In this June edition of Pensions Bulletin we consider the recent changes to the requirement imposed on occupational pension schemes to have an Internal Dispute Resolution Procedure (IDRP).

9 June 2008

In this June edition of Pensions Bulletin we consider the recent changes to the requirement imposed on occupational pension schemes to have an Internal Dispute Resolution Procedure (IDRP).

An Internal Dispute Resolution Procedure (IDRP) is the procedure governing the resolution of a dispute between the beneficiary of a pension scheme (whether that person is an actual beneficiary or just a potential beneficiary) and the trustees or managers of the pension scheme. The requirement imposed on pension schemes to have an IDRP in place was first introduced by the Pensions Act 1995. Following increasing criticism that the two-stage process prescribed by the 1995 Act and Regulations under that Act was too inflexible, a Department for Work and Pensions consultation process took place and new legislation came into force on 6 April 2008. Subject to certain exemptions, all occupational schemes are still required to have an IDRP in place.

The intention behind the legislative changes is to enable schemes to simplify their IDRPs and resolve disputes with their members as efficiently as possible. Prior to these changes coming into force, an IDRP had to provide for a two-stage procedure with strict time limits, but now schemes have the option of introducing a more flexible single-stage process instead. In addition to the legislative changes, the Pensions Regulator has also laid a code of practice before Parliament to work alongside the new statutory regime. The impact of the legislative changes and the code of practice are explained below.

IDRP – the new statutory regime

  • Although a single stage IDRP process is now permitted, the decision makers must be the scheme trustees or managers.
  • If the decision in a dispute is to be made by a person other than the trustees or managers (referred to as a "specified person" in the legislation), this can only be done as part of a two-stage process with the second stage involving a decision of the trustees or managers. 
  •  Where an application for resolution of a dispute is made in terms of the IDRP, the trustees or managers must make their decision on the matter and notify the member who raised the dispute of their decision within a "reasonable period". The legislation does not define a "reasonable period" but please see comments below relating to the Regulator's code of practice for further clarification. 
  •  The legislation is flexible regarding the precise content of a scheme's IDRP and content can largely be determined by the trustees or managers of a scheme. 
  • Schemes can keep their existing two-stage IDRP if they wish, but any scheme wishing to do this should seek legal advice on the content to ensure continuing compliance in line with the new regime.

Code of Practice (Dispute resolution – reasonable periods)
Although the Regulator's Dispute Resolution Code of Practice will be an important point of reference for all pension scheme trustees and managers, it is important to bear in mind that codes of practice are not statements of the law and that there is no penalty for non-compliance. The Dispute Resolution Code of Practice does, however, provide an extremely useful indication of the Regulator's expectations of what is meant by the reasonable periods referred to in the IDRP legislation. Key points to emerge are as follows:

  • The Regulator expects a decision on a complaint raised under the IDRP to be made within four months of the application being received.
  • It is also expected that the applicant should be notified of a decision no later than 15 working days after the decision has been made.
  • Trustees or managers will be permitted, if they choose to do so, to adopt a procedure with shorter time limits than those anticipated by the Regulator or to continue to use a two-stage IDRP compliant with the stricter time limits under the previous regime.
  • Although the Regulator has an expectation that decisions should be made within four months and applicants notified within 15 working days of the decision, the Regulator appears to acknowledge that there should be a certain amount of flexibility built into the system. Where, in straightforward cases, it is possible for a decision to be made in far less than four months for example, the Regulator does not expect the trustees or managers to wait until the end of the reasonable period to respond to the applicant. Equally, it is also acknowledged that certain disputes may be unusually complex, in which case it may not be possible to make a decision and respond to the applicant within the recommended time.
  • Whilst bearing in mind that some flexibility is permitted, it is important that trustees or managers are confident that the time taken to reach a decision under the IDRP is appropriate to the particular circumstances of a dispute and that, if the Regulator queries the time taken, they are able to show the time taken was appropriate.

We shall be happy to review your scheme's IDRP, either with a view to preparing a more flexible single-stage IDRP or alternatively (if you wish to maintain your two-stage IDRP) simply to review your existing two-stage process to ensure compliance with the new regime.