OPDU Report 26 October 2009

Bulletin Board
“Someone’s boring me – I think it may be me”
Tony King, Pensions Ombudsman

The title is a quotation from Dylan Thomas (I’m showing off my Google skills, not my erudition). And I realise there’s a strong risk that it might put you off reading any more. 

But if you’ve got to this sentence it hasn’t (yet). So let me explain  – quickly before you flip the page – what this piece is all about.

It’s about a little retrospection, a question, and some answers.
And here they are.

The retrospection

I have been the Pensions Ombudsman for just over two years. They have been the fastest two years of my life so far and so, a couple of weeks ago - at the two year point - I paused, very briefly, to take a breather and a backwards glance, not just at the last two years, but at the Pensions Ombudsman’s office from the time it was established in 1991 up to the present day. When I did that, I was struck by an apparently remarkable fact. The Pensions Ombudsman used to be so much more interesting than now. Then I felI to wondering why that seemed so, and if it was really true.

Dipping into the past, I remembered a speech that I gave in early 2000 in my then capacity as casework director for the Pensions Ombudsman. It was essentially a pretty detailed look at legislation, cases and appeals (though mercifully it included some lighter material – even a couple of jokes). It covered jurisdiction – who was in and out, with relevant judicial observations, and recent and proposed legislative changes. Then there was a run through of the import of recent appeals, with some discussion of what the difference was, if any, between the ombudsman’s approach to disputed decisions and disputed exercise of discretion.  And there was a round up of cases subject to appeal on which the expected Court’s decision, when it came, would be of wider interest.  Those cases covered topics such as equal treatment, equalisation of GMPs and whether an unfunded scheme was subject to preservation requirements.

Now, you may think that all sounds a bit dry. But that was what people wanted to hear about, because what was going on in the ombudsman’s office - and in the Courts as a result of those goings on - was highly relevant to employers and trustees and to those advising them. 

The question

So why are we comparatively less interesting? It’s certainly true we have a lower profile than we used to.  I can offer some reasons for that.

The first reason is simple timing.  That speech nine years ago was itself only nine years after the office had come into existence. The first ombudsman had had to deal with creating the office from scratch and it took a while for potentially difficult issues to arrive in the office and to be dealt with. By the mid nineties that initial phase was over. A far higher number of cases were being decided and there was a correspondingly increased interest in the outcomes.

Also the cases dealt with new issues (there was almost no pensions case law) and inevitably some of them were decisions made near the borders of the territory being covered by the relatively new institution of Pensions Ombudsman.

That created ombudsman cases that people looked to for precedent value.  But also, many of the pensions cases decided in the Courts were appeals from ombudsman determinations. Some were about what the ombudsman could or could not do (for example: interfere with discretions, impose personal liability where there was an exoneration clause, award compensation for distress). Others were about what schemes and their managers should or should not do (arrange covert surveillance, give information/advice, and so on). 

Most of those borders are now fairly clearly defined; the uncertainties are resolved. By and large I know what the Courts say I can and cannot do – and by and large pension schemes (at least, the better informed ones) know what they should and should not do. 

So that’s the first reason I’m a bit boring.  There’s just not all that much scope to make decisions that will cause a stir. 

A second reason may be that when the office was first established there was no regulator at all (unless you count the occupational pensions board, which you probably should not). Even when I gave that talk in 2000 Opra hadn’t been around very long. And it seems that in the days before regulation there were trustees around who took steps almost designed to make an ombudsman’s life interesting. They made questionable loans, invested in flats lived in by senior executives and refunded surpluses through unexpected trans-actions.  We don’t get as many of those kinds of cases any more. Either trustees and employers do these things much more subtly now, or regulation means they are done less frequently.  I’m reasonably confident that it’s the latter.

