We will now have a discussion on the role and functions of the Pensions Ombudsman. I welcome Mr. Paul Kenny, Ombudsman for Pensions, and Mr. Joe Timbs, director of the Office of the Pensions Ombudsman. I invite Mr. Kenny to brief members on the role and functions of his office. I draw his attention to the fact that members of the committee have absolute privilege, but this same privilege does not apply to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make jabs against a person outside the House or an official by name or in such a way as to make him or her identifiable.
Role and Functions: Discussions with Pensions Ombudsman.
Mr. Paul Kenny
I am grateful to the joint committee for this opportunity to address it on the role and functions of the Office of the Pensions Ombudsman. The office was established in April 2003, under the terms of Part XI of the Pensions Act 1990, as added by the Pensions (Amendment) Act 2002, and the statutory instruments to enable me to begin my investigation work were signed on 2 September 2003. The purpose of the office is to investigate and decide complaints and disputes concerning occupational pension schemes, that is, pension schemes sponsored by an employer, and personal retirement savings accounts, PRSAs, which were introduced in 2003. The office is a statutory position. I am independent of the Minister for Social and Family Affairs in the performance of the duties of my office and I act as an impartial adjudicator. I can investigate pension schemes in the public and the private sectors and my role has been expanded recently to include certain group schemes set up under trust for bodies comprising self-employed people.
Although I am independent of the Minister, the Department of Social and Family Affairs provides me with very valuable support, taking care of personnel, payroll and accounts payable functions, supporting my information technology and so on. I produce an annual report and my accounts are audited by the Comptroller and Auditor General. I am assisted by nine experienced and well-qualified staff who are all civil servants in the service of the State. They have authority to act on my behalf, although the final decision on any complaint, formally known as a determination, must be made by me. There is no charge to members of the public for bringing a complaint or dispute to my office.
The Pensions Ombudsman can investigate complaints made by or on behalf of an actual or potential beneficiary of an occupational pension scheme or PRSA who alleges he or she has suffered financial loss because of an act of maladministration by or on behalf of a person responsible for the management of the pension scheme or PRSA. The complaint may be against trustees, managers, employers, former employers or administrators, including PRSA providers. He can also investigate disputes of fact or law relating to an occupational pension scheme or PRSA.
What is maladministration? It is difficult to define. It can include bias, neglect, inattention, delay, incompetence, ineptitude, perversity and arbitrariness. It can cover many kinds of activities. It means administration that is poor or that has failed in some way. It can be something that was done or something that was not done, for example, if someone fails to do something they should have done, does not do it properly or does something they should not have done. It can include irregularities or mistakes in the administration process; discrimination or unfairness; failure to understand, interpret or operate properly the rules of a scheme; failure to honour the terms of a PRSA contract; unnecessary delay in making payments or giving information; abuse of power; not providing sufficient information, or not giving clear information; neglecting to obtain the proper information needed to exercise a power; and failure to get advice or ask advice of the proper person. This is not a complete list by any means, and many different kinds of action or failure can be classed as maladministration.
It is important to note, however, that just because a person does not agree with a decision that has been made by the trustees or administrators of a scheme or with an action that has been taken by them, it does not necessarily mean there has been maladministration. To make a complaint there must be good reason to believe the decision was not properly made or implemented, or that the action taken was somehow wrong or unfair. For redress to be made a financial loss must have resulted from whatever occurred. If a person has sustained a financial loss as a result of maladministration, I can award redress up to the amount of the loss of scheme benefit. I do not have power to make awards for pain and suffering, inconvenience, or legal costs which people might have incurred in the process or arguing with their scheme administrators or trustees. In spite of this, it sometimes happens in the course of resolving a dispute that some compensation will be offered by the person responsible for the problem. However, if a person has incurred substantial costs before approaching my office, his or her only means of recovering these costs may be through the courts.
