Pensions Ombudsman unhappy with FOS overlap

In a hearing at the work and pensions select committee on Wednesday, Mr Arter was asked by Conservative MP Desmond Swayne to comment on concerns around the separate but overlapping jurisdictions of the Pensions Ombusdsman and the FOS. 

In response, Mr Arter pointed to the different standards used and powers held by the two bodies, with the Pensions Ombudsman necessarily 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 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

Anthony Arter, Pensions Ombudsman

The FOS, by contrast, makes decisions on a subjective “fair and reasonable” basis, and is limited in the amount of money it can award.

“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 explained. 

“They did try and merge the two back in 2013–14 but 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.”

That said, Mr Arter acknowledged the problems with overlapping jurisdictions.

Same complaint 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. She stressed that the overlap was ripe for abuse, with interested parties taking their complaints to whichever ombudsman they thought more likely to rule in their favour.

Mr Arter said that following the passage of the Financial Services and Marketing Act in 2000, which empowered the FOS to look at pension complaints, a memorandum of understanding was agreed between the two bodies clearly delineating what concerns 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.

He said the “very sensible” memorandum was undone when the FOS decided it was unable, under its rules, to uphold the distinction, with the result being a new memorandum of understanding drafted by the FOS that he eventually signed “not very happily”.

“So now you have this overlap,” Mr Arter 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. 

Responding to Mr Arter's comments, a FOS spokesperson said: “We've not seen any evidence of consumer confusion about this and dealt with over seven thousand complaints about pensions last year. The scope of our jurisdiction is a matter for HM Treasury and the Financial Conduct Aurthority.

"The explanation about what complaints we cover is quite simple, we cover complaints about FCA regulated businesses.”

Ombudsman to be ‘inundated with complaints’ post-Covid-19

Commenting on the current crisis with the coronavirus pandemic, Mr Arter told the committee he expects the Pensions Ombudsman to be “inundated” with complaints as a result, with the dire financial consequences of lockdown leading to employers and employees alike taking decisions that could end up requiring adjudication.

Responding to questions from the MPs, he said that the demands on the Pensions Ombudsman are 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 chair of the Ombudsman Association, Mr Arter said that “everyone has agreed that public sector ombudsman will be inundated with complaints as a result of Covid-19”.

“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 revealing that £5m has been lost to fraud since February.

The report found that pension scams were among the most common type of fraud, 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 is 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,” she said.

“The key thing to remember is that if something sounds too good to be true, then it probably is and you should be wary.”