The Pensions Ombudsman’s ruling on 11 July 2018 has offered fresh hope to those individuals who fall victims of pension scams and as a reminder to pension scheme trustees on their duties when a member seeks to transfer their pension fund.
The Ombudsman ruled that the Northumbria Police Authority ("Authority") should reinstate the member's accrued benefits, or provide equivalent benefits, after the member transferred his pension monies to a new scheme and the Authority failed to carry out the appropriate checks and provide warnings to the member on the risks of a pension transfers scam.
The facts
In February 2013, the Pensions Regulator issued an action pack for pension professionals headed 'Pension liberation fraud - The predators stalking pension transfers'. The pack included a member leaflet, 'The Scorpion Warning', regarding pension transfer scams and details of what pension professionals should look out for.
Mr N was concerned that the age at which he would receive his pension from the Authority would rise from 60 to 65 before he retired. Mr N therefore sought advice from an Independent Financial Advisor on the possibility of transferring his pension to another pension provider that would let him access his pension at age 55. The London Quantum Retirement Benefit Scheme ("London Quantum") was subsequently recommended to Mr N.
In November 2013, Mr N submitted a transfer request to the Authority and an application form to join London Quantum. The Authority did not flag to Mr N any concerns with the transfer or send him the Scorpion Warning directly.
On 15 August 2014, Mr N received confirmation that the transfer payment had been made from the Authority to London Quantum.
In, or around, January 2016 it came to Mr N’s attention that his pension fund may have been lost or misappropriated by London Quantum. Mr N then brought a complaint against the Authority for allowing his pension fund to be transferred to a new pension scheme without having conducted adequate checks in relation to the receiving scheme, and failing to provide him with a sufficient warning as required by the Pensions Regulator.
The outcome
At an oral hearing held on 16 February 2018 the Pensions Ombudsman upheld Mr N’s complaint on the basis that, on the balance of probabilities, but for the Authority's maladministration Mr N would not have proceeded with the transfer and suffered loss.
In particular the Authority had failed:
- to conduct adequate checks and enquiries in relation to Mr N’s new pension scheme
- to send Mr N the Pensions Regulator’s transfer fraud warning leaflet
- to engage directly with Mr N regarding concerns it should have had with his transfer request, had it properly assessed it.
The Pensions Ombudsman ordered that:
- The Authority shall reinstate Mr N’s accrued benefits to the pension scheme, around £124,000, or provide equivalent benefits adjusting for any revaluation that has arisen since the transfer. The Authority will be entitled to recover from Mr N the amount of pension fund he is able to retrieve from London Quantum.
- The Authority shall pay Mr N £1,000 to reflect the materially significant distress and inconvenience he has suffered as a result of the Authority not making appropriate checks on London Quantum or giving Mr N appropriate warnings.
What does this mean for pension professionals?
The Ombudsman’s decision follows hot on the heels of the revised Code of Good Practice on Combating Pension Scams, which was issued in June 2018 by the Pension Scams Industry Group. Although the revised Code is voluntary it makes a number of changes including recommending a call is arranged with the member before the transfer takes place as part of the due diligence process.
While this decision is based on its individual facts, it serves as a reminder to trustees of the important duties they hold to protect their members. When a member requests to transfer their fund to a different scheme not only should trustees flag risks but also undertake a thorough due diligence process on where a member’s fund is going to be transferred.