Ombudsman Anthony Arter outlines the challenges his organisation faces in a DC world

Anthony Arter will be speaking at DC Insight on 26th October. Click here for more information.

Anthony Arter

The volume of complaints handled by the Pensions Ombudsman has increased alarmingly in recent years, and the trend shows no sign of slowing. The number of enquiries fielded by the watchdog each year has almost doubled since 2012/13 and is expected to grow by a further 15% next year. 

New cases were up 6% this year while the ombudsman completed 1,308 investigations – a 35% increase on the previous 12 months. 

There has also been a marked shift in the type of complaints handled. The most obvious change over the last two years has been the rising prominence of pension liberation, which accounted for one in five cases closed last year.

Shifting landscape

But the wider trend reflects the changing pensions landscape, with the proportion of complaints that relate to DC schemes growing year on year. 

When you think of the millions and millions enrolling, it isn’t difficult to work out that the number of complaints is going to go up

Pensions ombudsman Anthony Arter says: “The actual breakdown between DB arrangements and DC arrangements is currently 54% DB complaints to 46% DC, but the balance will change as auto-enrolment takes hold with micro companies.” 

“When you think of the millions and millions enrolling, it isn’t difficult to work out that the number of complaints is going to go up.” 

Weak link

This is despite the fact that DC schemes are more straightforward than most DB set ups. “DC is certainly less complicated but you still have issues like charging,” says Arter. “And you will always have problems with administration because in most schemes there has been a weakness there over the years.” 

They have been very keen to get things right – there is no doubt about that

But Arter is impressed by the efforts the biggest auto-enrolment providers – who will scoop up the vast majority of business from smaller firms – have made to minimise complaints. 

“They have been very keen to get things right – there is no doubt about that,” he says. “To get their administration right, to make sure their service delivery and customer service is right. It is the smaller ones that there are concerns over.” 

Employer gripes

The ombudsman believes many complaints relating to auto-enrolment will actually come against employers rather than pension schemes. He is concerned that small businesses with one or two employees will come to informal arrangements with staff to get around auto-enrolment requirements. These cases could land on his desk if the employee later feels duped or the relationship with their boss sours. 

The ombudsman backed the firm, but ordered it to repay the contributions and an extra £500

Employers could also find themselves the subject of complaints if they do not communicate auto-enrolment properly. One case investigated last year concerned a worker who had complained when his employer deducted his auto-enrolment contributions from a pension allowance he had been granted in place of contributions (see below). The ombudsman backed the firm’s right to do this, but ordered it to repay the contributions and an extra £500 for not explaining the impact of auto-enrolment to the complainant. 

Freedom and choice

The shake up of DC at-retirement choices delivered in the 2014 Budget is also likely to see an increase in complaints. Most of them will relate to the financial advice members received, however, meaning they fall under the remit of the Financial Ombudsman Services rather than the Pensions Ombudsman. 

“But it is an interesting area,” says Arter. “People might complain that the providers of their scheme didn’t give them the right projections and that would come under administration, so it falls between the two organisations.” 

I would expect workplace pensions to be dealt with by one entity, very clearly

So the two ombudsmen are in conversation about how they will work together, and Arter is in talks with the FCA about a memorandum of understanding to clarify his organisation’s remit. The talks are at an early stage, but Arter says it is vital that his office is the one to deal with complaints about occupational schemes. 

“I would expect workplace pensions to be dealt with by one entity, very clearly,” he says. “From the pensions industry’s, employer’s and public’s point of view, that makes it very clear. 

“If it’s a workplace pension, or concerning auto-enrolment, that should be the Pensions Ombudsman. We are the arm’s length body for the Department for Work and Pensions, which has responsibility for auto-enrolment and workplace pensions.” 

Anthony Arter will be speaking at DC Insight on 26th October. Click here for more information.

Case study: Auto-enrolment complaint 

Mr B complained that his employer had unfairly reduced his monthly salary by taking its 1% mandatory auto-enrolment contribution from an existing 15% “pension allowance” which was being paid as a salary enhancement. 

The ombudsman decided it was clear from Mr B’s contract of employment, both before and after a TUPE transfer, that the 15% had always been paid in lieu of an employer pension contribution and could be taken in full as cash, paid into a pension or a combination of the two. 

The fact that Mr B had chosen to receive the full sum in cash, and had not allocated it towards pension provision, did not mean that the employer then had to make an additional pension contribution as a result of the auto-enrolment legislation. 

However the employer had failed to explain the effect of auto-enrolment on Mr B’s unusual contractual position which was that the 1% employer contribution would be deducted from the 15% salary enhancement. 

Mr B should have been offered the alternative of opting out of auto-enrolment to continue receiving the full 15% as cash. 

The ombudsman also decided that these options did not constitute “undue coercion” away from being automatically enrolled under the relevant legislation. 

The ombudsman directed the current employer to offer Mr B the choice outlined above and if Mr B chose to opt out of the scheme, to reimburse him the 1% payments, with interest.

The employer was also required to pay him £500 for the distress and inconvenience caused by its maladministration.