With complaints against pension schemes on the rise, trustees need to ensure that their dispute resolution procedures and member communications are well oiled in order to avoid falling foul of the Ombudsman, finds Marek Handzel

It has often been said that the British are no good at complaining.

This reluctance to air grievances in public is thought to be one of the reasons why customer service is so much better in the United States, for example, than it is here.

But the stoic spirit of some of the people of these isles has been tested to the limit by perceived injustices handed to them by their pension scheme providers.

Back in March this year, the Pensions Ombudsman revealed that its investigations into scheme behaviour had increased by 7 per cent from the previous year, revealing a growing number of disgruntled members who are prepared to fight for every penny of their retirement benefits.

And as SJ Berwin partner Wyn Derbyshire points out, the 954 complaints that the Ombudsman looked into are just the tip of the iceberg. So why the increase in complaints?

“I’m only guessing as to why there’s been a rise,” says Derbyshire, “but my suspicion is that whenever people fall on difficult times, then we reach a more aggressive, litigious environment.”

Throw in scheme restructuring and changes to benefit calculations in the past couple of years, including the switch by many schemes to using the Consumer Prices Index (CPI) to calculate inflation rates, and the mix of angry or confused scheme members becomes a potent one.

Stephenson Harwood partner Fraser Sparks suggests that members nowadays also have a better understanding of their options if they believe they have been hard done by.

“Instead of being disgruntled and then walking away, they’re more inclined to make a complaint through the scheme’s internal dispute resolution procedure,” says Sparks. “And if they don’t get the right answer (as the member sees it), then to take it to the Ombudsman.

“It’s easy for them to do that and it doesn’t cost them anything. They just need to write a letter. Most of the work is done by the scheme and the trustees’ advisers in setting out their full defence to the members’ complaints.”

Recurring themes
Although the volume of complaints has risen, their nature, in the main, has not.

According to the Ombudsman’s annual report, entitlement to an ill-health pension remained the most common grievance levelled at schemes, followed by benefit miscalculations and early retirement arrangements.

This tallies with the experience of scheme advisers who deal with many of the complaints that never reach the Ombudsman. The reason that complaints arise from ill health cases or death benefits, says DLA Piper partner Matthew Swynnerton, is that they involve the use of trustees’ discretion.

“With death benefits, trustees have discretion as to who they pay the lump sum death benefit to, choosing from a list of beneficiaries. With ill health cases, the trustees’ medical advice may not reach the same conclusion as that received by the member. These cases can leave members aggrieved and are quite often a problem,” he says.

One growing area is the amount of members claiming early retirement, says Derbyshire, only to find that what they thought they were entitled to is sadly less than the benefits that they will actually receive.

“Often this comes down to either administration, or interpretation of trustee rules and regulations. But most pension professionals are good at what they do so sometimes [complaints arise] from a misunderstanding of the facts,” he says.

“And although things are much better than they were say 30 years ago when computers were relatively rare, with the amount of people receiving or potentially receiving pensions being huge, it’s not surprising that errors of this nature occasionally occur.”

A strain on resources?
The pressure that complaints can place on a trustee board depend of course on the type and number of issues that they are dealing with. With schemes having to keep an internal dispute resolution procedure (IDRP) in place as a legal requirement, many trustees can avoid dealing with the majority of grievances if they employ a two-stage IDRP, as this filters out those complaints that usually occur due to a misunderstanding on the part of a member. In these circumstances, a pensions manager or the secretary to the trustees can deal with the matter.

Things can get more taxing however, for smaller schemes who rarely have to deal with an irate member, or where there is a spike in the frequency and complexity of complaints.

“We are advising a client at the moment who is dealing with five separate complaints about the same complicated issue. The scheme has to respond to each member individually but the issues are all framed slightly differently; there’s quite a bit of work that is needed in responding to them,” says Swynnerton.

The Pensions Regulator (TPR) has made it clear that four months is a reasonable period within which to respond to a grievance, but some schemes give themselves a smaller window within which to reply, which can cause problems if a number of complaints reach the second stage of an IDRP.

“Stage two of the process involves a trustee meeting being convened and trustee boards who meet very regularly every month are in the minority. Usually it’s more quarterly, so convening a meeting to deal with it can be a strain,” adds Swynnerton.

Smooth talk
There are steps that can be taken to alleviate some of this potential extra work however.

One of those, says Sparks, is to improve the initial handling of complaints.

“A lot of it comes down to when the member first writes in and says ‘I’m not happy because...’ - it’s how you deal with that initial enquiry,” he argues.

“Dealing with it in a more diplomatic way and explaining the situation can be a very effective way of dealing with the situation, rather than just saying ‘tough’.

“Members are annoyed because they’re getting less money than they thought that they were going to get and if they don’t feel that their complaint is being dealt with seriously they can get annoyed with that as well,” he adds.

One reason why some schemes deliver abrupt responses is due to cost pressures on administrators, both in-house and third party. But Sparks points out that constraining a budget in this area is counter-productive.

“It costs more to look into the complaint in more detail and give a full response, but if you get more members taking the dispute to the next level, then it costs even more in the end,” he says.

Identifying a common thread of complaints and addressing the issue directly, to all members, can also work as a strong pre-emptive measure, says Sparks. Analysis of this sort also allows trustees to find and address the root cause of the problem, while keeping members informed.

“It’s about being a bit more pro-active,” he says.

Raising the ramparts
But sweet talking only gets you so far. Schemes also need to have a robust defence in place if a matter is escalated.

Referring to using discretion in ill health payments for example, Swynnerton says that case law has formulated a few rules on how trustees should exercise discretion. So by asking the right questions, adopting the correct interpretation of the rules, and arriving at a fair decision after considering all relevant factors, then trustees cannot go wrong.

“If they follow those tenets of law then they will be able to defend themselves against complaints,” he says.

As for the administrative mistakes, the same old story applies. Ensuring that administrative checks and balances are in place to stop mistakes on benefit statements; keeping clean data; and staying on top of the small print with changing rules, are all vital.

“Having robust admin and complaints procedures in place and taking the right advice will all help,” says Swynnerton.

“They may not prevent complaints from arising, but will help trustees defend themselves against them.”

Written by Marek Handzel, a freelance journalist

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