The High Court has allowed a member’s appeal against an award of £500 by the Deputy Pensions Ombudsman (DPO) for non-financial loss caused by maladministration, holding that in the circumstances, the DPO's award resulted from an error of fact and/or principle.
The Court decided that in setting the award at £500, the DPO had concluded that there was only one instance of maladministration when the evidence showed a chain of inaccurate pension estimates and summaries each overlooking a key aspect of the member's entitlement, and each constituting maladministration. The number of instances was material to the likely level of distress.
A second ground of appeal, that the DPO was wrong in law in finding that the maladministration had not caused financial loss, was rejected.
What is non-financial injustice?
According to the PO’s guidance, non-financial injustice is:
- ‘inconvenience’ or ‘time & trouble’ or ‘time and bother’ suffered by an applicant. That is the time and effort spent by an applicant in relation to the maladministration and in having to pursue their complaint, including needing to go through a complaints process where the maladministration was both avoidable and identifiable at an earlier stage; and/or
- ‘distress’, for example, concern, anxiety, anger, disappointment, embarrassment or loss of expectation that an applicant may experience. Distress can vary from mild irritation to (exceptionally) anxiety that requires medical treatment.
The non-financial injustice suffered must be caused directly by the maladministration.
The power of the Pensions Ombudsman (PO) to make awards for distress and inconvenience has been accepted by the Courts. There is no statutory cash limit on the compensation the PO can award, although the PO’s own guidance (published in June 2015) notes that the usual starting point for awards for non-financial injustice would be £500 and that in most cases, redress was likely to range from £500 to £1,000.
In Swansea City Council v Johnson , Hart LJ held that the proper level of an award for distress was a matter of law and that, in the absence of exceptional circumstances, such awards should not exceed £1,000. However, in Baugniet v Capita Employee Benefits Ltd (t/a Teachers' Pensions) and another , the judge commented that the upper limit of £1,000 for maladministration falling short of exceptional was “out of touch with the value of money” and urged the PO to rebase the upper limit at £1,600 (the present sterling equivalent of £1,000 in 1998).
Awards for financial loss in excess of £500 continue to be rare, but there have been higher awards in certain cases since Swansea, for instance:
- Lambden - in February 2011, the PO made an award of £5,000 for distress and inconvenience held to be caused by overstating the number of years of a member's service and communicating the mistake insensitively. This was seen as “highly exceptional” compensation for distress;
- Payne – in May 2013, the DPO made an unusually high award of £2,500 for distress and inconvenience relating to the scale of difference between accurate and inaccurate pension illustrations supplied to the member, which she said was “critical” to his decision to take voluntary redundancy;
- Tuttle – in September 2013, an award of £1,000 was made by the DPO in a similar situation relating to a wrongly unreduced benefits quotation for early retirement; and
- Hudspith – in August 2014, the DPO also awarded £1,000 as a result of a flawed decision-making process relating to an ill-health early retirement application, which included two rounds of applications and three rounds of internal dispute resolution procedures.
Mrs Smith was a member of the NHS Pension Scheme, employed by Sheffield Teaching Hospital (Sheffield Teaching) as a part-time healthcare support worker. This role qualified her for “special class status” (SCS) under the scheme which conferred an entitlement to retire at 55 on a full pension (instead of the normal pension age of 60) if certain conditions were met. These conditions included that the member must not have a break in pensionable employment of more than five years and must be in an SCS role during the five years' pensionable employment immediately before retirement. Mrs Smith combined this role with a part-time position as co-ordinator for Sheffield Children's NHS Foundation Trust (the Foundation Trust). The co-ordinator role did not confer SCS.
In November 2008, Mrs Smith was elected to a new role as Staff Side Chair at the Foundation Trust. This role did not confer SCS status but Sheffield Teaching agreed to second her from her position as healthcare support worker to the new role and to accept her back as a healthcare support worker. Her position as co-ordinator and Chair for the Foundation Trust did not qualify for SCS, but she was advised by her employer that, provided she did not have a five-year break away from Sheffield Teaching, she would retain her SCS status. This information was incorrect as it overlooked the requirement that she must spend the whole of the last five years of pensionable employment in an SCS role.
In August 2010, Mrs Smith again asked her employer about her pension entitlement. A handwritten pension estimate was produced which confirmed what her entitlement would be if she retired at age 55 with SCS status. She also asked how long she would have to be back in her “special class job” before she could apply for her pension and was informed “[t]he least time we would recommend is a week but the choice is yours as long as the five years isn't exceeded”. Again, this was incorrect as it ignored the requirement to be in an SCS role for the last five years' pensionable employment.
