Streamlining how disputes are dealt with

29 / 09 / 2017

As the legal adviser to many trustee boards and many employer bodies alike we see it as part of our job to help keep our clients away from complaints and litigation.  However, as illustrated by some of the other articles in this edition of Pensions Compass, some complaints cannot be easily resolved, leading to Pensions Ombudsman applications and sometimes court hearings.

The Pensions Ombudsman will only consider a complaint once the scheme’s IDRP has been completed and The Pensions Advisory Service (“TPAS”) has had the opportunity to comment.

As Clive mentions in this edition’s Ready Reckoner, a plan is afoot for the merger of TPAS, Pension Wise and the Money Advice Service.  As part of these changes it has been suggested that the Pensions Ombudsman should take on TPAS’s role in dispute resolution.  Anthony Arter (the current Pensions Ombudsman) has said:

“We are collaborating with TPAS on a project to centralise dispute resolution within TPO aimed at improving the customer experience and avoiding duplication of services,”

In its annual report published last month, the Pensions Ombudsman confirmed that enquiries had increased by 22% over the 2016/17 year with transfer complaints doubling to 11% of all complaints.  Perhaps the Pensions Ombudsman believes it can reduce the number of applications if it can get involved at an early stage.

But what can schemes do to reduce the risk of involvement with the pensions Ombudsman once a dispute has arisen?  – Careful management of its Internal Dispute Resolution Procedure (“IDRP“) process is key.  Good handling of a complaint can help to nip it in the bud and avoid complaints being escalated which can be costly, time consuming and damaging to reputations.  As can be seen in Justin’s article in this month’s Pensions Compass, a badly handled IDRP can be expensive if escalated to the Pensions Ombudsman (and beyond)!

What is an IDRP?

An IDRP is a formal, written, procedure which is adopted by the trustees of a scheme to facilitate the prompt and smooth resolution of problems between schemes and members/potential beneficiaries.  The ultimate goal being to reduce the number of applications made to the Ombudsman.

Historically IDRPs had to involve two stages, the law changed in 2008 to offer a simpler alternative in the form of a single-stage approach.

Who can use it?

In order to be allowed to bring an application under a scheme’s IDRP you must be a “person with an interest in the scheme”. This is a person who:

  • is a member of the scheme.
  • is a widow, widower, surviving civil partner or surviving dependant of a deceased member of the scheme.
  • is a surviving non-dependant beneficiary of a deceased member of the scheme. A non-dependant beneficiary is a person who, on the death of the member, is entitled to the payment of benefits under the scheme.
  • is a prospective member of the scheme. A person is a prospective member if, under the terms of his contract of service or the rules of the scheme, he:
    • can choose to become a member of the scheme;
    • will become a member if he continues in the same employment for a sufficiently long period;
    • will be admitted to the scheme automatically unless he makes an election not to become a member; or
    • may be admitted to the scheme subject to employer consent.
  • has ceased to be in one of the categories above, or
  • claims to be in one of the above categories and the dispute relates to whether he is such a person.

Who makes the decision under an IDRP application?

One-stage IDRPs: the trustees or managers of the scheme must make the decision.

Two-stage IDRPs: the first stage can be decided by anyone nominated by the trustees or managers of the scheme, the second stage must be decided by the trustees or managers of the scheme themselves.

What timescales should be adhered to?

The legislation permits Trustees to set time limits for making IDRP applications.  Whilst this may, at a cursory glance, appear to leave the system open to abuse, a trustee board who sets an inappropriately short time limit would only leave itself open to an increased risk of complaints being taken straight to the Ombudsman and/or the courts.  It is therefore within the interests of the trustees to ensure any time limits they decide to impose correlate with the limits which would apply to complaints being taken to the Ombudsman and the time limits set out in the Limitation Act which prescribe the time limits which apply in relation to court proceedings.

Once an IDRP application has been received the Regulator sets out, in its Code of Conduct, the timescales in which it expects trustees to respond.  Four months is the magical timescale here.  If the trustees operate a single-stage IDRP they should reply within four months, where a two-stage IDRP is used, each stage should be decided on within four months.

Applicants should then be informed of the IDRP decision “usually no later than 15 working days after the decision has been made”.

Recap:  Whilst we feel optimistic that the proposed reshuffle of how disputes are dealt with between TPAS and the Pensions Ombudsman may help reduce the number of applications which are made to the Pensions Ombudsman, it is vital that Trustees review their IDRP to ensure it remains relevant and gives them sufficient time and opportunity to resolve disputes in a cost efficient manner and avoiding reputational damage.