This article was published in the Summer 2002, 4 (2), edition of Irish Pensions Magazine.

What obligations do pension trustees and employers have when a member leaves service and asks about their pension benefits?

What recourse does an individual have if they make no decision about their accrued pension entitlements, or makes the wrong decision through neglect or bad advice?

What about a surviving spouse whose deceased partner has died in retirement and learns that their pension died with them? Do they have any recourse?

Under the disclosure regulations, the employee whose employment is being terminated, must be given an explanation of their rights and options (if any) as soon as practicable, and no later than two months. This includes details of the amount of their entitlement.

The information the trustees must provide varies depending upon whether the benefits are preserved, defined contribution or defined benefit. It must also be available on request to the leaver. If a transfer out option applies this must be stated and an estimate of the amount involved given and details of the accrued rights to which it relates.

Failure to furnish the information is a prosecutable offence taken by the Pensions Board and could result, on a summary conviction, of a fine of €1,890.00. Many members are unaware that they have a statutory entitlement to obtain information; even if they complain to the Board, and it successfully brings a prosecution, it will be of no personal benefit since there are no civil penalties payable to individuals.

I do not know if, in practice, trustees are failing to comply. Were that to be the case, it might help if the basic scheme information which is contained in the information which is contained in the compulsory members' booklet, stated that on leaving service the trustees must give the member details of their leaving service benefits and options. This would at least put the member on notice that they have a right to this information when they leave the job.

Apart from the Pensions Act requirements, as a matter of trust law, the member probably has a right to obtain accurate information relating to his leaving service entitlements and options. To enforce this right would be expensive as it involves taking legal advice and possibly Circuit or High Court proceedings.

A key issue is whether to leave the entitlement behind in the scheme or to transfer it to another scheme operated by a new employer or into a buy-out bond. The member will usually need to take independent professional advice. Under the legislation he can take a transfer of preserved benefit to another arrangement within two years of leaving service.

Trustees have discretion to lengthen this period, so all may not be lost if the member does nothing during the two year period, however, if the leaver still does nothing and some time later it appears that he would have been much better off had he taken a transfer to another arrangement, it will probably be too late to take any action.

But what if they go to a professional for independent advice which is patently wrong or negligent? What remedy do they have? A claim for breach of duty might possibly be taken against the wrongdoer on the basis that the adviser owed and breached a duty of care to the leaver. The quantum of loss would also need to be proved, but a successful claim is likely to be an uphill and expensive battle. The individual needs to establish the quantum of loss, which will be costly in itself, but this will help in deciding if it is worth bringing a claim and, if so, which court would have jurisdiction. These days the jurisdiction of the Circuit Court covers claims up to €100,000 and claims above that amount go to the High Court.

A first step would be proving the matter. While most of the advice may have been given orally, there may be written quotations or letters of advice. It is usually required to demonstrate that the adviser knew or ought reasonably to have known the leaver would rely on their advice. Proof of this may be problematic and costly to establish.

In most cases, it is usual to make application for pre-trial discovery, the process whereby, both sides are required to make available to the other side all their papers relating to the issues in the case except those which are privileged - i.e. those papers issuing in contemplation of litigation or in connection with taking legal advice.

Even if our leaver has a winnable case he needs to weigh up the value of the claim against the consequences of losing and thus bearing their own and the other side's costs. They may then decide not to litigate. The appointment of the Pensions Ombudsman later this year may be a very welcome prospect for our leaver.

The role of the Pensions Ombudsman will be investigative: (a) handling complaints by beneficiaries who allege financial loss arising from maladministration by scheme trustees or employers, (b) dealing with disputes of fact or law relating to an act done by or on behalf of the trustees or employer or (c) any other complaint to be prescribed by regulations. The Pensions Ombudsman's remit also covers PRSA's.

