Key Dates

Determination issued 11 July 2018.

Summary

The Pensions Ombudsman has directed Northumbria Police Authority to reinstate a former member's benefits in the Police Pension Scheme (at an estimated cost of £124,000), or to provide him with equivalent benefits from another provider.  When processing the member's transfer out request, the Authority had failed to conduct adequate checks and enquiries in relation to the proposed receiving scheme; send the member the Pension Regulator's scorpion warning leaflet; or engage directly with the member regarding the concerns it should have had. 

Background

Mr N applied in late 2012 to cease his active membership of the Police Pension Scheme (the Scheme), because he was considering reducing his working hours and taking a greater role in childcare.  He was concerned that he would not be able to access his pension from the Scheme from age 55 and, in August 2013, he contacted a company called Pension Transfer UK. He was subsequently contacted by an unregulated introducer and then by a firm of financial advisers.  He was recommended to join the London Quantum Retirement Benefit Scheme (Quantum), a defined contribution occupational pension scheme, and his benefits from the Scheme were transferred in August 2014.  In 2015, Mr N noticed that he had signed up to a high risk investment as a sophisticated investor.  In June 2015, the Pensions Regulator (tPR) appointed an independent trustee to London Quantum.  The independent trustee believed that actions taken by the previous trustee may have been in breach of trust and that members may have suffered loss as a result.

Mr N's complaint to the Financial Ombudsman Service about the financial adviser was rejected on the grounds that the adviser had not carried out any regulated activity.  His complaint under the Scheme's internal dispute resolution procedure (IDRP) was also rejected.  He then complained to the Pensions Ombudsman who, after issuing a preliminary decision, decided to hold an oral hearing.

Consideration by Pensions Ombudsman

The Ombudsman reviewed the development of the pensions industry's knowledge and understanding of pension liberation fraud.  He noted the following in particular.

• The publication of tPR's guidance in February 2013 marked a point of considerable change in level of due diligence expected of (and carried out by) trustees, managers and administrators when considering transfer requests. 
• Putting a link to tPR's scorpion warning on the Authority's employee newsfeed in February 2013 was not sufficient.  The Authority could not say how long the link remained on the front page, nor could it show that employees had been sent an alert to the story.
• The scorpion warnings were designed to be sent individually to scheme members.  Even if the Authority had considered in February 2013 that it did not need to send the warning automatically to all potential transferees, subsequent public concerns about pension liberation should have caused it to change its approach – certainly before Mr N's transfer out was made in August 2014.
• Given that the Authority received very few transfer enquiries compared to the number of its members, it would have been both straightforward and appropriate to focus on the few transfer requests and to ensure that appropriate warnings were given.
• Even if the Authority had sent the scorpion warning to Mr N, this would not have been sufficient and it should have done more.
• While Quantum had been established in 2012 and so was not a "new" scheme, the Authority ignored features of Quantum which other pension schemes had identified as potential "red flags" and had accordingly refused transfer requests to that arrangement.
• The Authority was fully aware that Mr N was still employed as a police officer in Northumberland and was still living there.  The Authority should therefore have enquired why he was requesting a transfer to an occupational pension scheme sponsored by a company he did not work for and based in London.   The case of Hughes v Royal London (which clarified that a member did not necessarily have to be employed by a sponsoring employer of a receiving scheme in order to have a statutory transfer right) had not yet been decided. 
• Previous Ombudsman determinations had made clear that transferring schemes were expected to go through tPR's action pack for pension professionals.  This would include asking the member why he wished to transfer to a scheme sponsored by a company which was not his employer and how he had become aware of the receiving scheme.
• If the Authority had sought further information, it was likely this would have shown the involvement of an unregulated introducer, plus the names of other parties whose names had already been publically linked to pension liberation. 
• Where there was cause for concern, as in this case, the Authority should have obtained a copy of Quantum's trust deed and rules to satisfy itself that Quantum was an occupational pension scheme which could accept Mr N's transfer in and provide him with benefits.
• The fact that several financial organisations were involved with Mr N's transfer should not be taken to mean that he was taking a considered approach and was not being pressured to transfer.  It was a common feature of pension fraud cases that there are several companies involved, potentially each trying to limit its involvement to fall short of regulated activity or committing a criminal offence.
• The Authority could not rely on the statutory discharge in section 99(1) Pension Schemes Act 1993, which applies where a member has exercised his/her right to a transfer value and the trustees or managers have "done what is needed to carry out what the member requires".  What is needed would include appropriate review of the transfer request, taking into account the law and regulatory guidance, which had not been done.
• The significant cost to the Authority of reinstating Mr N's benefits in the Scheme (or elsewhere) was not a reason for the Ombudsman to dismiss his complaint.

Pensions Ombudsman's directions

The Ombudsman upheld the complaint of maladministration against the Authority and found that had it acted more diligently then, on the balance of probabilities, Mr N would not have proceeded with the transfer to Quantum.  He made the following directions.

• The Authority should reinstate Mr N's accrued benefits in the Scheme, adjusting for any revaluation since the transfer was made.  If this could not be legally done then the Authority should provide Mr N with benefits equivalent to the Scheme benefits he had lost.
• The Authority should also pay Mr N £1,000 compensation for the materially significant distress and inconvenience he had suffered.  However, the Ombudsman declined to award Mr N his legal costs, as it had been his decision to instruct lawyers and he could have complained to the Ombudsman without legal representation.
• If the trustees of Quantum manage to retrieve some or all of Mr N's pension fund for his benefit then the Authority could recover this amount from Mr N.

Date Accessed: 28/05/2022