Disputes of fact or law usually arise as part of a complaint of maladministration, without needing a separate investigation. Whether a complaint involves maladministration or a dispute of fact or law is for the Pensions Ombudsman to decide. For example, in one case I had to decide — as a matter of fact — whether a person had been constructively dismissed, because it impacted on her right to a preserved pension benefit if she had been constructively dismissed.
It may be that an individual is not certain whether the complaint he or she has is one that the Pensions Ombudsman can investigate. Sometimes people can be confused as to what has happened or unsure of who may be responsible for it. For example, on examination, a complaint may properly belong to the Financial Services Ombudsman, the Pensions Board or the Financial Regulator. There are memoranda of understanding in place between the bodies concerned in order that when we examine a complaint and decide that it properly belongs elsewhere, we can ensure it gets to the right place. We never say to a consumer that the complaint is not ours and to go away; they are never left high and dry. We always try to find a home for the complaint. The same is true of social welfare pension queries which we frequently receive and routinely pass on to the appropriate staff in the Department. Preliminary examination of cases which turn out to be outside our terms of reference is often time consuming because we have to get to the bottom of the problem and then decide whether we can investigate it or whether we must pass it on to somewhere else.
The Pensions Ombudsman cannot examine a complaint or dispute where court action has begun, unless the action is stayed by the court, which can only be done if the case has not gone very far, for instance, before pleadings are entered. This is a very early stage at which the court can stay the action. I can then examine the case but otherwise the action must proceed.
Disputes and complaints outside my remit include those relating to compliance with requirements of the Revenue Commissioners or the Pensions Act, or other issues concerned with the general running of a scheme. Matters of general compliance with the Pensions Act are the responsibility of the Pensions Board which is the regulatory body. The board also has certain statutory powers reserved to it under the Act, while equal treatment issues are in general the concern of the Equality Tribunal and also excluded from my jurisdiction. Although the Pensions Ombudsman cannot make findings of fact about non-compliance with the Pensions Act or the matters that come under the statutory powers of the Pensions Board, it is possible that a complaint may involve both financial loss and a failure by a person to comply with the Pensions Act. In such cases, both the board and the Pensions Ombudsman may investigate the matter.
Those entitled to bring complaints to my office include a member of a pensions scheme, any person who has been a member, any surviving dependant of a deceased member, any person claiming to be a member or a surviving dependant of a deceased member of a pension scheme or a trust retirement annuity contract which is for the self-employed group, a contributor or former contributor to a PRSA, a personal representative of a deceased member or deceased contributor or a widow or widower of a deceased member or deceased contributor. The widow or widower is entitled to complain even if she or he is not a dependant. Complaints may also be made by the personal representative, that is, the person responsible for administering the estate of a deceased member or contributor. If the person eligible to make a complaint is under 18 years, or is unable to act for himself or herself, the complaint may be made by a relative or other suitable person. Many complaints are brought by trade union officials on behalf of persons who are not able to complain for themselves.
The joint committee should be aware that time limits apply in bringing a complaint or dispute. The matter must be referred to my office within six years of the date of the act or event giving rise to the complaint or dispute or three years of the date on which the complainant was aware, or ought to have been aware, of the problem. However, I may allow a longer period for accepting a complaint if it appears that there are reasonable grounds for extending the period and that it would be just and reasonable to do so. To put these time limits in context, if the act or event complained of took place before 28 April 2003, the date of my appointment, the Pensions Ombudsman can investigate it only if it took place within six years of the date on which the Pensions (Amendment) Act 2002 was signed by the President, that is, 13 April 2002. Therefore, in that case I can look back to 13 April 1996. The Social Welfare and Pensions Bill currently before the House states that this date of six years before the date of the Pensions (Amendment) Act 2002 is being substituted by the specific date of 13 April 2002 for the sake of clarity.