After 4 years and 11 months in her role as Chair and approaching her 55th birthday, Mrs Smith resigned and reverted to her SCS role as healthcare support worker. In March 2014 she was made redundant from her co-ordinator role and received a redundancy payment of £18,600. In April 2014 she went on long term sick leave from her healthcare support worker role.
She requested a pension quotation in May 2014 which was again calculated on the basis that she had SCS status with a normal retirement age of 55. She then applied for her pension. However, when it came into payment, the annual pension and lump sum were both less than the quotations she had been given. This was because she did not in fact qualify for SCS because she had not been in an SCS role for the five years immediately before retirement. Her normal pension age was therefore 60, not 55.
Mrs Smith complained to Sheffield Teaching arguing that in deciding to retire she had relied on the quotation informing her that she would receive a SCS pension from her 55th birthday. Had she been given the correct information, she submitted that she would not have retired and would have stayed in employment.
Sheffield Teaching acknowledged the distress which the incorrect information had caused and offered Mrs Smith £5,000, which she did not accept. Instead, she complained to the PO.
In February 2017, the DPO found that the advice given in August 2010 was a clear and unequivocal representation that Mrs Smith could draw her pension on SCS terms so long as she was back in her SCS role at the time she applied for it. This was incorrect and amounted to maladministration. Mrs Smith relied on this information in resigning her position as Chair in February 2014 since she believed that by doing so, she would be preserving her SCS status.
However, Mrs Smith had not demonstrated that she had suffered financial loss as a result. Had she continued in her role as Chair, she would not have received the redundancy payment. It was also likely that she would still have retired in August 2014 at age 55, since that appeared to be her long term aim. Had she retired in August 2014 from her position as Chair and co-ordinator, her pension would have in fact been lower. The DPO concluded that since Mrs Smith had received both a substantial redundancy payment and a higher pension and lump sum than would have been payable in the counterfactual scenario, she had not demonstrated that she had suffered financial loss.
The DPO awarded £500 for distress and inconvenience.
Mrs Smith appealed to the High Court on two grounds:
- that the DPO was wrong in law in finding that the maladministration had not caused financial loss; and
- that the DPO was wrong in law to award only £500 as compensation, the figure being so low as to be perverse and unreasonable.
The Court dismissed the first ground of appeal. Whilst not everyone would have reached the same conclusion as the DPO, her finding that Mrs Smith had not demonstrated that she had suffered financial loss could not be described as lacking any evidential foundation or as perverse or irrational.
The second ground of appeal was allowed. The Court was satisfied that the DPO had made an error of fact and/or principle in awarding only £500 for distress since:
- here had been more than one instance of maladministration, but the DPO had found only one instance. The evidence showed a chain of pension estimates and summaries of the position, each of which overlooked the need for five years' pensionable employment in an SCS post immediately before retirement. Each of these constituted maladministration and the number of instances of maladministration was material to the likely level of distress;
- distress at learning that the information provided over a six-year period had been inaccurate is likely to be of a different order from that occasioned by a single instance;
- Mrs Smith's distress and uncertainty was prolonged during a four-month period when those responsible for her pension debated her entitlement to a full or reduced pension; and
- the level of offer (£5,000) made by Sheffield Teaching demonstrated an employer's understanding of the level and duration of distress (though the Court accepted that it undoubtedly included other elements).
The Court held that “an award of £500 (effectively, the starting point for awards) must in these circumstances embody an error of fact and/or of principle”. It held that the award should be above the top end of the normal band (which the Court considered to be £1,600) because of the number of opportunities there were to correct the misinformation, the relative ease at which the true position could have been ascertained and the period through which the maladministration persisted.
Exercising the compensating power afresh, the court awarded Mrs Smith £2,750. The fact that she did not suffer financial loss should not reduce this award, there being “no logical connection” between the amount of the financial loss and the size of the award for distress.
This case demonstrates that the PO is sometimes prepared to award higher sums in circumstances where the member has suffered considerable distress. Although the amount awarded by the Court was less than the amount the employer had originally offered to settle the dispute, it is significantly more than the amount awarded by the DPO. It is also interesting that the judge in this case appears to have taken the upper limit of awards to be £1,600, the amount suggested by the judge in Baugniet.
The case gives an indication for schemes of the factors considered relevant when deciding where on the scale an award should fall. In this case, the repeated provision of incorrect information over an extended period of time where the true position could have been ascertained relatively easily were all key.
Nevertheless, in less severe cases, the PO will adhere to the more usual ceiling of £500, as in the case below.