He has never had a complaint about an annuity recommendation, but predicts failure to auto-enrol come 2012 could up his case load. Tony King, Pensions Ombudsman talks to John Greenwood
Given the financial pressures on people retiring today you might expect more of them to be taking issue with the way their benefits are, or are not being paid. But Pensions Ombudsman Tony King is not predicting any upswing in claims count any time yet, and says predicting where the next surge in cases is going to come from is impossible.
The Pensions Ombudsman has jurisidiction over complaints from employers and trustees, but the overwhelming majority of its caseload comes from individuals. Complaints about the management of schemes are dealt with by the Pensions Ombudsman, while complaints about the way the scheme was sold go to Financial Ombudsman Service, which deals with regulated issues.
So with so many people said to be losing out at retirement on account of the annuitisation process, is King seeing, or predicting an upswing in complaints about at-retirement issues? There have been reports in the media for years about the risk that trustees run by recommending annuities to scheme members without finding out if they are entitled to an impaired life annuity.
“Our jurisdiction depends on what product people are buying. So for example the FOS historically has dealt with advice to go into income drawdown. But if you were talking about a situation in which a provider or an employer in relation to a group personal pension is advising members to take a particular course of action, then that might well come under the administration of the scheme and come under our remit,” says King. “It could come onto my desk, but it hasn’t yet. So I would be in a difficult position to make observations about the rights and wrongs of what is happening.”
Pensions experts would love to know where the next round of complaints are likely to come from, not least so they can take corrective action as soon as possible. Asked whether he could foresee a class action against trustees or insurers for failing to make sure people exercise the open market option (an issue that Ros Altmann said in last month’s issue of Corporate Adviser is the one she feels most likely to lead to a successful consumer-led review), King responds that making such predictions is nearly impossible.
“Predicting the sorts of cases that come to us is extremely difficult,” he says. “It would be quite hard even to identify trends over the lifetime of the office, which is about 18 years. So trying to work out what might happen in a couple of years’ time is really very difficult. You mention class actions. We do not strictly have power to deal with class actions in those terms. We deal with individual complaints from individual people, although it might mean we had to deal with 1,000 cases about the same thing. We do occasionally get groups of people with the same problem.”
The Pensions Ombudsman receives around one thousandth of the number of complaints received by the Financial Ombudsman Service. So does that mean the pensions system is in robust shape and functioning well?
“I doubt that any system is watertight. We get a small number of complaints, 700 or so a year proper complaints, which is a tiny number out of the great universe of pension scheme membership. I hope it is a tiny number because problems get filtered out on the way through by schemes and providers, so only the most intractable scheme problems get through,” says King.
But given the scale of the compensation industry, is it not possible that a precedent successful claim in the field of annuity recommendation could lead to a deluge of other complaints? Martin Lewis at Moneysavingexpert.com says more than 6m bank charge complaint letter templates have been downloaded from his site. But King says he sees little to suggest such a scenario is round the corner. He says that as far as he is aware nobody has ever made a claim to the Pensions Ombudsman that the annuity they received is unsuitable. “Not as far as I’m aware. To be honest, I don’t remember every single case, but as an issue that is not sitting in front of me.”
“I would be very hesitant about guessing that there might be some future issue from a particular source. A future issue can crop up from almost any source. We do of course have a look at how we think the landscape might lie in the future and the big thing as far as we are concerned is that after 2012 personal accounts will come into our territory. That will not produce, I hope, a huge number of administration complaints about the allocation of funds and so on because that will take time to build up but auto-enrolment or failure to achieve auto-enrolment will come within our jurisdiction and we expect some problems around that,” says King.
So where particularly does he see problems post-2012? King foresees that the date contributions are allocated to members’ pots could cause an area of dispute, particularly where markets rise and fall significantly. “As funds get bigger and people are more familiar with what they have got in terms of DC and what it can and can’t do, I predict we will see more claims. At the moment I expect people are slightly disengaged from their DC schemes. So maybe we are not seeing these sorts of complaints,” says King. “Complaints only normally happen when something happens, such as when they retire or they leave, but they less commonly arise during the ordinary course of active membership of a scheme,” he adds.