There is a general requirement in the legislation that before I can accept a complaint or dispute for investigation, it must have been submitted for internal disputes resolution, IDR, within the scheme. In the private sector this means a referral to the scheme trustees or the PRSA provider as the case may be. In the public service, with some exceptions, it is an appeal to the relevant Minister or Ministers. In certain cases in the private sector I can allow the IDR process to be bypassed if I think something should be investigated but there are good reasons the IDR process is not appropriate. This is often what happens in the case of the construction sector where the complaint is against an employer who has not paid contributions to a pension scheme and the trustees have no function in adjudicating on the case as it is either fact or not. In addition, the IDR process cannot be used as a vehicle to drag out a dispute, as the Act allows three months for the pension scheme trustees, or the Ministers as appropriate, to issue a notice of determination stating what has been decided in the IDR process and what is relied upon in coming to that decision. The complainant may accept or reject this finding, as it does not bind him or her. If he or she chooses to refer it to me, I will investigate.
I have very wide powers of investigation, akin to those of a High Court judge in the taking of evidence under oath. I can require any person to provide me with whatever information or documents I require for an investigation. My final determination is binding on all parties, subject only to appeal to the High Court. Enforcement, if necessary, is through the Circuit Court.
Although I make determinations, it is a fact that a great many disputes are actually resolved through mediation between my office, the complainant and the scheme administrators. I regard this as a more satisfactory outcome generally, as it is usually a speedier process and opposing positions do not become entrenched. Usually when I make a determination, one side or the other will be dissatisfied, whereas when the solution is mediated, there is at least an element of agreement about the case. Approximately 55% to 60% of decided cases go in favour of the complainant. Only a handful of determined cases have been appealed; to date, none successfully. Quite a few complaints are solved by the IDR process and not proceeded with.
Since the office opened in 2003, I have received 1,796 complaints to the end of 2007 and the trend is very much towards an increasing workload each year. For example, in my first full year of operation, 2004, I received 297 cases, whereas last year the number was 515, an increase of more than 70%. There have been steady increases in the numbers received every year. This is partly due to our own success in publicising the office and reminding people of the service that we provide and partly due to the fact that pension schemes generally are going through difficult times, whether in terms of the solvency of defined benefit schemes or the poor investment performance being experienced by schemes generally. Interestingly, about 45% of all complaints are from areas of the public sector, where those pressures are largely absent.
I am pleased to say that while we had some staffing problems in the past two years, these have now been overcome. We closed 584 files in 2007, an increase of 90% on the figure for the previous year. At the end of 2007 we had 354 cases in hand. As well as conducting our investigations, we took nearly 3,600 calls for information through the main switchboard. There were also over 263,000 hits on our website in 2007.
There was a significant addition to the administrative support for my work at the beginning of last month when our new electronic case management system went live. All cases dealt with by the office are now logged and tracked electronically. This will speed up the administrative side of the operation and allow us to more accurately than previously track trends and details of the sources and nature of complaints. I am happy to report the system was delivered on time and within budget.
It is difficult to quantify the amounts paid to complainants and their dependants as a result of our operations. The resolution of a complaint can involve anything from a simple apology offered and accepted to the award of many thousands of euro. One area we have measured is the construction sector, the source of our biggest number of complaints. Since 2003 I have caused more than €1 million in unpaid contributions to be paid to the construction workers' pension scheme, in amounts ranging from as little as €40 to as much as €18,000 for one individual. I have awarded more than €600,000 in mortality benefits to the dependants of deceased workers.
The total cost of the office in 2007 was just over €1 million, although this figure would have been higher but for the fact that we did not have our full staff complement in place until early December. This represents good value for money. As members of the committee will appreciate, pensions law can be particularly complex and it takes time for staff to become familiar with its intricacies. However, I am satisfied that my office is well placed to offer a high quality service to the public. I have taken the liberty to provide members of the committee with an information pack on the workings of my office. I thank the committee for the opportunity to make this presentation and I will be very pleased to take any questions which the Chairman or members may have.
