Other authorised payments: Scheme administration member payments: compensation payments for distress, inconvenience or other non-financial loss
The trustees or scheme administrator of a registered pension scheme might pay compensation to a member of that scheme for distress, inconvenience or other non-financial loss caused to the member. The payment of such compensation might be ordered by the Pensions Ombudsman or Financial Ombudsman Service. Alternatively, the compensation might be paid voluntarily on the basis that the Pensions Ombudsman, or Financial Ombudsman Service, might otherwise have ordered it to be paid. Such compensation is likely to be in the range of £50 to £300 and, whilst they may be a greater amount, such compensation awards would very rarely be over £1,000.
Compensation payments for distress and inconvenience made by a registered pension scheme in respect of a particular action that has been taken against the scheme by a member, or beneficiary of a member, would be in addition to any benefits rights the member, or beneficiary, would have under the scheme but such payments could be regarded as scheme administration member payments.
However, each case must be assessed on its own particular set of facts and circumstances to determine if the payment can be regarded as a scheme administration member payment. For example, a payment that was clearly excessive in relation to that which might ordinarily be expected to be set by the Pensions Ombudsman or Financial Ombudsman Service is unlikely to be a scheme administration member payment. Also, compensation payments that are more sophisticated in their make up to the extent that they represent rights to benefits under the pension scheme or some other financial loss would not be scheme administration member payments. Such payments would have to be considered against the range of other authorised benefits to determine whether or not they are authorised member payments.
How compensation payments for distress, inconvenience or other non-financial loss, which can be regarded as scheme administration member payments, are assessed to income tax (or any other tax) is determined under the tax rules generally, rather than under the tax rules for registered pension schemes.