Third, the rest of world has become comparatively more interesting. Regulators, relatively new in 2000, have onerous requirements that demand attention from schemes and their advisors. They set the standards, and are more interesting when it comes to that than the ombudsman, who is now less frequently reported as doing so. But regulation isn’t the only new thing. Simplification, the Pension Protection Fund, the Financial Assistance Scheme, personal accounts, automatic enrolment – these are now the major preoccupations of advisors, schemes and employers. The Pensions Ombudsman barely gets a look in.

Some answers

So, our work is dull and uninteresting.

Well, no, actually it isn’t.  We may have shrunk back into the shadows a bit, but we are getting on with the day job. Even what might seem run of the mill issues often have their own peculiar features when those issues emerge in one of our cases.  And occasionally we brush up against the borders I referred to earlier and find it’s not quite as clear where they are as one might have thought.

The cases that reach us are inevitably ones that mean something to the parties.  That might be a point of principle or it might be money and sometimes there are emotional issues mixed in too. Death benefit cases combine all three.  They also illustrate one of the points that became pretty clear during our “interesting” phase; that the ombudsman only interferes with exercises of discretion in very limited circumstances – being where it is irrat-ional, or otherwise improperly made. 

Two quick examples (they are hugely simplified - the case references will help interested readers to find the full decisions on our website):

73461/1 concerns two sons by a first marriage who had been nominated by their father as joint recipients of the death benefit under a personal pension. It was payable at the discretion of the provider. The sons were independent adults when the nomination was completed. The father left a widow by a second marriage that took place 14 years before completing the nomination form.  The provider made enquiries in relation to a different policy and were told that the wife had been dependent on the father when he died (dependency was necessary for payment under that policy). Without further enquiry or explanation they split the death benefit half to her and a quarter each to the sons. The sons complained.

I upheld the complaint on the grounds that the provider did not have sufficient information to reach a decision that went against the nomination. I directed them to reconsider.

In Q00140 lack of information was not the problem. A father and major shareholder in a small company had nominated his daughter and his son’s three children in equal shares. His son ran the business, which was also the sole trustee of the scheme of which the father had been the only member. The company offered to buy shares held by the daughter and said that if she sold them, on top of the share price she would receive a portion of the scheme funds. She did not respond and in due course the whole lump sum was paid to the son for the benefit of his children. The deputy ombudsman decided that the company as trustee was incapable of reaching an unbiased decision and directed that it pay her a sum equal to the quarter share.

The most significant feature of that case is that it is a very rare example of an ombudsman in effect substituting his own decision for that of the trustees.

Other cases

A couple of other cases, just to prove how interesting we really are:

24587/3 & 71249/1 are two cases (dealt with in one determination) about discretionary increases after a scheme merger which followed some corporate changes. Before the merger, increases (which were at the principal employer’s discretion) had been generally in line with RPI. At the time of the merger, the transfer deed recorded that the employer intended to exercise discretion consistently with the way it had been exercised under the transferring scheme. The actuary signed a GN16 certificate recording good reason to believe that the award of discretionary benefits would be broadly no less favourable under the merged scheme than in the previous scheme.

The principal employer did not award any increases in any year subsequently. To simplify hugely, its position was that the transfer deed could not act to fetter its discretion and it was free to reach a decision independently of what had gone before. I did not entirely agree. I took the view that the statement in the transfer deed must have meant something. It amounted to a declaration of intent, though circumstances could have changed between the declaration and the exercise of discretion. I also thought that the employer had to be taken to know that the actuary justifiably had good cause to believe that the principal employer would act consistently with the previous scheme’s practice. I directed it to reconsider the exercise of discretion in each year.

26529/2 concerns a scheme in wind up and the meaning of “underpin benefits”, which are of course excluded from the ring fencing given to money purchase benefits under section 73 of the Pensions Act 1995 and the related regulations.

The complainant member of the scheme had, under an arrangement particular to her, agreed that her benefits from what was otherwise a final salary scheme would be entirely derived from increased contributions on a money purchase basis. However, she continued to accrue a GMP. When the scheme went into wind up, the trustees decided her money purchase pot was unprotected.

