Welcome to our third Pensions Ombudsman Update. These quarterly Updates are designed to help you get to grips with the Ombudsman’s thinking, to keep track of decisions on individual topics and to identify underlying trends. In this edition we look at the latest Ombudsman determinations and developments, including a recent High Court appeal. 

What’s in a name? POS becomes TPO

Anthony Arter has announced that the Pensions Ombudsman Service is re-branding as The Pensions Ombudsman, or TPO, for consistency with TPR and TPAS and to “provide clarity for the public when they look for advice, guidance and resolution of pension complaints”. The change took effect on 1 September. 

Comment: Although this innovation may seem cosmetic - the Ombudsman underlines that his work and remit are unchanged - it is another example of his drive to reform and modernise many aspects of his service to improve the customer ‘journey’

Evidence: no need to prove a negative

Over the summer, the High Court handed down judgment in McShee v MMC UK Pension Fund Trustees Ltd [2016] EWHC 1574 (Ch), an appeal from the Ombudsman. The member claimed that he was entitled to a deferred pension from the MMC pension scheme in respect of service under a predecessor scheme, the DCF scheme, in the 1970s.

The High Court dismissed the member’s appeal. The Ombudsman had been entitled to find that, on balance, the evidence suggested that the member had been in a different scheme, the Heywood scheme, rather than the DCF scheme. The judge confirmed that “in circumstances in which there is no documentary evidence at all… it must be for [the member] to establish [his] entitlement; a pension scheme cannot be expected to provide proof of the negative proposition that an individual of whom it has no record is not a member.”

The court went on to reject the member’s allegation that the Ombudsman had failed to investigate adequately whether the Heywood scheme was in fact the DCF scheme under a different name. There was no suggestion that the Ombudsman could have made any further enquiries than he had done or that, if he had, additional material would have emerged.

But there was a sting in the tail. After issue of the draft judgment, the member discovered content on a Government website indicating that the Heywood scheme was the re-named DCF scheme after all, potentially opening up further avenues for the parties to explore. However, the judge refused to allow this evidence to be introduced, citing the “general point of principle that a party seeking to put his case… should set it out in good time… so that it can be fairly responded to by the other parties.” 

Comment: As well as demonstrating that the burden of proof lies upon the member in such circumstances, the case conveys a warning about due diligence in relation to complaints. If either the member, trustees or Ombudsman’s office had done a quick internet search for the old scheme’s name, the proceedings might have taken a different turn. 

More on missing records

Similar themes are examined in subsequent Ombudsman rulings. In PO-11020 Mrs B (18 August 2016) the complainant’s employer had sent her a letter in 1981 referencing a vested pension benefit, but could now trace no evidence of her scheme membership.

Placing emphasis on HMRC’s confirmation that it had no contracting-out record for the member, the Ombudsman held that the 1981 letter was not “undoubtable proof” of membership of the employer’s scheme: “if Mrs B was never contracted out of the second state pension, then it is not possible for her to be a member of one of the [employer’s] UK pension schemes which were all contracted out of the second state pension”. The complaint was not upheld.

What if the reason for a lack of records is that the provider has long since destroyed them? In determination PO-10036 Mrs H (12 July 2016) the Ombudsman, praying the Data Protection Act in aid, found that a provider had properly destroyed a member’s records where it considered he had no benefits left in the scheme: “if no benefits are indicated to exist, then it is not unreasonable for a provider… to set a destruction date and destroy all paper records”. 

Comment: In his most recent Annual Report, the Ombudsman anticipated future complaints arising from GMP reconciliation exercises being carried out in the wake of the abolition of contracting-out. In many of these, membership records will be sketchy. Mrs B suggests that in such cases, the Ombudsman may regard HMRC records as a “tie breaker”. 

Ombudsman places limits on own discretion

Another point raised in PO-11020 Mrs B, referred to above, was the Ombudsman’s ability to investigate foreign pension schemes (on the facts, it was possible the complainant could have been a member of one of the employer’s overseas arrangements). Nevertheless, the Ombudsman refused to enquire further:

“While technically it would be possible to investigate [such] a complaint… there is a requirement for in depth knowledge and expertise of foreign pension law to allow this Service to fully investigate... Section 146 of the [Pension Schemes Act 1993] gives me discretion not to investigate a complaint and, in this instance, that discretion is being applied”. 