I welcome Mr. Kenny and his colleagues. I look forward to working and having contact with him in the coming years. I take it that where specific issues arise for the committee in respect of pensions, Mr. Kenny will be available to assist and advise us.
Mr. Paul Kenny
Yes, when specific issues arose with the previous committee, the then Chairman asked me to come to address it on issues that had been brought to its attention by members of the public and where clarification or a technical explanation may have been appropriate.
I thank Mr. Kenny. Does the Pensions Ombudsman have a role in respect of providing advice on pensions policy? I am concerned about the dependence on a tax-based pensions scheme. Does the Pensions Ombudsman have a policy role in making recommendations? How many staff does the office have and what specialist expertise do they have? Does the Pensions Ombudsman have a role in advising or training trustees of pension funds? Such trustees are often unsure of what their role should be and are not necessarily equipped to fulfil that role.
Mr. Paul Kenny
Those are good questions. I have no specific role under the Pensions Act in advising anybody on policy issues. However, I have taken on the role to a degree because one of the products of the office, based on the complaints made to it, is that we identify structural defects — things that could be done better, are badly designed, improperly aimed and so on. I make it my business to bring these issues to the attention of those dealing with pensions policy in the Department of Social and Family Affairs. It is one of the reasons there tends to be tweaks of the Pensions Act through the medium of social welfare legislation, a matter on which Deputy Enright spoke last week. There is a lot of tweaking of the Pensions Act through social welfare legislation. One of the reasons is that we identify things that go wrong and perhaps should not be allowed go wrong. I can give feedback in that way. I will also be making a formal submission on the Green Paper on pensions as a result of the experience of my office in the past few years. In both areas I have taken on, if one likes, a role of feeding into policy. The formal role of advising on policy belongs to the Pensions Board which has a specific duty under the Pensions Act in this regard.
We have ten staff in total. Mr. Joe Timbs is director at principal officer level. I have four inspectors at assistant principal officer level, two of whom were recruited directly from the private sector and, therefore, have private sector pensions experience, which is clearly very necessary.
Are they actuaries?
Mr. Paul Kenny
No, they are not. One has some legal training, while the other is a very experienced pensions consultant of many years. I would not ask her for how many. Another assistant principal officer came to us from the Department of Education and Science and has public sector experience, while one came from the Office of the Comptroller and Auditor General. My office manager is a higher executive officer. I also have an executive officer and two clerical officers. The executive officer operates as an assistant to the four investigators. That is how the office is structured. Needless to say, I could do with more staff.
The third question the Deputy asked related to trustee training. This issue is now on the agenda again through the Social Welfare and Pensions Bill because there will be a requirement for trustees to undergo training. It is the first time there has been a formal requirement of that nature. I do not have a formal role in that regard. I have certainly assisted in the training of trustees, both in my past life and occasionally when I have been requested to do so in my present existence, because sometimes those running training courses, many of which are sponsored by the Irish Association of Pension Funds, for example, will ask me to undertake a module to explain what my office does to trustees and so on. I cheerfully do this because the more who know about it the better.
I misread the agenda and thought representatives of the Pensions Board were to appear before the committee and had many questions prepared for them. When do the problems Mr. Kenny mentioned come to his door? People are probably not aware that there will be a problem until their pension payments start. Obviously, at that stage the timescale for sorting the matter out if they need the money is very limited. They need information, as they do not know how matters will work. Many do not understand what is involved until payment date. Are there areas in which the office is dealing with specific problems with specific types of pension scheme or companies? Mr. Kenny might not want to mention them in the light of what the Chairman said at the beginning about privilege but are there particular difficulties in that regard?
I am sure the Pensions Ombudsman has received correspondence, as have the Minister, the Pensions Board and others, regarding retired teachers. While the problem seems to affect nurses also, only teachers have contacted me about it. They are highlighting a problem with an information and knowledge deficit. They are of the view that providers are able to exploit this because they are selling a product to persons without expertise. Very few of us are experts in such products but Mr. Kenny obviously is. The big issue concerns the selling of additional voluntary contributions, AVCs, to public servants. I am being told by some of those involved that, effectively, it is misselling. I would like Mr. Kenny to give a broad outline. If not today, I would be happy to receive it another time.
