For the vast majority of pension scheme trustees, disputes aren't an "if". They're a "when."
Human error. Computer error. A confusingly worded benefit statement. An otherwise unobjectionable scheme announcement that catches a member on a bad day. Even the best-run scheme in the world is one day going to encounter a member who raises their hand or points a finger – and they may be completely right to do so.
Schemes need to have a robust process in place for dealing with the issues that result so that when members pick up their phones and start tapping their feet, their issues can be dealt with quickly and effectively.
Here is our quick guide to dealing with member disputes.
The IDRP Process
The law requires UK pension schemes to have in place an Internal Dispute Resolution Procedure (IDRP) which governs the resolution of disputes between governing bodies and scheme beneficiaries. The law allows for a degree of flexibility in tailoring the precise content of a scheme IDRP, including whether it is a one-stage or two-stage process. The Pensions Regulator has published a code of practice which should be considered whenever an IDRP is prepared or revised.
Member disputes won't always crop up first as disputes – they might come in as a question, or an administrative issue that can be answered or fixed fairly quickly. Dealing with these informally is fine to a certain extent but should the issue escalate to a dispute between member and scheme, it's important that it be logged and dealt with formally under the IDRP.
The Investigation
Once a dispute comes in, it's time to dust off the magnifying glass and do a bit of detective work. Sherlock Holmes once advised that a detective should suit theories to facts, not facts to theories. Knee-jerk defences are to be avoided. The IDRP process requires an open mind: what do the facts say? Do the documents and testimonies available support the member's interpretation of events, or a different one? What is the legal position under the rules of the scheme?
When making a decision under the IDRP scheme, it's important to consider similar decisions made by the Pensions Ombudsman (TPO).If the member who raised the dispute isn't satisfied with the outcome of an IDRP, they have the right to appeal it to TPO. It can be helpful to keep on top of case reports, in order to bear in mind what sort of order TPO might make on the case in question. If it looks as though maladministration has occurred, and TPO would, at the end of a lengthy and involved process, order the payment of £500 of compensation, trustees may wish to consider offering that at the outset.
The Decision
Every action taken when resolving a dispute should be justifiable and consistent with prior practice. Decision makers should be comfortable that they can stand behind their decision, and ensure they are acting in a way that is unbiased and reasonable. A member might feel they have been wronged - and decision makers may often be sympathetic - but trustee fiduciary duties to act in the interests of all members and in accordance with the scheme's rules can mean that their hands are tied.
Processes and outcomes should be documented, not just for the provision of an audit trail in the event that TPO becomes involved, but for internal scheme use in ensuring a consistent approach.
The Response
Pension schemes are complicated. A member might have a query on their benefits or an obscure point of scheme rules that is not straightforward to explain – and explaining the decision to the member is a key part of the response. Members are entitled to scheme information relevant to their benefits, but for the majority of schemes the membership is not made up of pensions professionals, and a little bit of context or tailoring can go a long way.
If the member wants an explanation of the scheme rules, it should be pitched at the right level. Too much information can be as bad as too little and can lead to misunderstandings that turn into disputes.
Members also want to know that they've been heard. Every point they raise should be addressed, even if it's a simple rebuttal. A member coming away from an IDRP feeling that no one even read their complaint isn't likely to be a good outcome for anyone.
Decision makers can and should be firm in their response but shouldn't be afraid to be sympathetic. Sometimes things are no one's fault – a quirk of law or operation of scheme rules can mean that people lose out where they didn't expect to. It doesn't mean that the scheme did anything wrong, but it's still a disappointment, and in many cases, there's no harm in acknowledging that.
The Takeaway
Disputes are a when not an if – but good practice can keep the numbers down. Clear, concise, and above all accurate communication can stop many a complaint before it even reaches the trustees' desks.
When a dispute does arise, approach it with an open mind, and remember that the member doesn't want to be involved in this process either – it's in everyone's best interest for relations to remain as amicable as possible, and solutions to be found or redress given where justified and possible. If the complainant can't get what they want, then they should be told so in terms that they can understand, and the scheme can defend.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
