Guide to Financial Redress for Maladministration
Ex gratia - Actual financial loss
Overview
52 Actual financial loss considerations apply where maladministration (or official error) has resulted in a customer or third party incurring additional expense. A decision has to be made on whether that maladministration or official error led to actual financial loss.
Definition
53 Actual financial loss applies to cases where maladministration has directly caused the customer to incur additional expenditure that would not have been incurred otherwise, for example:
- in pursuit of their claim to benefit or child support maintenance
- pursuing justified complaints of maladministration or compensation claims
- when failure by the Department to transfer funds timeously results in bank charges, for example, late payment into a bank or building society account (see paragraph 58).
Financial assistance provided to a customer, during a period when benefit has been delayed or interrupted
54 Expenses may also be incurred by a third party who provided financial assistance to a customer, during a period when benefit has been delayed or interrupted. In these circumstances, the majority of claims will be in respect of lost bank interest on savings or bank charges suffered as a result of withdrawing funds to support the customer.
Distinguishing between financial loss and financial disappointment
55 Financial loss must be distinguished from financial disappointment. For example, where the agency or business area has led a customer to expect benefit at a higher rate than that to which entitlement actually exists, he or she has not lost anything financially but will have suffered a financial disappointment (see paragraph 72).
What can be treated as an actual financial loss?
56 Claims for actual financial loss may include the following:
Additional costs
- letters, phone calls, e-mails, faxes, fares and other travel costs (see paragraph 57)
- bank charges and/or fees (see paragraph 58)
- interest on credit cards (see paragraph 59)
- professional fees (see paragraphs 60-62)
- accrued mortgage interest (see paragraph 63)
- costs arising from failure to make timeous payments into bank/building society accounts (see paragraph 64)
Lost income
- loss of earnings (see paragraph 66)
- loss of income on interest bearing accounts (see paragraph 67)
Other losses
- losses arising from the early encashment of endowment policies (see paragraph 85 et seq.)
The above list is not exhaustive. Claims in respect of other losses will be received from time to time. They should be considered on their own merits on a case by case basis.
Letters, phone calls, faxes, fares and other travel costs
57 Where a customer incurs reasonable additional expenses in connection with the resolution of his or her complaint a special payment may be made to reimburse him or her for those additional costs. For example, if the customer's complaint was fully addressed but he or she continued to make unreasonable further representations a special payment would not be made for any further additional costs.
Bank charges/fees
58 When payment of benefit has been delayed due to Departmental error, the customer may become overdrawn on a bank account or incur fees. In such cases, the special payment should be equivalent to either
- the interest payment calculated by the Department for the delay (see paragraph 88 et seq) or
- the amount of interest and any fee that is charged by the bank whichever is higher.
Interest on credit cards
59 Similarly, when payment of benefit has been delayed due to Departmental error, the customer may use a credit card to secure funds. In such cases, the special payment should be equivalent to either
- the interest payment calculated by the Department for the delay or
- the amount of interest that is charged by the credit card company
whichever is higher.
Professional fees - circumstances when they can be met
60 The reimbursement of professional fees is only considered where maladministration has occurred and the engagement of such help was justified in the pursuit of a claim to benefit or a child support maintenance issue. Each application for reimbursement of professional fees should be examined on its own merits and the decision should be made in the light of the circumstances of the case.
Matters to consider
61 When deciding whether a special payment in respect of professional fees should be made, consideration should be given to
- the circumstances which led to the engagement of professional services
- the complexity of the subject matter
- the experience of the customer in dealing with such matters
- the availability of official advice (or other sources such as through Citizens Advice Bureaux or advice under the Legal Aid scheme)
- whether the customer should have been aware or should he or she have made themselves aware, of such advice.
Could the matter have been resolved within a reasonable timescale, had the customer not sought professional assistance?
62 In assessing whether a special payment is appropriate, it should be established whether the matter would have been resolved within a reasonable time-scale, had the customer not sought professional assistance. If the answer is `no', then payment should be made in respect of the cost of the fees incurred, providing such fees are reasonable. If the answer is `yes', the criteria at paragraph 61 should be applied to the case.
Accrued mortgage interest
63 When payment of benefit has been delayed due to Departmental error, the customer may have fallen behind with mortgage payments. If the lender charges additional interest or other costs as a result, a special payment may be considered. In such cases, the special payment should be equivalent to either
- the interest payment calculated by the Department for the delay (see paragraph 88 et seq) or
- the amount of interest and any other costs that is charged by the lender whichever is higher.
