Pensions ombudsman determination: Northumbria police authority failed to meet anti-fraud duties relating to transfer out
14 / 09 / 2018
This determination involved Mr “N” who transferred his pension pot from the Police Pension Scheme (“PPS“) to the London Quantum Scheme (“LQS“) in 2014.
(Note that LQS is not associated with Quantum Advisory)
LQS is now being investigated for pension liberation fraud and Mr M may have lost his pension savings by transferring to LQS. Mr N complained that the Northumbria Police Authority (the “Authority“) transferred his pension pot to a new pension scheme without providing the necessary checks in relation to the receiving scheme, and failed to provide him with sufficient warning as required by the Pensions Regulator.
Mr N sought independent financial advice in relation to transferring his pension pot. In August 2013, Mr N contacted Pension Transfer UK. He later received a call from a company called Viva Costa International, an unregulated introducer of work to independent financial advisers. Mr N was then referred to Gerard Associates Limited, which then recommended that he transferred his pension pot to LQS.
The Pensions Ombudsman held that the Authority failed to: conduct adequate checks and enquiries in relation to Mr N’s new pension scheme; sent Mr N the Pensions Regulator’s transfer fraud warning leaflet (often referred to as the Scorpion leaflet); and engage directly with Mr N regarding the concerns it should have had with his transfer request, had it properly assessed it. This amounted to maladministration. It was held that on the balance of probabilities, but for the Authority’s maladministration, Mr N would not have proceeded with the transfer and suffered this loss. To make matters worse, the sole sponsoring employer of London Quantum is now in liquidation.
The Authority has since been ordered by the Pensions Ombudsman to reinstate Mr N’s accrued benefits of £124,000 in the scheme or to provide equivalent benefits, adjusting for any revaluation that has arisen since the transfer (less any amounts later recovered from LQS). In addition, the Authority was also ordered to pay Mr N £1,000 for the inconvenience and materially significant distress suffered as a consequence of the transfer being handled incorrectly by the Authority.
Wedlake Bell comment
Some have argued that decisions such as this reiterate the importance of the role of the scheme and its trustees and the scheme’s responsibility to alert members to the risks related to pension liberation scams, and to ensure that trustees of schemes perform proper checks on receiving schemes in a transfer. More importantly, it shows that where the scheme trustees have done little to app ease the victim, the victim could still get redress if the Ombudsman thinks that the trustees did not act in a reasonable way to protect the member. This was the opinion of Royal London director of policy, Steve Webb. To him, this ruling was an important one and demonstrates that pension schemes have important duties to protect members.
Although it is important for trustees of pension schemes to protect members’ best interest, and do what is right in fulfilling their fiduciary duties (such as asking the right questions, taking into consideration relevant factors, and acting reasonably), in my opinion this determination was extreme and some would argue that it was unfair on the Authority. Although the Authority did not send the fraud warning leaflet directly to Mr N, it had put a copy on its intranet site previously, which provided Mr N with access to it. Furthermore the authority was criticized for not dealing with Mr N directly. Mr N, however, was advised by an IFA and signed a form to enable the authority to deal with the IFA. Most importantly Mr N admitted that he trusted the IFA and he did not read the documents that he signed. It may also be the case that he would not have read other warnings or fraud leaflets also provided to him by the Authority. It is, therefore, questionable whether all blame should be attributable to the Authority and whether it should have been held that its actions (or lack of) were responsible for Mr N’s decision to transfer out. Although what happened to Mr N was very unfortunate, and it caused him a great deal of distress, the authority in this case seemed to be the scapegoat in place of LQS, which is now in liquidation.