Pension Ombudsman issues Annual Report

The Pensions Ombudsman has issued his annual report for 2006/07. This report is the last from the current incumbent of the office, David Laverick, who will be replaced as Ombudsman from 1 September 2007 by Tony King.

Trustees’ decision-making process
The Ombudsman notes with approval that trustees are increasingly giving reasons for their decisions (particularly in relation to applications for ill-health pensions), making procedures “fairer and more transparent”.

A number of recent determinations have also dealt with “arbitrary or capricious” decisions by trustees in relation to their discretion to decide the distribution of death benefits. The Ombudsman observes that it is often difficult to explain such decisions to those affected. Interestingly, he suggests that he would prefer for pension scheme trustees’ discretion in these circumstances to be removed altogether so that the member’s nomination form, or in its absence his will or the intestacy rules, would prevail.

Independent trustees
Another discernible theme of determinations in the past year has been discussion of the responsibility and liability of professional independent trustees. The Ombudsman’s view is that “it is wrong in principle” for those who hold themselves out as providing professional trustee services to rely on exoneration clauses under scheme rules, although in practice he has reluctantly had to apply such clauses to professional trustees.

The Ombudsman suggests that an independent trustee found by him not to have sound administrative procedures should not be regarded as meeting the requirements for that trustee’s registration as an independent trustee with the Pensions Regulator. Referring no doubt to a recent case in which he said that he would be drawing the Regulator’s attention to the failings of one trustee on the register, the Ombudsman remarks that “there appears… to be a reluctance on the part of the Pensions Regulator to use the powers available”.

The future
While distinctly lukewarm as to the impending merger of the Pensions Ombudsman’s office with the Financial Ombudsman Service (FOS), the Ombudsman wishes FOS well with obtaining resources that will “match the level of incoming pensions-related work”. As to where that level of work might come from, he reflects that the ongoing shift from defined benefit to defined contribution pension schemes may lead to many complaints as members’ actual pensions “turn out not to be as large as the pension for which they thought they had been saving”.

Please click here for the full report.