The new Pensions Ombudsman (Anthony Arter), in post for only a month, has issued guidance on how he will approach awarding redress for non-financial injustice caused by maladministration.

It has long been established that the Ombudsman can award successful complainants modest sums for "distress" or "inconvenience" caused by maladministration on the part of scheme trustee, managers or administrators, separate to any directions made to compensate for direct financial loss. This might include disappointment and loss of expectation as well as the time and effort spent in pursuing a complaint. The new guidance may help trustees (or others faced with a potential maladministration claim) in assessing what level any settlement offer should take.

The usual starting point for financial awards, in the least serious cases, will be £500. In 1998 the High Court suggested that the maximum award, other than in exceptional circumstances, should be £1,000 but there has over the years been a shift to higher awards (with one of £5,000 being given in 2011).

The guidance gives examples of how the level of any award would be assessed. Matters taken into account could include:

  • whether the complaint could have been avoided (i.e. settled much sooner);
  • whether there were excessive delays by those responsible for handling the complaint;
  • whether any inconvenience arising was on a single occasion or anumber of occasions;
  • whether any distress arising was material; and
  • how the respondent handled the complaint – thoroughly or dismissively?

In some cases, the Ombudsman may find that the maladministration can be remedied by a simple apology.

Trustees generally have power to offer sums in settlement of a potential Ombudsman complaint before it is actually made (or during an investigation before the Ombudsman reaches his decision). As long as the amount offered is not in excess of the amount which might ordinarily be expected to be awarded by the Ombudsman, then it will be an authorised payment from the scheme (although the payment may still be taxable as income of the member). The Pensions Tax Manual, recently issued in draft form by HMRC, suggests compensation for non-financial loss in the range of £30 to £300 (with awards over £1,000 very rare). These figures are now out of kilter with the Ombudsman's guidance. Until this is resolved, you may wish to take legal advice before offering settlement in maladministration cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.