decision to the medical practitioner. The doctor should understand exactly what question he must answer. Trustees should consider obtaining further medical evidence, especially if opinion in a case is divergent, and should note why one medical opinion has been preferred to another if conflicting advice is given.
Trustees should also be aware that dismissal from employment by reason of incapacity might qualify a member for an ill-health pension where the rules refer to “retirement”.
Trustees should be conversant with relevant rules and timescales, and have a system in place for identifying people who fall within the class of potential beneficiaries e.g. asking immediate colleagues about the deceased member’s personal circumstances.
Care should be taken to weigh the interests of different parties, and to establish all the relevant facts, with the sensitivity that the situation demands. Trustees should check when nominated beneficiary forms were completed and consider whether there has been any change in the member’s domestic or financial circumstances since then. Trustees should not assume that a failure to complete a new nomination form on a change of circumstances is an oversight.
Reasons should be given for the decision made (which should be provided to disappointed beneficiaries if they had a “reasonable expectation of receiving benefits”), and framed with discretion: other parties involved are entitled to their privacy.
The most important thing for trustees is to be clear about what the complaint is about, and what the complainant wants to happen. This is often difficult.
Trustees should consider informal resolution as well as more formal procedures.
Trustees should keep the member informed if timescales for reaching a decision will not be met, and given an alternative date for the decision. The decision letter should be in plain language, avoid jargon where possible and set out what steps (including compensation) will be taken to remedy any maladministration. If the trustees do this, the Ombudsman may not pursue the complaint or may award a lesser cash award than otherwise.
Trustees should use the complaint to improve the running of their scheme, preventing such complaints from arising in the future.
Winding up a scheme
This is an especially complex area, and so there is less hard comment here than elsewhere in the Guide. Issues to be aware of include: whether and when to trigger winding-up, trustee conflicts of interests, and the risks in granting early retirement benefits or paying full CETVs before the financial position of the scheme is clear. Regular communication with members is recommended, even in excess of statutory requirements (even if this increases winding-up costs).
The Ombudsman describes his view of pensions administration as “warped”, as he sees only the unhappy cases. This perspective has no doubt led him to go beyond what the courts would normally require of trustees in several aspects highlighted above.
It remains to be seen whether the courts on appeal from Ombudsman determinations will, as they have done with all the Pensions Ombudsmen so far, be tempted to rein him in.