Of course readers will remember the definition of “underpin benefits” but just in case you don’t, they are:

“money purchase benefits which under the provisions of the scheme will only be provided in respect of a member if their value exceeds the value of other benefits in respect of him under the scheme which are not money purchase benefits”

In short, I decided that this was intended to refer to salary related benefits that were underpinned by money purchase benefits - and not the other way round. In this case the member’s money purchase benefits would be provided come what may, though in an almost inconceivable circumstance given the amounts, they would be topped up so that she received a GMP.

27877/1 this case concerned a transfer in 1986 from a final salary scheme to a section 32 policy. It was facilitated by the employer’s pensions manager. The complaint, made in 2007, was that the complainant had been misled into transferring. The merits of the case are somewhat interesting. But of more interest (apparently) was the decision to exercise discretion to investigate the complaint, which would have fallen outside Limitation Act limits litigated. This jurisdictional objection was raised late in the day, following Charlie Gordon’s decision in 27178/2 (Lever) that in the circumstances of that case, having taken into account the Limitation Act, he should not discontinue the investigation of part of the complaint.

Our position is that we have a statutory time limit, which is not the same as the Limitation Act limits. Where a discretion is to be exercised under our limits, the Limitation Act may be a material consideration, but the discretion remains to be exercised one way or the other. The case is subject to appeal. Another thing that makes it interesting is that we will be participating in the appeal, on the jurisdictional point.

So the cases themselves are still interesting. What about the other work we have been doing?

When I took up the post I said that I wanted to make us more accessible. That’s not been quite as easy as I would have liked. However, we’ve taken some steps in the right direction. We’ve done a lot to make our determinations less cumbersome. And it seems to be paying off without unwanted consequences. A random sample of 20 determinations issued in early 2007 had an average of 15 pages and 5017 words. A sample the same size from early 2009 had on average 9.7 pages and 3077 words. If that’s typical then our determinations have reduced in length by over a third. We’ve also tried to improve the layout, to put the outcome at the beginning, change the typeface, remove complex numbering and so-on.

Also on the accessibility front we’ve redesigned the website and revamped the booklet.

I also said I wanted to make our service more flexible. That is turning out to be every bit as difficult as I thought it might be. Strictly, we have one set of procedures for all cases. They are quite prescriptive, for example they require us to obtain a response from all respondents even in the most hopeless of cases. Of course we don’t do that. But we do still find ourselves drawn into time consuming to-ing and fro-ing when relatively little is at stake.

The main thing that we have changed is that we allow investigators to use letters expressing their views as to the likely outcome of cases in broader circumstances than they could before. So you may find that an ill-health early retirement application is dealt with that way, which it would not have been before. And sometimes now an investigator will write to the parties explaining why the complaint should succeed. This brings us a new set of challenges internally. For this process to be effective the investigators have to be confident that they know what the outcome of the case would be if I or the deputy ombudsman had seen it. It’s up to us to develop that internal confidence and understanding.

There’s an almost identical external issue in that the parties need to have confidence in the investigators’ judgment (since half the point of the process it to reduce the number of cases that need to go all the way to an ombudsman).

Finally, though I mentioned our new website earlier, we have not done as much as I would like to engage with our stakeholders using technology. Obviously the day of the Twitter determination is a way off - though the 140 character limit would be an interesting discipline!  But even using (unsecure) internet email has become difficult in a world in which data security is rightly under the spotlight.

To touch on the future, I hope that we will be doing interesting things to make our processes flexible and as technologically up to date as they reasonably can be. Our most important job though is the casework. Our next challenge, like the public sector generally, may be to provide the best service at the lowest cost. If in doing that we are dull but effective, that’s fine by me.

Tony King
Pensions Ombudsman
020 7630 2210
tony.king@pensions-ombudsman.org.uk
www.pensionsombudsman.org.uk