Pensions Ombudsman Update – Issue 10, July 2018 Pensions Ombudsman Update - July 2018 Welcome to our latest CMS 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. Transforming TPO: the Annual Report Every summer, the Ombudsman’s Annual Report provides a thorough examination of the work of his office over the past year, and hints at his priorities going forward. This year’s Report hails TPO’s transformation into a more modern and accessible service (including, as set out in the previous edition of this Update, its relocation to Canary Wharf and incorporation of the TPAS dispute resolution team). This is, however, set against the backdrop of a continued rise in caseload. Some key figures for 2017/18 include: 6,319 enquiries handled (up 5% from 2016/17); 1,676 cases taken on for investigation (up by 265), with the most common causes of complaint continuing to be transfers, the incorrect calculation of benefits, and the failure to act on instructions; 1,591 investigations completed (up 13%); 70% of cases resolved informally (by Adjudicators) and 30% formally (with an Ombudsman decision). Of the latter, only 29% were upheld or partly upheld; and only 2% of complaints resulting in a Determination following an Ombudsman’s Preliminary Decision. The office did not, however, manage to meet its targets for number of investigations completed, or for reducing the number of cases still in hand at year-end. Distress - the Ombudsman speaks up During 2017, High Court judges in the successive cases of Baugniet and Smith held that the upper limit for nonexceptional ‘distress’ awards in TPO cases should increase from £1,000 to £1,600. After a long silence on this issue, the Report finally provides formal comment from the Ombudsman, who considers that a doubling of the old ‘ceiling’, to £2,000, is merited. This is consistent with the outcome of published TPO awards in recent months, as is the Ombudsman’s confirmation that he is not looking to increase the ‘lower limit’ of £500. In addition, the Ombudsman’s office is drafting guidance outlining fixed levels of awards and the circumstances in which these are likely to be made (but, although the Ombudsman wants to encourage the application of fixed increments to distress awards, he will always reserve the right, where appropriate, to award such other amounts as he thinks fit). Pension liberation: don’t judge trustees by hindsight… In our October 2017 edition we considered a number of determinations about trustee and provider liability where members chose to transfer to suspected liberation schemes. A key theme to have emerged in these cases is that if trustees and administrators can demonstrate they followed best industry practice at the time a transfer was made, they should not be guilty of maladministration. PO-15726 Mr E (26 April 2018) provides another example. The Ombudsman rejected a member’s complaint that a personal pension provider should have refused to let him transfer to a suspected liberation scheme in May 2013. The provider had the correct due diligence procedures in place at the time, including up-to-date lists about at-risk schemes. The Ombudsman also found as a fact (although the member had disputed it) that the provider had issued him with the Pensions Regulator’s ‘Scorpion’ leaflet on potential scams. The Ombudsman said that where an individual had a statutory right to transfer, the most the provider could have been expected to do was to provide additional warnings and invite the member to reconfirm he wished to transfer, in line with the then-current TPR guidance. The provider could not provide advice or be seen to be actively discouraging the transfer and so it had been “appropriate and proportionate” for it to supply the Scorpion literature and allow the member to choose whether to proceed. The same principle was applied in PO-18604 Mr D (3 May 2018). Here, the Ombudsman rejected a member’s claim that the transferring scheme should have stopped him transferring to a suspected liberation scheme ten years before, saying: “it is not appropriate for me to apply knowledge of the risk factors associated with pension liberation that we are aware of today to events in 2008”. Provider ‘on notice’ of urgent deadline should have used special delivery In determination PO-11843 Mr T (5 June 2018) the member was transferring from his occupational scheme to a SIPP. His IFA delivered the transfer paperwork to the SIPP provider on 13 August 2015 and asked for it to be posted to the transferring scheme’s administrator on the same day, as the member’s guarantee period expired on 15 August. Comment: The Ombudsman oversaw a significant restructuring of his role in 2017/18. The statistics confirm a ‘quiet revolution’ during Anthony Arter’s tenure, with it now being the norm for cases to be dealt with informally and at an earlier stage. However, it is too early to tell whether the assimilation of the TPAS disputes team, which in our experience has caused some confusion for clients, has been a success. Comment: The possibility of the introduction of a ‘tariff’ for awards for non-financial injustice is intriguing. We await the forthcoming guidance to see how it can juggle the competing pressures from stakeholders for both consistency and flexibility. Comment: While these determinations offer comfort, trustees’ protection depends on staying ahead of the curve on industry developments on transfers. Trustees should therefore note - and consider adopting where possible - the recent revised “good practice” guidance issued by the Pension Scams Industry Group (PSIG). However, the paperwork was sent by first-class post instead and arrived on 17 August. As a result of missing the guarantee