Failure to make timeous payments into bank/building society accounts
64 Where a customer's benefit is paid into a bank or building society account and the payment is not made timeously, or benefit is stopped or reduced and the customer is not notified, the customer may incur bank charges. It is important to establish that the delay resulted from a Departmental error, before considering reimbursement of such charges. If the Department's error did result in the bank charges, reimbursement of the charges by way of special payment should be considered, to place the customer in the position he or she would have been in had the error not occurred. Such payments should be considered in addition to any payment for compensation for delay (see paragraph 88 et seq), as the payment for delay is for loss of use of funds, whereas the bank charges are an additional financial expense imposed by the customer's bank or building society.
Circumstances when a payment will not be made
65 Where the Department has followed correct procedures and was not at fault, it would not normally be appropriate to make a special payment for the bank or building society charges incurred. It may be that such charges have been incurred for other reasons.
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Care should be taken when considering whether a special payment is appropriate. Each case should be considered on its own merits.
Loss of earnings
66 Payments for loss of earnings will be very exceptional. Care must be taken to ensure any loss resulted from the maladministration and not some other cause. Refer any cases where this is considered justified to DWP Viewpoint who may need to consult HM Treasury.
Loss of income on interest bearing accounts
67 Payments for delay will normally be calculated in the form of interest, to recognise the customer's loss of use of a sum of money (see paragraph 88 et seq). However, there may be occasions when it can be clearly demonstrated that money has been withdrawn from an interest bearing account because of a Departmental error, for example, delay in paying benefit. In such cases, the amount paid should be the higher of the interest payment calculated by the Department for the delay or the amount of interest actually `lost' on the account.
What to pay
68 The emphasis should be on trying to restore the customer to the position that he or she would have been in had the error not occurred or had they not proceeded on the basis of wrong advice. Any special payment made must not exceed the amount of benefit, pension, or child support maintenance that was expected, plus compensation for sums actually spent in reliance on the wrong information.
Actual financial loss
69 In most cases of actual financial loss, the amounts involved will be simple to both identify and verify, for example, bank charges incurred due to a failure to make a timeous payment of benefit into a customer's bank or building society account (see paragraphs 64 and 70). However, some categories of claim may be more complicated. The following paragraphs give examples of situations where the loss may not be easily calculated.
Evidence
70 In considering the type and amount of evidence required to substantiate the claim, regard should be had to the nature and size of the expense involved. Where expenses are small then a reasonable estimate may be appropriate (for example, routine telephone calls, postage costs, photocopying or travel costs). However, bank statements must be checked before making any payment in respect of bank charges. It is not necessary for the costs to have been incurred through dealing directly with the Department. It is possible that they may have been incurred as a result of obtaining professional or similar advice, for example travelling to or from meetings with welfare rights advisors or solicitors, or contacting them by phone.
Special payments based upon an actuarial calculation
71It will usually be possible to determine the amount of an actual financial loss. However, there will be occasions when, although there has been no actual financial loss, the customer states that the financial compensation payable under normal Departmental arrangements does not adequately compensate for the effects of the error.
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Mr G alleges that the investments being made by him (perhaps into a personal pension plan or unit trust) were delayed and that the cost of making up that investment exceeded the special payment made. It may be possible to measure the impact on the customer's financial position overall in such circumstances. The impact could be measured on an actuarial basis by establishing
If the number of units actually bought was less than would have been bought if payment had been made timeously then the cost of the additional units could be met rather than by paying interest under the more usual standing arrangements (paragraph 88 et seq). |
Financial disappointment
72 Special payments are not generally made for financial disappointment. Financial disappointment may arise when a customer is advised that entitlement to benefit or child support maintenance will be at a higher rate than the actual entitlement when a formal decision is made.
Customer has altered his or her circumstances as a direct result of incorrect Departmental advice
73 If a customer alters his or her circumstances to his or her financial detriment as a direct result of incorrect Departmental advice, a special payment should be considered for the resulting actual financial loss.
Matters to consider before making a payment where a customer has altered his or her circumstances as a result of incorrect Departmental advice
74 It is necessary to consider whether it was, in all the circumstances, reasonable for the customer to have accepted in good faith and to have acted upon, the incorrect information provided. Depending upon the circumstances, there are a number of options, including:
- to make continuing payments if, for example, the customer has taken on a regular financial commitment or
- to make a lump-sum payment to clear any debt incurred as a result of such incorrect advice.
The circumstances of the case should be carefully examined to determine appropriate redress.