At present there is no statutory internal dispute resolution applicable to pension schemes. This is a process whereby the complainant member and the trustees formally focus on the claim and attempt to rebut/resolve it. Henceforth, such a process must be followed before a claim may be made to the Pensions Ombudsman. This is sensible as it should, in theory, filter, settle and, hopefully, reduce the numbers of complaints. At worst, it should have the effect of focusing the claimant's attention on the exact nature of the issue and facilitate gathering of back-up facts.

A major point of concern is that 'maladministration' is not defined. Nor the term defined or used in the Ombudsman Act, 1980.

In the UK there has been a lot of case law on the meaning of this word. This has evolved from the parliamentary debate in 1966 which introduced the first UK legislation on ombudsmen. Richard Crossman, then leader of the House of Commons, gave a list of examples of maladministration that became known as the 'Crossman Catalogue'. This subsequently received judicial endorsement from the Court of Appeal by Lord Denning MR. It is regarded in the UK as covering "bias, negligent inattention, delay, incompetence, ineptitude, perversity, turpitude, arbitrariness, and so on".

Interestingly, the legislation provides that where a question arises as to whether the Pensions Ombudsman has jurisdiction (i.e. is permitted) to investigate a complaint, it is up to the Ombudsman to decide this and their decision is final. (An appeal lies on a question of law to the High Court, so it is always open to a dissatisfied party to seek to overturn the Pension Ombudsman's decision on such a point).

One area of extreme concern in the the UK in recent times was the fact that their Pensions Ombudsman interpreted their role in a way that enabled the overturning of trustees' decisions - a matter usually regarded as sacrosanct.

The Irish legislation provides that the Pensions Ombudsman cannot substitute their decision for that of trustees in relation to the exercise of a discretionary power under scheme rules. Also, any direction made by the Ombudsman shall not require an amendment of the scheme rules. It is unclear if this means that their decision can override the rules if they say something contrary (a broad interpretation) or that they must fully respect the rules and cannot reach a decision which would be contrary to them on their face (a narrow interpretation). Unlike the Pensions Act generally, this is not an area where the Pensions Board has a remit to interpret the provisions of the Act and give statutory guidance by guidance notes, so we will wait to see how this is interpreted.

Claims to the new Pensions Ombudsman must be made within six years before the relevant part of the the 2002 Act becomes operative, or generally, within six years of the "bad" act giving rise to the claim. The latter can be lengthened to three years from when the complainant found out about the "bad" act or ought or have been aware of it.

Once a claim has been investigated the Pensions Ombudsman must make a determination and may give directions to resolve the dispute. They can order "such redress, including financial redress for the party concerned, as they consider appropriate, having regard to all the circumstances". Financial redress cannot exceed the actual loss of benefit under the scheme.

And what of our leaver? Could they bring a case before the Ombudsman? In the first case, where their leaving service options were not explained to them in accordance with the disclosure regulations, this would seem to be maladministration. But one presumes that matter would first be dealt with (and resolved) under the internal dispute procedure. So no investigation may arise. And can our leaver who has relied on bad advice bring their grievance to the Pensions Ombudsman? It appears not. What has happened to our leaver is that they went and took bad advice from a third party. The Pensions Ombudsman's remit is to do with the workings of the scheme itself as between the member, the trustees and the employer. A claim might possibly arise if the independent adviser had been retained by the employer/trustees to give advice, for example, in the context of a redundancy situation.

What about our surviving spouse whose deceased partner had died in retirement leaving them without a pension?

At present their position seems pretty hopeless as they appear to have no rights at all. A detailed examination of the facts is necessary. They might have a valid claim if they could somehow prove the member was told that no death in retirement survivor's pensions arose when in fact such an option did exist, and had they known would have exercised such an option. This would possibly constitute maladministration and be within the Ombudsman's remit.

It will be very interesting to see how the Pensions Ombudsman's role operates in practice. Their remit will not cover all situations and this will cause disappointment to hopeful complainants. But complainants will at least have the comfort of knowing that their claim has been examined independently and at no cost to them.

For further information please contact Fiona Thornton.