date the member’s cash equivalent transfer value was recalculated as £171,000 (a fall from £179,000), before a transfer was eventually made. The Ombudsman’s Adjudicator said that the complaint should be upheld against the provider on the basis that it was aware of the urgency of the cut off, and had failed to meet a promise to the IFA that the documents would be sent by special delivery. This had raised the member’s expectation that the documents would reach the transferring scheme trustees on time. The Deputy Ombudsman agreed that the provider was responsible for the member’s financial loss. She ordered it to recalculate the current notional value of the member’s SIPP as if it had received the higher transfer value, and to credit the SIPP with the difference. Transfer rights and HMRC In determination PO-16907 Mr N (11 June 2018) a member complained about a provider’s failure to make a transfer to his chosen scheme. The provider declined to make the transfer because HMRC would not confirm the receiving scheme’s registration status. HMRC’s practice is only to do so where the scheme is registered, and where it does not hold information suggesting a significant risk that it is being used to facilitate pension liberation. The Ombudsman held that, on a proper construction of the legislation, there was no statutory transfer right because the transferring scheme had been unable to establish its registered status. The provider was therefore justified in refusing to make the transfer. The Ombudsman went on to reject the member’s argument that the provider (and TPO) had failed to take account his status as a sophisticated high-net worth individual, working in the financial sector. The Ombudsman noted that sophistication did not make an individual “immune” from pension scams and so reduce the need for provider due diligence. The Ombudsman did, however, reiterate the point that providers should engage adequately with members, even if declining to transfer: “we expect providers to try as far as possible (noting there may occasionally be ‘tipping off’ issues) to explain their reasons and concerns to members and allow a reasonable opportunity for these to be rebutted or jointly worked around.” TPO agrees information-sharing framework with Regulator The Ombudsman has announced a ‘mutually enhancing’ information sharing agreement with The Pensions Regulator (TPR), aimed to protect members, support higher industry standards, and acknowledge their overlap in responsibilities. Complaints which have been wrongly directed will be passed (with the complainant’s consent) to the correct organisation with the minimum of disruption. TPR may advise TPO of its concerns regarding specific schemes: the agreement acknowledges the statutory restrictions on TPR sharing ‘restricted information’ but says that TPR will not be precluded from doing so if TPR considers that disclosure would enable or assist TPO to exercise its functions. TPO will apply a similar test for passing information to TPR which has been obtained for the purposes of an Ombudsman investigation. Deputy Ombudsman re-appointed The Deputy Pensions Ombudsman, Karen Johnston, has been appointed for two more years from 1 July 2018 (she was originally appointed in July 2015, shortly after the current Ombudsman took up his post). The re-appointment was made by the Pensions Minister, Guy Opperman. The Ombudsman is, in the words of the associated press release, delighted with the re-appointment. The information in this publication is for general purposes and guidance only and does not purport to constitute legal or professional advice. It is not an exhaustive review of recent developments and must not be relied upon as giving definitive advice. The Update is intended to simplify and summarise the issues which it covers. It represents the law as at 20 July 2018. CMS Cameron McKenna Nabarro Olswang LLP is a limited liability partnership registered in England and Wales with registration number OC310335. Comment: This is not the first time TPO has found maladministration where a party has been aware of urgency but has failed to take appropriate steps to deal with it. We have also seen it in death benefit cases in which swift action was required in order to avoid missing the deadline for tax-free payment. On the facts, the provider’s failure to appreciate this urgency meant that the price of a first-class stamp ended up being several thousand pounds. Comment: Helpfully, the Ombudsman’s approach to HMRC’s refusal to ‘confirm or deny’ registration reflects that taken in the revised PSIG guidance, mentioned above. Trustees should note the reminder that, in disputed transfer cases, they must seek to explain their position to affected members and give them a reasonable opportunity to make representations. Comment: Although we know that the Ombudsman does pass concerns about scheme administration to TPR from time to time, it is helpful to have had this relationship formalised. Trustees should be aware of this possibility when members bring complaints! Comment: It is welcome news that the team at the top of TPO remains stable. Note that the Ombudsman himself was appointed for a longer four-year term, which is set to be reviewed by May 2019. CMS and the Pensions Ombudsman CMS has had a market-leading Pensions Ombudsman Unit for many years, led by Mark Grant. Mark wrote the only text book on the Ombudsman’s role and established and chairs the Pensions Ombudsman Liaison Group, an industry body that meets with the Ombudsman and seeks to improve understanding, relationships and communications between his office and key stakeholders. CMS is also a stakeholder in the Pensions Ombudsman’s Legal Forum.