Comment: The Ombudsman’s approach is consistent with his previously stated desire to use his resources in a proportionate way. The Ombudsman had also relied on section 146 when deciding, as reported in our last Update, not to entertain large-scale complaints by police and firefighters about interest on compensation payments. Here, he expressly took into account that his determinations are only enforceable within the UK.

Casework round-up

Other TPO determinations from the last quarter touch on a variety of subjects. There may be solace or reassurance for trustees and administrators in findings that:

  • there is no general requirement on schemes to make up those GMP increases which are no longer paid by the State to members who reach state pension age after April 2016 (PO-7438 Mr N (22 July 2016));
  • trustees had no automatic obligation under the rules or at law to award interest on a payment made to correct past underpayments in the circumstances of the case (an equalisation uplift “windfall” and the scheme in a PPF assessment period) (PO-9889 Mr X (27 July 2016)); and
  • an administrator could block an overseas transfer where the receiving scheme had been removed from HMRC’s list of registered overseas pension schemes (PO-11827 Ms P (24 June 2016)). 

The reasoning in PO-9309 Mrs R (10 June 2016) may be less comforting. Here, a scheme gave the employer discretion to pay an ill-health enhancement when minimum criteria were satisfied. The Ombudsman held that where the member met those criteria there was a presumption that the benefit would be paid, “unless there is a cogent reason why this should not be.” 

Comment: There is room for debate as to whether the presumption the Ombudsman describes in Mrs R’s case correctly describes the law, but employers and trustees might be wise to bear it in mind given the array of benefit discretions available under scheme rules. 

Approaching appeals

Last time, we mentioned how the Ombudsman had signalled a more proactive policy on participating in appeals from his determinations to the High Court. An announcement issued since gives examples, such as where a decision could have a wider impact on the pensions industry (e.g. pension liberation or auto-enrolment), or to satisfy the principle of “equality of arms” (where there is a concern over access to justice and participation is necessary to properly present and argue the points).

Not all appeals have the potential to generate wider benefit. In 2014, a filter was introduced so that disappointed complainants no longer had an automatic right of appeal to the High Court. This followed concern from Chancery judges that appeals were being made by those “wishing to re-fight issues of fact rather than raising issues of law suitable for an appeal”. However, in practice the High Court is still granting permission to appeal to litigants in person: “it seems”, observed the Ombudsman in his recent Annual Report, “that the intention to avoid unnecessary court hearings is not always being achieved”.

Indeed, we understand that there are currently seven Ombudsman determinations subject to appeal to the High Court. The Ombudsman has already announced his intention to participate in one of these, Webber, which concerns the correct approach to the statutory limitation period cut-off date in recovery of overpayments cases.

Other rulings for which appeal has been sought at the time of writing touch on a number of common issues for schemes and employers, including detrimental reliance on misleading information, whether an ill-health pension should be reinstated, and the calculation of deferred pension where there is a “Barber” underpin.

Comment: This more activist approach to appeals flags up another difference between Anthony Arter and his predecessor in post, Tony King. It will be interesting to watch it develop over the coming months. 

Update on TPO awards

Determinations published since our previous Update continue to show TPO deploying £500 as a standard award for significant distress and inconvenience, although there have been awards of £1,000 and £750 over the period.

The Ombudsman has also needed to persuade more than one member that a respondent’s offer to compensate them for maladministration was more generous than anything that he would award. In PO-13103 Miss M (8 September 2016) the administrator had offered compensation for late-paid pension based on a 1.5% rate of interest. In rejecting the member’s complaint the Ombudsman re-iterated that his general policy for calculating loss of interest awards was to use the Bank of England base rate for the time being (at the time of determination, this was a mere 0.25%).

In PO-12573 Mr Z (21 September 2016), a member had been mistakenly told that his deferred pension would receive the 8% late retirement factor (LRF) then applied to active members. The trustees offered to honour the incorrect statement by applying an LRF, but on the basis of the 6% figure now applied to actives since a factor review. The member held out for 8%, which the Ombudsman declined to grant. He pointed out that had the trustees not made the offer they did, he would have directed only that pension payments were backdated to normal retirement age, with interest.

Comment: These cases were both ‘appeals’ from decisions by the Ombudsman’s team of ‘Adjudicators’. The Ombudsman is clearly trying to manage member expectations, with the hope that the volume of cases requiring a formal determination by the Ombudsman or Deputy Pensions Ombudsman continues to reduce.