Newly appointed Pensions Ombudsman Anthony Arter published guidance in July on how he intends to approach financial awards to pension scheme members for redress for non-financial injustices resulting from maladministration.
The concept of the Ombudsman making additional awards to successful complainants for the “distress” or “inconvenience” caused by the maladministration complained of is nothing new.
Such awards are distinct from any directions that the Ombudsman may give relating to compensation for direct financial loss and can be made against any respondent, whether it is the trustees, the manager or the administrator of a scheme.
The purpose is to compensate successful complains for things such as:
- the time and effort spent in pursuing a complaint
- loss of expectation
The new guidance could prove useful for trustees, or indeed any others faced with maladministration, in assessing the level at which they should make any settlement offer.
Often the starting point for awards in the least serious incidences will be £500, with the Ombudsman outlining that in the majority of cases the redress for non-financial injustice is likely to range from £500 to £1,000, although, in some cases, a simple apology is all that will be required as a remedy.
However, trustees should beware, as sometimes higher awards are necessary, particularly if the complainant has suffered ill-health or has made lifestyle choices which were influenced by the maladministration. The Ombudsman has pointed out that whilst historically the courts have held that awards exceeding £1,000 should be reserved for exceptional circumstances, there has been a ‘recognised shift in attitudes to make higher awards’, with examples of awards in the region of £4,000 and £5,000 made in 2011 being cited.
That said, the Ombudsman clarified that if it is felt that the claimant has already received sufficient compensation before or during the investigation then this will not usually be added to, while awards for compensation out of scheme resources where the scheme is underfunded and either winding-up or being transferred to the Pension Protection Fund are unlikely.
The factors that the Ombudsman will take into account include whether:
- the complaint could have been avoided, if it was obvious on the facts that there was maladministration
- there were excessive delays that were extensive or readily avoidable, by those responsible for handling the complaint
- any inconvenience arising was on a single or number of occasions
- any distress arising was material; and how
- the respondent handled the complaint i.e. thoroughly, dismissively etc.
Scheme rules usually provide that the Trustees have power to make offers to potential complainants with a view to a settling a complaint before it is actually made. Offers can also be made during an investigation providing the Ombudsman has not reached a decision.
Usually these are classified as authorised payments from the scheme, although the payment may still be taxable for the complainant as income. However, if the amount offered is in excess of the amount which might ordinarily be expected to be awarded by the Ombudsman then it will not be classified as such, and given the existence of the new Ombudsman’s guidance it may be prudent for trustees to take legal advice before any settlement offer is made.