Mr. Paul Kenny
Problems come to light at various times. Sometimes they come to light when a person is on the brink of retirement, which obviously brings a certain urgency. Sometimes they come to light because people examine the benefits statements which they are now required by law to receive. The increase in the amount of information people are entitled to receive has been very much at the heart of this. I am dealing with some difficult cases involving retired public servants in their late 80s which came about as a result of benchmarking. I will not go further into the matter. However, there are some intractable problems as a result. The position varies considerably from time to time.
I have one case in the health sector where a doctor retired in December 2006 and finally received her pension in September 2007. That is simply not right. Delays in the health service and, to an extent, the education sector have presented a big problem. One of the reasons for the delays, particularly in letting people have information on how much it would have cost to buy back benefits, was that they were atypical employees with part-time service, fixed-term contracts, etc. which until recently were not pensionable. The employment laws have changed and the people concerned are now entitled to have this service considered for pension purposes. However, no extra effort was invested in giving them the information, which allowed a large backload to build up. People waited three and four years to be told how much they had to pay to buy back service they were entitled and in some cases compelled to buy back. They were then given a bill based on that year's salary, rather than their salary of four years previously. I have put a stop to this practice and required that the information must be based on salary three months after the date on which the persons should have received it. We have sorted out that issue.
The health and education sectors were probably worst affected by that phenomenon because more people in these two areas were in anomalous part-time and fixed-term circumstances than in any other area of the public service. They have given me the greatest problems in the public service. As I mentioned, in the private sector the biggest single area is in construction and relates to the reluctance of employers to pay contributions they are supposed to pay on behalf of employees.
The reactions of administrators and so on differ widely. Some consultancy firms, for example, which administer pension schemes will deny, even if it is in black and white in front of them, that the problem is their fault, whereas others, notably insurance companies, will come out with their hands up and offer compensation quickly once they recognise that a mistake has been made.
I am well of aware of the AVC issue and realise people have difficulty in this area. It is not a black and white issue because where an additional voluntary contribution scheme operates alongside the main pension scheme, it is administered by separate trustees. Although these schemes are nominally sponsored by a Department, the usual sponsor is a trade union which introduces the scheme to allow people to make AVCs.
There are reasons people choose to make AVCs rather than availing of the purchase of added years facility available in the main scheme. Restrictions apply to the purchase of added years, for example, if one's potential service is less than nine years, one is not allowed to buy any more years. Restrictions also apply on when one can buy the added years if one wants to pay by lump sum rather than by regular instalments. In these circumstances, the lump sum must be made within two years of joining or retiring.
There are many inflexibilities in the main scheme system. If one wants to buy added years, one must buy them warts and all. For example, one may not want a spouse's pension going with one's added years but one must buy it. Sometimes AVCs are the more appropriate option owing to the inflexibilities of the main scheme. For example, if a person has earnings that are taxed but not treated for pension purposes, he or she can get an extra lump sum based on those earnings under Revenue rules. As this does not count for added years, it would not be appropriate to buy added years in such circumstances. Sometimes AVCs are the proper way to proceed.
Some of those who have had issues with the sale of AVCs and consider them to be inappropriate, misselling, etc., have tried to persuade me that Joe Soap really wanted to buy ten added years. When I look at what he has been paying, it stretches credibility because nobody will pay €4.11 per week for ten years' added pension payments. I believe some of these complaints have arisen with 20-20 vision in hindsight in the sense that people, in good faith, started to make AVCs with a particular target in mind but conditions changed during the years. Increased longevity and falling interest rates meant pensions became dearer and the original assumptions on which people had based their contributions were no longer viable or tenable. As contributions were never reviewed, those with AVCs are naturally disappointed when they come to maturity and find the target they set cannot be met. One of the areas in which I would fault the providers of AVCs is a failure to regularly review, with AVC holders, what precisely they are trying to achieve and how realistic and attainable are the targets they have set themselves.
