Murphy Lives On - some observations on complaint handling

1. Murphy Lives On - some observations on complaint handling Paul KennyThe Pensions Ombudsman

2. When a complaint is made…. • Does the Complaint handler…. • Lend a sympathetic ear? • Attack the complainant? • Reach for their Lawyer? • Call in the PI Brigade? • Actually look for the facts? • Agree that he has a case? • Apologise? • Refer the complainant to IDR?

3. No Standard Response to complaints • Responses vary according to the “complainee” • Insurance companies are generally good – positive response, quick to acknowledge failures • Intermediaries vary • Trustees and Employers sometimes hide behind each other

4. And the Complainant • Some people are their own worst enemies • The nit-picker • When he cries “wolf”, nobody listens any more • The Chip on the Shoulder • Not again! • The Worrier • But it might happen…. …to name but a few

5. Pitfalls • Don’t be tempted to batten down the hatches and hope he’ll go away – he won’t • Don’t treat complainants as dangerous lunatics • Do acknowledge the complaint and treat it seriously • Do try to deal with it as quickly as possible

6. Remember • Most people who complain really do feel aggrieved • Many feel they have a strong case • They may not be correct but should be handled with respect • Even habitual complainers • Real “chancers” are rare enough

7. An apology? • Remember that sometimes an apology is enough (“it’s the principle…”) • Complainants need to feel they are being listened to • Failure of the scheme /administrator /trustee to reply will escalate the problem • People who feel they are not taken seriously feel aggrieved • And complain to me

8. One Little Word • A missing word – a missing clause • “… because….” • Many complaints could be avoided by giving an adequate – or a clear – explanation of the reasons for trustees’ or employers’ actions

9. More confusion and more complaints result from poor communication than from almost any other single factor. When a complaint arises, keep the lines of communication open

10. Compliance with Disclosure Requirements • Most schemes are generally compliant, though there are always some problems • The requirements are straightforward (if potentially expensive) • Meeting them can be a problem! • Because of the weight of regulation, temptation is to tick boxes without regard for clarity of the message

11. Perils of Communication • “You should keep this booklet in a safe place for future reference……” • That’s all they ever do • The Golden Rule of Pension Communication: Nobody Ever reads thesmallprint

12. Public Service Schemes • Generally suffer from poor communication • Worse as you get further from the centre • Circulars often incomprehensible – but very accurate! • Incomplete information, e.g., contributions to be repaid

13. Problems I shouldn’t have…. • Some “complaints” can be disposed of quickly • I should not have to write to a complainant explaining the true meaning of a “communication” from scheme trustees • But it is the quickest way of closing the matter down

14. Problems I can’t solve • Refusal of Early Retirement • Decisions to discontinue/ wind up • Conflict between scheme rules and employment contracts • (if the latter exist at all) • Shortcomings in scheme design, if the trustees have kept the Rules

15. Design Flaws • Sometimes it’s not the administration of the scheme at all, but problems arising from the basic design of the scheme. • I can do nothing about bad design - though there have been some ex-gratia offers to complainants, where it is clear that the problem should have been foreseen

16. Frequent complaints (design flaws) • Integration and the way it is applied • When pay doesn’t exceed State Pension increases, FPS goes down, but historic contributions were on higher rates • Pay based on basic, benefits on pensionable • Final Pay • e.g., three-year average for computing benefits but contributions based on annual pay not averaged • Contributing for more than 40 years – is there an equitable solution?

17. Some Pitfalls of design – DB examples • Lack of flexibility – e.g., in death in service or retirement • Can we divert to non-spouse or same-sex dependant? Not in the public sector –ever • Must they have been married before retirement? • Cesser of benefits on remarriage/ cohabitation? • Have they even thought about separation and divorce? • Did the actuary assume people would commute benefits? • It may not happen now… • Members contribute for more than 40 years • And complain bitterly

18. DB Pitfalls, continued • Unqualified statements – e.g., right to retire early • Consent of employer, trustees? • If no consent required, are benefits in danger? • S59G power helps, but only since 2005 • Late retirement: increases in deferment – may not apply to AVCs or other DC component

19. Some Pitfalls of design – DC examples • Same contribution regardless of age at entry or point of change of scheme • Employees may bear all expenses • regulation now very expensive • Risk “First Charge” on contributions • Depletion of the fund • Risk of inadequate benefits • Results won’t be known for years • Risks of poor communication

20. Risk as a First Charge • Schemes where risk is a first charge against small DC contributions can be a problem • Members don’t understand (and are rarely told) that increasing risk premiums may wipe out the contribution in due course- and then begin to eat up the accumulated fund • Salary increases will speed up the process • Accumulating fund not set off against risk benefit • Some intermediaries don’t understand this problem either!

21. Target benefit - the risks • How was the target communicated? • Is it clear that the scheme is not a DB scheme any more? • Is member still in DB mode? • Did the scheme just continue the same contribution rate? • Won’t buy the same benefit, but member thinks it will

22. Some Pitfalls of design – Target Benefit • Is it clear that we have changed from DB to “target” – and that “target” means DC? • What are expectations now? • Do they understand what DC means? • Are we clear about reviewing contributions? • Timing/frequency of reviews • Have we kept the promise to review? - In other words, how well have we communicated?

23. The Challenge of the Hybrids • Hybrid schemes present new challenges to good communication • Most consist of DB and DC elements • -within the one scheme • There is no scope for shortcuts • Effective communication may cost more, but it’s less expensive in the long run!

24. And finally…. • It is possible that there is too much regulation • What’s not needed is more of it • What is needed is compliance with and enforcement of what is there already - And don’t forget the Green Paper!