The Deputy Pensions Ombudsman has dismissed a complaint by a member of a self-invested personal pension concerning the administrator’s decision not to transfer his pension to a small self-administered scheme due to pension scam concerns.
Mr I was a member of the Hargreaves Lansdown Self-Invested Personal Pension (the “SIPP”), administered by Hargreaves Lansdown (“HL”). In June 2018, Mr I elected to drawdown part of the SIPP.
At the end of 2019, Mr I submitted a signed application form requesting the transfer of his SIPP to the Hermitage Small Self-Administered Scheme (“Hermitage SSAS”), administered by Empowered Pensions Ltd (“Empowered”). The Hermitage SSAS claimed it would enable residential property investments – direct investments in residential property within a SSAS risk punitive tax charges of up to 70%.
At the same time Mr I submitted his application he also sent HL: (i) HMRC’s confirmation of the SSAS’s tax registration status; and (ii) a copy of Hermitage SSAS trust deed and rules (dated July 2019), which listed Hermitage Publishing Ltd as the principal employer, Empowered as the corporate trustee and Mr I as a member trustee.
A short time after receiving the application form and supporting documents, HL wrote to Mr I warning him about the risks of pension liberation and provided links to the Pension Regulator’s (“tPR”) and the Financial Conduct Authority’s (“FCA”) websites, as well as tPR’s Scorpion literature on pension scams. HL also asked Mr I to fill out a questionnaire at the time.
Readers will no doubt be aware of the extensive work of tPR and other agencies in their efforts to raise awareness of pension liberation and scams against a backdrop of unprecedented activity by fraudsters intent on scamming savers out of their retirement funds. Over the last decade or so a plethora of guidelines and literature has been issued, including:
- 2013 and 2015 – tPR’s “Scorpion” campaign launched and subsequently refreshed in 2015 in an effort to raise awareness of pension liberation among members, trustees and advisers. tPR highlighted the following warning signs that individuals should look out for:
- individuals contacted out of the blue by text, phone call or pop up website offering a free pension review, one off investment or legal loophole to accessing pension benefits before age 55;
- glossy marketing materials offering incredible investment returns and diversification; and
- being pressurised into signing documents with a promise of a limited time offer with short deadlines.
- 2018 – TPR and FCA’s joint campaign ScamSmart which sought to raise awareness of the tactics used by fraudsters targeting members’ pension savings;
- 2018/19 – The Pension Scams Industry Group’s (“PSIG”) code of good practice on Combating Pension Scams – intended to help those involved in the administration of registered pension schemes to assess members’ transfer and cash withdrawal requests; and
- 2022 – a factsheet from the Pensions Ombudsman (“TPO”) outlining what members can do if they think they have been scammed, as well as what TPO can do if they think you have complaint about a scam.
Back to Mr I’s case. On receipt of Mr I’s completed questionnaire, HL contacted Mr I by telephone to make further enquiries about the Hermitage SSAS. In response, Mr I confirmed that:
- he had become aware of Empowered and the Hermitage SSAS through a Facebook group which discussed commercial and residential property investment;
- he had not been offered any cash payments, bonus, commission or loan from the Hermitage SSAS as a result of transferring or investing in specific assets. He had not been pressurised by anyone to make a quick decision about the transfer nor had he been promised any guaranteed rate of return for his intended investments;
- whilst he had contacted Pension Wise, he had not sought any independent financial advice but understood the adverse tax consequences of investing directly in residential property;
- he acknowledged that the Hermitage SSAS fees were higher than the SIPP but considered the property investment advantages to be a fair trade off;
- he had not received any promotional material or official documentation regarding the Hermitage SSAS during the transfer process;
- he was not currently in receipt of any earnings from employment, but he and his employer would be making pension contributions into the Hermitage SSAS; and
- he had not been told that he would be able to access all or part of his pension fund before age 55.
During the same telephone call Mr I expressed his dissatisfaction with the delays of the transfer and requested that the matter be escalated to a formal complaint. Specifically he said that:
- HL was unreasonably seeking to frustrate the process of transferring funds;
- he wished to see the transfer completed within a week at the latest; and
- every extra day HL retained his SIPP funds it cost him investment opportunities.
In correspondence during June and July 2020, HL informed Mr I that it had written to HMRC for further information about the Hermitage SSAS. HL reiterated its concerns about the transfer because:
- he had not taken financial advice from a regulated financial adviser about the transfer;
- the principal employer had filed accounts as a dormant company. HMRC could de-register a pension scheme, where the participating employer was dormant or had been for any month in the last 12 months;
- even an indirect investment in residential property could be subject to taxable property rules;
- he had found out about the Hermitage SSAS via a Facebook group. Being introduced to a scheme through a form of cold contact was a potential warning sign of a pension scam.
After several rounds of correspondence, HL dismissed Mr I’s complaint refusing the transfer on the grounds that he was not entitled to a statutory right to transfer as he had moved funds into drawdown. Furthermore with regards to its due diligence, HL stated that Facebook was not a an FCA-regulated website, and an unregulated introduction to a pension scheme was a potential warning sign of a scam. HL also strongly recommended that Mr I seek independent financial advice before proceeding.
On 6 May 2022 Mr I’s SIPP was transferred to another pension scheme called the Vanguard Self-Invested Personal Pension. HL stated that this arrangement did not have any characteristics which raised concerns about pension scams. So, it made the discretionary decision to allow the transfer.
Complaint to the Pensions Ombudsman
In 2022 Mr I filed a complaint with TPO’s office, arguing amongst other points, that:
- even though HL claimed that the principal employer was dormant, the company had been actively trading;
- he was well aware of the HMRC restrictions on a SSAS investing in residential property;
- in his view, HL had repeatedly refused to accept the truth and continued to lie and misrepresent the situation;
- he had suffered distress and aggravation. He had wasted considerable time dealing not only with HL but also Empowered, other SSAS trustees and several lawyers; and
- in his view, reviews should include a degree of commercial sense, rather simply “ticking boxes”.
The Deputy Ombudsman held that HL conducted its due diligence in accordance with the relevant regulatory requirements at the time as well as the PSIG code of good practice. Mr I did not have a statutory right to transfer as part of the SIPP was in drawdown. Whist the SIPP Trust Deed gave HL absolute discretion on whether to make such a transfer, having reviewed the available evidence, the Deputy Ombudsman was satisfied that HL’s decision to not allow the transfer was reasonable and not made arbitrarily, as Mr I suggested.
Unfortunately pension scams are here to stay. Scammers are getting even more sophisticated in their approach and tactics. Social media can be tantamount to “cold calling”. This case demonstrates that trustees, administrators, investors must be ever vigilant and that proper ‘due diligence’ in accordance with the PSIG code, regulatory guidance and legislation is now a fundamental part of the transfer process. The Deputy Ombudsman also noted that Mr I’s qualifications in chartered accountancy and corporate finance, and the fact that he has worked in financial markets for 20 years, does not equate to knowledge of pensions or pension transfers.