Last year saw 65 cases where advice was in question. So are there particular issues corporate intermediaries should take on board? “Probably what is included in these numbers is for the most part information by schemes and whether it is actual advice or whether it will be on the margins of advice or information.”
And how often do intermediaries end up respondents before the Pensions Ombudsman. “It is quite common for the employee benefit consultants to do so, but often in their role as third-party administrator,” says King.
“We often get cases where people allege that they were told to join this scheme or not join that scheme. Whether those complaints succeed is another case entirely. I guess there are a fair number of those will be complained that were not upheld. We have had a lot of complaints around the margins of switches transfers from DB to DC and whether they should transfer or not,” he says.
So are these complaints generally around whether critical yields were realistically achievable or not? “We do get that, but it’s more often to do with people saying they have transferred and they claim that in some conversation with the HR manager they said it is easier if you shift it from A to B,” says King.
“I did spend some time at the FOS dealing with the residue of the pensions review and mis-selling related complaints so I’m pretty familiar with that area of transfers. I cannot say that I am seeing a lot of similar complaints in relation to DB transfers arriving on my desk,” he says. “I suspect that the industry is pretty wise to the mistakes of the 1980s and is not making them again. The complaints aren’t coming through. That suggests either dodgy advice isn’t being given or it hasn’t been discovered yet or it is couched with caveats in such a way that there is no cause for complaint. If lessons weren’t learnt from the pension review then people have short memories.”
And what are the differences between the FOS and the Pensions Ombudsman? “I spent nine years in this office and then four there and then came back here again. There is a huge amount of difference between an organisation that employs 37 people and one that has fluctuated between 600 and over 1,000 staff. But there are also significant differences not just in our jurisdiction but our powers and the consequences that has for the way that we work.
“Specifically the decisions of the FOS are not binding on the consumer, so the consumer can still go to court whereas in my case a formal determination is binding on both parties, subject to an appeal on a point of law. In parallel with that of the FOS has a limit on the amount of its awards, of £100,000, and we do not.”
The PPF and Financial Assistance Scheme also fall under King’s jurisdiction. So have there been any reviewable matters referred to his office in relation to these areas? “Essentially we get employers and trustees saying that the assessment of the levy is wrong. We have had a large handful of them. None have succeeded so far,” he says.
And what have the grounds for PPF complaints been? “People argue that the Dun & Bradstreet scoring is wrong, which is something we can’t do anything about. I do not have jurisdiction to look at whether Dun & Bradstreet has done its job properly. We also get cases of people putting their information into the PPF late, but if you do so, is tough.
“As far as the PPF and FAS scheme membership are concerned, there has been nothing yet. That is bound to change eventually of course because as the membership increases there is the possibility of things going wrong. One of the possible errors is where the PPF is going to have to make a decision about how much somebody’s benefits are and they are making a decision that relate to something that happened years before and questions will arise over what was done or not done by the trustees or the employer which put fixing the benefit in some doubt.
“It may be somebody saying I was promised an augmented benefit. Here is a letter saying that. But there is actually no supporting paperwork in the trust documents. It could be as simple as that.”
King’s aim going forward is to make the Pensions Ombudsman’s office work in a more user-friendly way. “What we will do in the future is try to make what we do more simple for all parties. We have some fairly rigid rules as to how we are supposed to behave which involves sending a formal complaint out to the respondents and getting them to reply and then sending that to the complainants.
“This involves a lot of to-ing and fro-ing which is fine for circumstances that warrant it, but is quite a clunky process. This is a bit like sitting in a court and that is not what we should be doing. We should be more flexible about the way we do things and where we think there is something we should investigate, we should investigate and where we don’t, we shouldn’t, rather than doing the same thing in every case.” n
All about Tony King
School Birmingham, Bristol and Surrey
University University of Wales – degree in English, Welsh and Philosophy.
Work history Sun Life – worked in the pensions department. Worked for Minet, a pensions consultancy which was later absorbed by Aon.
Set up own consultancy.
1993-2003 Joined Pensions Ombudsman as a casework director.2003-2007 FOS – Ombudsman with lead responsibility for pensions and securities, including split caps.
Lives Highbury, London with partner.
Enjoys Long-distance walking.