I have no doubt that there is, from time to time and in one place or another, an element of misselling and I have reservations about some of the charges made on some of the contracts. I have referred a number of issues to the Financial Regulator because I do not believe they are fair to the consumer. By and large, if people take proper advice, they should finish up doing the right thing. Even if someone accumulates a large mass of AVCs over time, a facility has been in place since the Pensions (Amendment) Act 2002 to transfer the accumulated AVC fund to the main scheme and buy added years if he or she so wishes. Between 1996 and 2001, owing to a technicality in the Pensions Act, it would not have been possible to do this.
I thank the Pensions Ombudsman for the information provided. He stated the construction trade was a difficult area. Has he found that more difficulties arise in this sector in the Border region than in other areas? I have found this to be the case in the area of social welfare where companies have not met their commitments. I refer specifically to cross-Border contractors which employ people south of the Border.
Mr. Paul Kenny
Yes, we have had a number of complaints about cross-Border contractors employing people south of the Border. In most of the cases we have been able to recover the moneys due to the pension scheme. I have a bigger issue with those who renege on their obligations to workers. When we find them out and make a determination against them, they liquidate the company and start a new one. This practice is, I am afraid, even more prevalent than cross-Border problems. While there is a certain number of cross-Border problems, they are not significant in the greater scheme of things because many employers in the industry as a whole, apart from the big players, are non-compliant with their obligations in employment law. I welcome that more inspectors and greater enforcement of employment rights will emerge with the establishment of the National Employment Rights Agency. There is a large problem.
There is one area of the Border where we had a problem and we started to investigate and advised the builder in question that we would examine the social welfare records of the employees and the P35 returns made by the employer to the Revenue Commissioners. The employer concerned asked us to suspend the investigation, which we did, and then paid €200,000 over to the pension scheme on behalf of a number of employees, even though only one of them had complained.
Reading Deputy Enright's speech on the Social Welfare and Pensions Bill last week, I was much taken by the fact that many technical provisions arose when the Pensions Act was amended through social welfare legislation. The timing of the Social Welfare Bill means it is important to pass it quickly, which does not leave much time to consider technical amendments. We are walking a tightrope because a great many of the technical amendments have been requested by people such as me to try to make the legislation work better. We cannot anticipate every circumstance that will arise.
The Department of Social and Family Affairs and successive Ministers have been most responsive in trying to address circumstances we find on the ground — if it is broken and needs fixing, they try to fix it as quickly as possible. If we needed to wait the average of six years it has taken to get a pensions amendment Bill through, we would miss the boat with many people. It is necessary for us to try to have these technical amendments made. I realise it is hard on Deputies and Senators when they are presented with this stuff to try to absorb it in a short time but it is one of the strengths of the Pensions Act that it has been so responsive to the need to change and patch holes we find during the years.
The point I am making is that Members are not stressed out in the House dealing with the legislation and could arrange to have statements made on whatever issue they like. Issues of this importance should be the subject of dedicated legislation, rather than being dealt with in the Social Welfare Bill. I take the point that it would take six years, through no fault of the ombudsman, but from a legislative perspective. In order to not only make it easier for us but for the sake of clarity in legislation, it would be far better that when someone in future reads the pensions Bill he or she will also read social welfare legislation. It is not an ideal way of doing parliamentary work.
I thank Mr. Kenny and Mr. Timbs for appearing before the committee and giving a comprehensive briefing. The select committee will meet on Tuesday next, 26 February at3 p.m. to consider the Social Welfare and Pensions Bill 2008. I thank all members.
The joint committee adjourned at 4.30 p.m. until 10 a.m. on Wednesday, 5 March 2008.