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online technical resource

compensation

overview

If we uphold a consumer's complaint, our general approach is to tell the financial business to put the consumer into the position they would have been in, if the original problem that led to the complaint hadn't happened.

Where we uphold a consumer's complaint (wholly or partly), we also consider whether it is appropriate to tell the business to pay the consumer compensation. We do not do this in every case.

Exceptionally, we may tell the business to compensate the consumer for distress and inconvenience it has caused by handling the complaint poorly - even if we do not uphold the actual complaint itself.

what types of compensation can we tell a financial business to pay?

There are two types of compensation we can tell a business to pay a consumer:

is compensation taxable?

There is more information in our online technical resource on is compensation taxable.

what if fair compensation exceeds £150,000?

We can tell a financial business to pay the amount of compensation that we consider fair, up to the maximum limit of £150,000 - excluding any interest and costs (£100,000 for complaints we received before 1 January 2012).

This limit applies whenever we tell a business to compensate a consumer or to pay money for the consumer's benefit - for example, to add an amount to the value of an investment. Most cases we deal with are not affected by this limit.

If we believe that fair compensation exceeds £150,000, the ombudsman can tell a business that it has to pay up to this limit and can recommend the business pays any additional amount as well.

what if the compensation is expressed as a formula or a direction?

The amount we tell a financial business to pay as compensation does not have to be a specific amount. It can be expressed as a:

  • formula by which an amount is to be calculated and paid, or
  • direction to do something which results in the payment of money.

A formula or direction are also both subject to the maximum limit of £150,000 (£100,000 for complaints we received before 1 January 2012). This limit applies, for example, where we direct a business to:

  • review a pension in accordance with the Pensions Review;
  • pay an insurance claim;
  • calculate an amount and pay it (or credit it to an account or an investment);
  • purchase an annuity.

what is subject to the limit?

The £150,000 limit (£100,000 for complaints we received before 1 January 2012) applies to the total compensation.

For example, if a financial business has already offered £130,000 but the consumer is asking for a further £50,000 - and we agree with the consumer - this is treated as ­total compensation of £180,000 and so is caught by the limit.

We can tell a financial business to pay a consumer interest on compensation, costs and interest on costs. These are not subject to the £150,000 limit. This means, for example:

  • We can tell a business to pay compensation of £150,000 plus costs of £1,000 - plus 8% per year simple interest on both - up to the date of the payment.
  • If the consumer has a current loss of £150,000 or more, we can tell a business to pay compensation of £150,000 plus interest on this from now until payment.
  • If the consumer incurred a loss of £150,000 or more which crystallised at a date in the past, we can tell a business to pay compensation of £150,000 plus interest on this from that past date until payment.

what if we think that fair compensation will be more than the maximum limit of £150,000?

As soon as we suspect that the £150,000 limit (£100,000 for complaints we received before 1 January 2012) might be exceeded, we will usually write to the consumer and the financial business to tell them (see our consumer factsheet on compensation over £150,000). The consumer can then:

  • Ask us to continue to deal with the case - but if we uphold the complaint, we can only ask the business if it would be willing to pay more compensation than the maximum limit.
  • Get independent legal advice about any next steps in relation to losses above £150,000.

Where we assess fair compensation as being more than £150,000, we can tell the business to pay £150,000 compensation (plus any interest and costs) - and recommend that the financial business pays the balance of the compensation. It is up to the financial business whether or not it pays the balance.

can the consumer accept our decision and take the financial business to court for the balance?

There has been legal action in the courts to clarify the position about whether a consumer who has accepted our decision can then go on to pursue the business for further compensation.  It seems very unlikely that a consumer could do so. However, whether or not we uphold their complaint, the consumer may wish to consider getting their own independent legal advice before deciding whether they would be better off taking a financial business to court.

There are time limits that apply for taking cases to court - and these will continue to run while a case is with us.

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help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.

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  • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
    We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.