When pension fraudsters succeed in deceiving the unwary, there can be terrible consequences. Last year, 253 victims reported pension scammers to Action Fraud with individual losses averaging £91,000. In response, a television campaign has recently been launched by The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR).
This begs several questions: how far are pension scheme trustees required by law to protect their individual members from committing to potentially calamitous investment decisions, and if they enable transfers to fraudsters what are the consequences? The expectations on trustees seem to be increasing, without any change in the law having taken place.
Over the past three years, the Pensions Ombudsman (PO) has investigated seven separate complaints relating to transfers to the Capita Oak Pension Scheme which were feared lost. The transfer values ranged from between £18,643 and £151,277.
Not one of the complaints made against the trustees, administrators or insurers who were involved in executing the transfers, were upheld. In all of the determinations, the transfers were judged to have been undertaken in accordance with current best practice and guidance.
However, the PO has recently reached a different conclusion against a police authority which it concluded was guilty of maladministration. This related to a payment from the Police Pension Scheme, with a transfer value of £124,000, to the London Quantum Retirement Benefit Scheme. The PO instructed that the complainant’s benefits be reinstated in the scheme, despite the Authority claiming that it was impossible to do so. The Authority was also ordered to pay £1,000 in compensation for the significant distress and inconvenience caused.
In contrast to the seven Capita Oak cases, the PO clearly did not consider that current best practice and guidance had been followed in the transfer to the London Quantum Retirement Benefit Scheme. The PO decided that the Authority had failed to: conduct adequate checks and enquiries into the receiving scheme; send the member the Pensions Regulator’s transfer fraud warning; and engage directly with the member about the concerns it should have had with the transfer.
However, it was not a legal requirement to send a TPR fraud warning. Instead, all the failings related to what the PO considered to be industry best practice and guidance when the transfer was made.
The case further illustrates that maladministration, ill defined though it is, goes beyond adherence to legal requirements in the PO’s opinion.
The Authority had argued that it was entitled to a statutory discharge. This was dismissed by the PO on the basis that the Authority was not entitled to rely on section 99(1) of the Pension Schemes Act 1993. The Authority could not state that it had “done what is needed to carry out what the member requires”, when what the member needed could only be determined once the appropriate due diligence had been undertaken on the receiving scheme, and any consequent warnings or concerns that were identified had been brought to their attention. Adopting this position on the statutory transfer process creates a somewhat onerous burden on trustees, who are not, advisers to members.
The PLSA has issued an updated version of its code of good practice in relation to combating pension scams. This offers guidance to trustees and providers on the due diligence that they should carry out in order to protect individuals against fraudsters.
Pensions Lawyer – ARC Pensions Law