Pearls of wisdom: Pensions Ombudsman turns 30

If someone asked you what Sweden is famous for, you might think of Abba, Ikea and maybe even Minecraft. You might not immediately think of the word “Ombudsman”, but it is a Swedish export too; it comes from the Old Norse umboosmaor, meaning representative.

I only mention this because it is a nice segue for celebrating our industry’s most famous umboosmaor – the Pensions Ombudsman – as it marks 30 years of resolving pension disputes this month. The office started investigating and determining complaints regarding occupational and personal pension schemes on 1 April 1991. Since then, over 100,000 written enquiries have been received, more than 25,000 disputes have been resolved and almost 9,000 determinations have been issued by five Ombudsmen and four Deputy Ombudsmen.

With so many disputes and complaint cases to choose from, picking the most important is never going to be easy. Nevertheless, here are a few ‘famous’ determinations which, if you have been in the industry as long as the office of the Pensions Ombudsman (the author is ‘celebrating’ his 35^th year), you will probably remember …

Nuthall v Merrill Lynch (UK) Final Salary Plan Trustees – ‘good practice’ not just ‘compliance’

In this 1999 determination, a complaint about ‘late’ payment of contributions was upheld notwithstanding the fact that the period for payment set out in regulations was complied with. The case is remembered for a passage that encapsulates a principle that the Ombudsman still applies today:

“the provisions of the Pensions Act 1995 specified maximum periods within which payments must be transferred, but these were specified in order to avoid criminal liability, not maladministration.  The existence of such long stop sanctions does not absolve trustees or managers of their responsibility to ensure that good practices are established for all areas of pension scheme administration.”

Edge v the Pensions Ombudsman – ‘it’s not what you do but the way that you do it’

This case, which started as a complaint to the Ombudsman but ended in the Court of Appeal, concerned a surplus (remember them?) in the ITB Pensions Funds.  For the scheme to continue to meet Inland Revenue requirements at the time, the surplus had to be reduced. The trustees decided to reduce it by crediting active members with additional service and reducing both the members’ and employers’ contribution rates. Pensioner members did not benefit and complained.

The Ombudsman upheld the complaint against the trustees on several grounds – they had breached their duty of impartiality; not acted in the best interests of all the beneficiaries; acted in breach of their duty not to put themselves in a position of conflict; and exercised their power for an improper purpose.

The trustees successfully appealed to the High Court and the case then went to the Court of Appeal which upheld the High Court decision, making it clear that trustees may prefer some beneficiaries over others provided they follow their rules and the correct process. The case also confirmed that it is not for the Pensions Ombudsman to second guess trustee decisions and that, unless manifestly unreasonable, such decisions should not be disturbed. The Edge case is still a regular feature in trustee training courses over 20 years since the Court of Appeal judgment.

Wild v Smith – So what then is an unreasonable decision?

In this case, another determination from the 1990s, a member of a company pension scheme (of which Mr Wild was one of the trustees) died in 1992. A lump sum death benefit of £140,000 was payable under the scheme rules and the rules gave the trustees the discretion to pay the benefit “to or for the benefit of the dependants, relatives or legal personal representatives of the member… or any one or more of them to the exclusion of the others”.

In his 1985 expression of wish form, the member had named his son and daughter as beneficiaries. However, since completing that form, the member had been living with a woman – Mrs Slack – in a house that she owned. The trustees considered her to be dependent on the deceased member and paid £80,000 of the lump sum benefit to her. The balance was put in trust under which Mrs Slack would receive the income for life with the capital going to the member’s children on her death.

The member’s son – Mr Smith – complained to the Ombudsman who upheld the complaint on the grounds that Mrs Slack was not dependent on the member (the fact that Mrs Slack had been living with the member for some time did not in itself suggest that she was financially dependent on him; neither did the fact that the member was paying the household bills) and the trustees had exercised their discretion wholly unreasonably. The Ombudsman directed the trustees to recover the payments made to Mrs Slack and to pay them to the member’s estate. He also told each trustee to pay £500 to the complainant and his sister for the injustice caused by the trustees’ maladministration.

On appeal, by Mr Wild, the High Court held that the Ombudsman’s reasoning in the determination was clear enough and he had properly considered the matter. Thus, the Ombudsman was entitled to conclude that the trustees had failed to adequately investigate the matter under consideration and this was maladministration. The judge agreed with the Ombudsman that Mrs Slack was not a dependant under the scheme rules.

On a positive note for the trustees, however, the court also held that, whilst the Ombudsman has jurisdiction to hear complaints against former trustees (Mr Wild has ceased to be a trustee by the time of the complaint), he must, before awarding compensation against them, consider who would bear the cost of that award. Relevant legislation did not justify the imposition of personal liability on a trustee where the trust deed contained provisions with clear contrary wording. Consequently, the order for Mr Wild to pay compensation was overturned.

Here’s to another 30 years!

Whilst the author hopes to be retired long before another ‘pearl’ anniversary, it seems quite probable that the office of the Pensions Ombudsman will still be around. In its latest annual report and accounts, it is stated that the office was able to continue ‘business as usual’ notwithstanding the COVID-19 pandemic and that, over the coming year, it is anticipated that there could be an increase in complaints, including those relating to furlough schemes, scams and transfers, payment of auto-enrolment contributions, ill-health and redundancy claims, and delays in providing information and processing requests.

I will leave it to someone else to write about noteworthy decisions from the period 2021 to 2051!