Out-Law / Your Daily Need-To-Know

Expect to pay up to £1,000 compensation for ‘non-financial injustice’, says Pensions Ombudsman

Out-Law News | 23 Jun 2015 | 10:30 am | 2 min. read

Pension savers who suffer “significant” distress or inconvenience as a result of scheme maladministration will generally receive compensation of between £500 and £1,000 if their complaint is upheld, the Pensions Ombudsman has said.

The “usual starting point” for compensation in these cases will be £500 or more, although in some cases higher awards may be necessary, according to new guidance published by the ombudsman. However, the ombudsman will not generally award compensation in cases where such ‘non-financial injustice’ is insignificant, and may instead require the scheme management to make a formal apology to the member, according to the guidance.

“Despite having just been appointed as Pensions Ombudsman on 25 May 2015, Anthony Arter has already left his mark by providing this useful guidance on non-financial compensation,” said pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com. “It will give employers, administrators and trustees a better idea of the compensation they may have to pay out if a scheme member is successful with his or her complaint.”

“The beauty of the guidance is that it encourages good behaviour. It makes it clear that the level of compensation may be increased if, say, the complaint could have been avoided because the maladministration was obvious from the start, or if there were excessive delays in responding to the complaint. It will be interesting to see what else the new ombudsman introduces to provide greater clarity for both complainants and respondents,” he said.

The Pensions Ombudsman is responsible for investigating complaints against pension providers. Under the 1993 Pensions Act, the ombudsman is able to “direct any person responsible for the management of the scheme to which the complaint or reference relates to take, or refrain from taking, such steps as he may specify” when making a determination. The idea is not to penalise the scheme, but rather to remedy genuine injustice.

The new guidance provides examples of the types of non-financial injustice that a scheme member may experience as part of a complaint, such as the “time and effort” spent dealing with the maladministration and in having to pursue the complaint. Non-financial injustice could also include “distress”, ranging from mild irritation to anxiety requiring medical treatment, according to the guidance.

For a scheme member to be eligible for compensation, any non-financial injustice suffered must be caused directly by maladministration of the scheme. The ombudsman will take into account the individual’s personal circumstances, such as age or mental health problems, but will also consider whether a “reasonable person with those characteristics” would have reacted in the same way given the nature of the distress suffered and whether the complaint could have been avoided, amongst other factors, according to the guidance.

“If an applicant claims, for example, a high level of ‘distress’ it does not necessarily follow that they will get compensation if the distress was not justifiable or foreseeable or credible,” the guidance said. “For example, the applicant might be angry by nature. But if the applicant has mental health problems, then it might be reasonable that they would be more likely to suffer distress.”

The guidance makes it clear that not all cases of maladministration will result in non-financial injustice and a compensatory award, and that “similar complaints should result in consistent and broadly comparable awards”. Where an applicant has been sufficiently compensated during the investigation the ombudsman will not usually require additional compensation to be paid.

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