Guardian angel, necessary evil or waste of time? Ask any three employers, pension scheme trustees, members, lawyers or pensions managers what they think of the Pensions Ombudsman and you might get all three answers.
Why does the Ombudsman provoke such strong feelings? Is he a despot, dishing out excessive and irrational punishment? Or is he a latter day Robin Hood, putting bread on abused pensioners’ tables by repatriating looted surpluses or making good deficits?
To make a proper assessment of the role of the Pensions Ombudsman, you have to start by asking why we have one. Unusually for an ombudsman, he was created by legislation, so lots of people must have thought it was a pretty good idea at the time.
But not everyone was in favour. In 1989, a report by a hand-picked body of pensions experts, the (now defunct) Occupational Pensions Board (OPB), concluded that dispute resolution would be better dealt with by a tribunal than an ombudsman. The government of the day seemed to reject this advice, giving us an ombudsman, not a tribunal, in the Social Security Act 1990. But did it?
Many of the powers the OPB wanted a tribunal to have were given to the Ombudsman anyway. He has the powers of a court in relation to evidence and his directions (with no financial limits) can be enforced through the courts. As well as resolving disputes of fact and law, he has the power which no court has to award compensation for injustice caused by maladministration. This has not made trustees’ lives any easier: one judge remarked that pension scheme trustees could be regarded as under a statutory duty not to cause injustice by maladministration, although no statute in the land has yet attempted to define what maladministration is. Like the proverbial elephant, everyone is expected to know it when they see it.
Quite a few judges have had difficulty accepting the idea that Parliament could think there was sometimes a better forum than the courts for resolving disputes. But the differences in the ombudsman system can be advantageous: because it involves a less painstaking forensic process than the courts, fewer settlements are driven by the need to avoid further expense and delay rather than the merits.
Certainly, Lord Woolf came out clearly on the side of the ombudsman system, praising it for showing that disputes could be resolved ‘in a non-confrontational manner very different from the all-out warfare which all too frequently afflicts our courts’. In his Access to Justice report, he also highlighted the ability of ombudsmen to set and maintain standards of good practice within their specialist sectors.
However, the Pensions Ombudsman’s impact should not be gauged simply by the size of financial awards or the numbers of cases dealt with each year (which, at over 1000 cases closed, was a personal best for the Ombudsman in 2004). Eventually, his success can be measured by how few disputes are referred to him. The macro effects of the Ombudsman’s activities are impossible to quantify but there is definitely a more cautious mood these days among clued-up pension trustees and employers, due in no small measure to his mere existence.
This is because employers and trustees usually just want to know what they can and cannot do. They do not want to go to the trouble of merging pension schemes, changing scheme rules, improving or worsening pension benefits if it might all be unwound. This means that, increasingly when taking decisions about pension schemes, they consider not only the scheme rules, legislation and what the courts may have said on the subject but also how the Ombudsman may react if the matter is ever put before him.
Lawyers also relish certainty and have not generally welcomed the Ombudsman’s attempts to explore and develop the law. For example, the current Ombudsman ruffled feathers by saying not only that trustees should be much more open and give members reasons for their decisions but that they have committed maladministration where they haven’t.
Similarly, the previous Ombudsman surprised many by attempting to enlarge an employer’s duty of good faith into something approaching a fiduciary duty, where it has sole power to deal with a surplus. Fortunately, the courts restored orthodoxy by allowing employers to look after their own financial interests, even where they conflict with those of the members and pensioners.
Matters are about to get even more interesting as the recently-introduced Pensions Act 2004 allows the appointment of Deputy Pensions Ombudsmen who can also make binding rulings. The sheriff is about to get a posse…!
