Pensions Ombudsman Anthony Arter believes the current overlap with the Financial Ombudsman Service should be addressed as it is ‘confusing and not satisfactory'.
In a hearing at the Work and Pensions select committee yesterday (June 8), Mr Arter was asked by Conservative MP Desmond Swayne to comment on concerns around the separate but overlapping jurisdictions of the Pensions Ombudsman and the Fos.
In response, Mr Arter pointed to the different standards used and powers held by the two bodies, with the Pensions Ombudsman making decisions on a judicial basis due, in part, to the potentially huge sums of money involved in its determinations, which can often amount to tens of millions of pounds.
The Fos makes decisions on a subjective “fair and reasonable” basis, and is limited in the amount of money it can award, currently to £355,000.
“To merge the two, you’d have to decide whether pensions are now going to be dealt with across the board… on a subjective basis, or you’re going to say to the Fos that everything is judicially based,” he said.
“They did try and merge the two back in 2013/14 and it failed. There was no saving and it was too complex in terms of the different jurisdiction and the different bases of the two bodies.”
Overlaps
But there are overlaps as some complaints can be decided by both bodies.
FTAdviser reported late last year on the warning made by Hazel Hobbs in a review of the Pensions Ombudsman published by the Department for Work and Pensions when she warned the overlap was ripe for abuse, with interested parties taking their complaint to whichever ombudsman they thought more likely to rule in their favour.
Mr Arter said following the passage of the Financial Services and Marketing Act in 2000, which had empowered the Fos to look at pension complaints, a memorandum of understanding was agreed between the two bodies clearly delineating what would be adjudicated on by which.
“If the complaint dealt with an administrative issue, or some problem after [the personal pension scheme] was established, then it would be dealt with by the Pensions Ombudsman. If it was to do with the marketing or the financial advice given, naturally it would be dealt with by the Fos,” he explained.
That “very sensible” memorandum was undone, Mr Arter said, when the Fos decided it was unable to uphold the distinction, with the result being a new memorandum of understanding drafted by the Fos that Mr Arter eventually signed “not very happily”.
“So now you have this overlap,” he said.
“The same complaint can be decided either on a subjective basis or on a judicial basis, and there could be a different outcome. That is very confusing and is not satisfactory.”
“I do think it’s something that should be addressed,” he added.
The Fos has been approached for comment.
“Inundated with complaints” post-Covid
Mr Arter told the committee he expects the Pensions Ombudsman to be “inundated” with complaints as a result of the Coronavirus pandemic, with the dire financial consequences of lockdown leading to employers and employees taking decisions which could end up requiring adjudication.
Mr Arter said demands on the Pensions Ombudsman were already “almost back to normal,” following a decline in the first months of the outbreak, and made clear that he expected them to increase substantially in the months ahead.
Recounting a meeting he had with other public sector ombudsmen in his capacity as chairman of the Ombudsman Association, Mr Arter said “everyone has agreed that public sector ombudsmen will be inundated with complaints as a result of Covid".
“I don’t think pensions will be any exception,” he said.
“If you look at the financial strain people are going to be suffering, and they’ve got a pot of money there in their pension scheme, the big concern is fraudsters coming in and saying ‘we can help you get that money’.”
Though noting that no increase in the number of fraud cases has yet emerged, Mr Arter nonetheless predicted it will happen within the next 12 months.
The Pensions Regulator and other watchdogs have been issuing warnings about pension scams, with a report from Action Fraud stating £5m has been lost to fraud since February.
Pension scams were among the most common type of frauds, the report found, with fraudsters tricking victims into transferring their pension pots to criminals, or into releasing funds.
Helen Morrissey, pension specialist at Royal London, noted that Mr Arter was right to be worried.
“Scammers are known to work at lightning speed and evolve their methods to exploit people’s fears. They may well take advantage of people’s concerns about a drop in their pension value or a potential loss of income to try and separate people from their pensions.
“The key thing to remember is that if something sounds too good to be true then it probably is and you should be wary.”
Benjamin Mercer is a reporter at FTAdviser's sister publication Pensions Expert