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Where a customer has entered into a financial arrangement on the strength of information provided by the Department, for example, purchasing an item on credit, it may be appropriate to make either a continuing special payment or a lump sum payment to clear the debt. |
Retirement Pension forecasts
75 Care should be exercised when a request for a special payment is received in respect of an incorrect Retirement Pension forecast. A forecast is only a prediction and is not a guarantee of payment.
Retirement Pension forecast that was clearly incorrect in view of the information held at the time of its issue
76 A special payment can only be considered in cases where
- the forecast made was clearly incorrect (an erroneous forecast) in view of information held and
- the customer suffered a financial loss by acting on the information.
Customer enters into a financial commitment as a result of an erroneous forecast
77 When a customer has entered into a financial commitment as a result of an erroneous forecast, a special payment should be considered in accordance with guidance at paragraph 73.
Customer stops work following receipt of an erroneous forecast
78 Exceptionally, a special payment may be considered when a customer has stopped work following receipt of an erroneous forecast. If a special payment is deemed appropriate, it should be calculated on the amount of pension that would have been due had the customer continued to pay national insurance (NI) contributions on the earnings forgone.
Deciding individual cases
79 An on-going special payment award must not be made to top-up the customer's pension to the forecasted amount unless, in very exceptional circumstances, that is warranted under the terms set out in paragraph 74 above.
Additional NI contributions paid
80 If, following official advice, a customer paid additional NI contributions and receives less benefit than he or she was led to expect, then consideration should be given to
- a refund of NI contributions
- a compensatory payment in respect of loss of use of the money used to purchase those NI contributions
- a payment for loss of interest where the customer shows that money to fund the payment was withdrawn from an interest bearing account and that exceeds the payment calculated for loss of use
- an ex gratia payment if the customer has entered into a financial commitment on the basis of the advice.
Additional NI contributions paid by the customer on own initiative, in expectation of a higher rate of benefit that he or she eventually received
81 It will not generally be appropriate to make an ex gratia payment or a refund of NI contributions, if the customer has, on his or her own initiative, paid additional contributions in expectation of a higher rate of benefit than he or she eventually received. All such compensation claims should be referred to the National Insurance Contributions Office of the Inland Revenue (see Annex B for contact details).
Incorrect advice on the amount that could be inherited under the State Earnings Related Pension Scheme (SERPS)
82 In 1986, the law was changed to reduce the level of SERPS that could be inherited by a bereaved spouse from April 2000. However, between 1986 and 1999, the Department failed to advise some people properly about this change. To remedy this failing, a scheme was devised under which the change was deferred to October 2002.
Arrangements approved by Parliament
83 On 20 November 2000, the Secretary of State announced new arrangements and these were approved by Parliament. These arrangements allow the following:
- the surviving spouse of anyone who reached state pension age before 6 October 2002 will inherit 100% of their SERPS entitlement
- for those reaching state pension age after 5 October 2002 but before 6 October 2010, there is a sliding scale whereby their surviving spouse inherits between 60% and 90% of their entitlement, depending on the date of birth of the contributor
- for those due to reach state retirement age on or after 6 October 2010, the surviving spouse will inherit up to 50% of their SERPS entitlement as envisaged in the 1986 legislation.
People who were misinformed by the Department and who are not fully covered by the arrangements approved by Parliament
84 Exceptionally, people who were misinformed by the Department and who are not fully covered by the above proposals will be able to claim compensation. Payment should be considered when the customer can demonstrate that he or she acted to his or her detriment on the strength of the incorrect advice given.
Endowment policies - early surrender
85 A customer suffering financial hardship as a result of excessive and unreasonable delays in payment of benefits or child support maintenance, may find it necessary to surrender an endowment policy before the maturity date. A customer cashing in an endowment policy receives the market value at the time of surrender. Thus a customer does not normally lose financially as a result of maladministration and the early surrender, in respect of the value of the policy.
Customer suffers a financial loss as a result of the early surrender of an endowment policy
86 However, there may be circumstances when the customer does suffer a financial loss as a result of the early surrender and if this is as a direct result of Departmental maladministration, that loss can be met by way of a special payment.
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Difference between the surrender value actually paid to the customer and the previously expected value of the policy
87 It is important to note that a special payment cannot be made in respect of the difference between the surrender value actually paid to the customer and the previously expected value of the policy at the maturity date. There is never any certainty that the forecast figure would be reached as that value was dependent upon both the customer maintaining regular payment of the premiums and the policy continuing to grow at the forecast rate.