Pensions Ombudsman wields greater power for the people

The second Pensions Ombudsman, Dr Julian Farrand QC, will soon have the similar powers to a High Court judge. His jurisdiction will be extended by the Pensions Act 1995 to include complaints by trustees against employers and vice versa, and to complaints between two groups of trustees.

The ombudsman will, like a judge, be able to compel the production of documents and make witnesses give evidence. There is no monetary limit on the awards he can make, and they are binding on trustees and employers. His authority is therefore much greater than that of most ombudsmen.

The Pensions Obudsman's remit covers maladministration as well as disputes of fact or law, so his jurisdiction is wider than that a judge's. He must investigate decisions within three years, unless it was not possible to make the complaint in that time. His decisions can only be appealed on a point of law.

Farrand was appointed ombudsman on Michael Platt's retirement in September 1994. He has said that his primary task is to investigate complaints of maladministration.

In the words of Lord Denning, this includes bias, negligent inattention, incompetence, delay, inaptitude, perversity, turpitude and arbitrariness. The list is open ended. It covers the manner in which a decision is reached but excludes its merits.

It follows from Farrand's interpretation that a decision, properly exercised, which a complainant dislikes but where the manner in which it was taken cannot be faulted, is excluded from the his remit.

Recent decisions complete the picture of Farrand's role. The Equal Treatment Regulations, for example, do not curtail his ability to deal with complaints from part-timers denied access to their pension scheme. As a result the ombudsman has said that he will be prepared to treat the exclusion as maladministration.

At present Farrand cannot extend the three-year time limit for investigation of cases involving part-timers. But so long as the complaint is brought within three years, he can order retrospective admission of part-timers to their pension scheme for the previous three years. These are wider limits than those provided under regulations for complaints to an industrial tribunal.

In a number of cases involving benefit quotations, trustees have been held to be bound by quotations which were higher than provided by the rules. Where a member of the trust has acted to their detriment by relying on such a quotation, the quoted benefit will be upheld. This is settled law. But in some cases the detriment to the member or their reliance has not been obvious. The ombudsman seems to take the view that the member should be assumed to have suffered injustice.

Farrand also regularly makes orders directing trustees to pay compensation for distress caused by maladministration. The sums awarded range from £50 to £3,000.

The High Court has now made two conflicting rulings about this. In the first case Justice Carnwath ruled that the ombudsman does not have the power to make such orders. The reasoning given for the judgment stated that since courts do not have such powers, there is no reason why the ombudsman should.

In the second case, decided on 22 February, Justice Robert Walker, in an appeal brought by Westminster Council, held that the ombudsman was within his powers to order trustees to make distress payments irrespective of financial loss. The uncertainty created by these two decisions must be resolved as soon as possible.

In general, maladministration is confined to a small minority of schemes, and it is only right that the law should provide an effective remedy and bring trustees to book.

Before the office of Pensions Ombudsman was created, it was almost impossible for an individual member of a pension scheme to obtain redress from his employer or trustees. Legal aid is difficult to get in cases of breach of trust.

The moral is clear. Trustees must follow the correct procedures and be able to prove they have. Honest and careful trustees have nothing to fear.