The background to Baugniet v Capita Employee Benefits Ltd (trading as Teachers' Pensions) was that, after starting work as a teacher in 2010, a scheme member asked to transfer his personal pension to the Teachers' Pension Scheme. Over the next few years, events unfolded slowly:
- In August 2011, the Teachers' Pension Scheme administrators (TP) gave the member an estimated service credit, based (incorrectly) on service of five years and 124 days.
- In September 2011, TP issued a revised quote based on service of six years and 45 days.
- On 26 October 2011 the member sent the transfer documentation to TP, but on the same day the government approved revised guidance on the discount rates used for calculating cash equivalent transfer values and advised that work on the operation of those values should be suspended with immediate effect.
- In November 2011, after the embargo was lifted, TP received the transfer funds from the personal pension provider. The service credit was three years and 235 days, significantly less than the credit that would have been awarded had the transfer been completed before 26 October 2011.
The member complained to the Pensions Ombudsman that he had suffered loss. If it had not been for the delay, he would have obtained a service credit based on the pre 26 October 2011 figures.
The Ombudsman can investigate maladministration whether or not it involves the breach of any legal rights, but injustice resulting from maladministration that does not involve a breach can only attract modest compensation for distress and inconvenience – awards in excess of £1,000 are not made unless there are very exceptional circumstances.
In Baugniet, the member made claims for both financial and non-financial loss. The Ombudsman agreed that TP's delays constituted maladministration but, concluding that the member was partly responsible for the delays, declined to award compensation for financial loss. The Ombudsman did award £750 for non-financial injustice, however.
The High Court upheld the claimant's appeal. He had drawn a clear distinction in his complaint between conduct causing financial loss and conduct not causing financial loss but warranting compensation; the fact that the conduct complained of may overlap both financial and non-financial loss is not a basis for dismissing one head of complaint or for failing to consider each of the two separately. The Ombudsman should have investigated or considered more closely and analytically the nature and effect of the complaint.
The Court confirmed that the causation test in this case was whether it was more likely than not that "but for" TP's conduct, the claimant would have obtained the service credit he had asked for before 26 October 2011. The Judge went on to say that, on the evidence, it was highly probable, if not certain, that but for TP's delay, the claimant would have received the full service credit before the government imposed suspension came into effect and, if his complaint had been looked at in this way, "the outcome would, in all probability, have been very different". The case was sent back to the Ombudsman to be dealt with as an allegation of negligence causing financial loss.
The Judge also took the opportunity to address the issue of the level of compensation for non-financial loss (distress and inconvenience). He said that as the £1,000 limit was set in a case decided in 1998, the Ombudsman should consider increasing the limit to £1,600 (this was the judge's approximate calculation allowing for inflation on £1,000 from 1998). He also commented that, in the light of the fact that there had been three incorrect calculations by TP, the "lack of candour" in the explanations for the delay given to the member and the absence of objective review in the internal disputes resolution procedure, it would be troubling if TP's conduct was viewed as anything less than "very exceptional", attracting a level of compensation above the £1,000 limit.
Comment & Actions
- In the light of this case the Ombudsman is likely to update his guidance on compensation for distress and inconvenience – the 2015 version says that most awards fall in the £500 to £1,000 range.
Although it is the remarks about compensation for distress and inconvenience that have attracted attention, the Court's analysis of maladministration based on negligence (attracting potentially unlimited financial loss compensation) is also noteworthy. The Judge confirms that a "but for" test should be used in assessing liability.
- The comments about the internal dispute resolution procedure are also helpful. The IDRP must involve objective review. In this case, the service credit was not in fact accurately calculated until June 2016 – three months after the Ombudsman's determination and more than five years after the member first asked for a transfer. This, the Judge said, was a strong indicator that no independent work had been done by the second stage investigator to review or check the accuracy of the administrators' representations and underlying assertions and calculations.